PE Week Wire: Tues., Oct. 16, 2007

Enterprise Partners Venture Capital looks like a veteran venture capital firm. It was founded back in 1985, has raised around $1.1 billion for six funds and has invested in over 150 companies. But if you scratch just beneath the surface, you’ll find that this isn’t your father’s EPVC. Only one member of the current management team was around when the firm closed its sixth fund in 2001, and the new group has so far been unable to raise a seventh.

“These things happen,” says a limited partner in Enterprise Partners VI. “It’s the typical case of a firm that strayed from its knitting, and LPs had plenty of more experienced options for that new knitting.”

The strategy shift was in terms of industry sector. EPVC had historically invested most of its money in early-stage information technology companies, with around a 25% allocation to life sciences investments. This was reflected by just one of Fund VI’s four managing directors – Drew Senyei – being focused on the life sciences sector. The other three were Bill Stensrud, Tom Clancy and Naser Pulvati (Clancy and Pulvati later left, and were replaced by Bob Conn and Carl Eibl).

By the middle of last year, however, EPVC decided to balance its sector scales. It added Kleanthis Xanthopoulos, president and CEO of public drug company Anadys Pharmaceuticals, as a managing director. Just a few months later it also hired former Advent International pro Marios Fotiadis as a managing director, and promoted entrepreneur-in-residence Krisztina Zsebo to venture partner (she remained CEO of EPVC portfolio company Celladon).

The idea was to raise a $300 million fund, with a 50/50 allocation to IT and life sciences. This seemed to make sense, as the managing director ranks were evenly split with three IT pros and three life sciences pros. But then came what turned out to be a crushing blow, when Bill Strensud left to pursue more entrepreneurial activities. Not only was Strensud the firm’s only IT partner left from Fund VI, but he also was considered the closest thing EPVC had to a rock star.

EPVC responded by drastically altering its fundraising plans, with a new $175 million fund that would focus only on life sciences opportunities. The remaining IT partners would stick around to manage the existing portfolio, which had nearly three dozen live companies.

LPs weren’t buying the new incarnation. Private Equity Insider reported last week that the La Jolla-based firm had indefinitely suspended fundraising, and parted ways with both Xanthopoulos and Fotiadis (they both remain on the firm’s website). In addition, I’ve learned that Krisztina Zsebo is no longer considered a venture partner, while IT venture partner Erik Nierenberg is also gone. EPVC spokeswoman and principal Moya Gollaher had left earlier in the year.

Other firms have rebounded from worse, but EPVC’s path to success is unclear. Its sixth fund reportedly was underwater as of year-end 2006 – and that’s really the only team track record that the current group has to go on. It could blame some downward deals on departed partners, but that wouldn’t excuse follow-on investments. This likely leaves the firm in a wait-and-see pattern, hoping to squeeze some juicy liquidity out of the current portfolio. Not the place you want to be as a general partner.

“They have a lot of work left to do,” says another EPVC limited partner. “The firm could conceivably come back with a more traditional fund – focus on tech, with a secondary interest in life sciences – but only if they can really grind out a bunch of hits… Their real danger is that investors will just move on to other things.”

EPVC did not respond to repeated requests for comment.

Top Three

Olin Corp. (NYSE: OLN) has agreed to sell its metals business to KPS Capital Partners for $400 million. The sale includes all of Olin’s global metals operations and its AJ Oster metals service centers, and is expected to close later this quarter. KPS is making the acquisition through an affiliate called Global Brass and Copper Holdings Inc.

Pinkberry, a chain of frozen yogurt shops, has raised $27.5 million in Series A funding. Maveron LLC led the deal, and was joined by undisclosed strategic backers.

Industri Kapital has closed its sixth fund with €1.675 billion ($2.37b) in capital commitments. This is more than double the size of the Nordic buyout firm’s prior fund, which closed in 2004. Limited partners include Pantheon Ventures, Standard Life, HarbourVest, bcIMC, Skandia, SVG, Partners Group, Lansforsakringar, Varma, Metlife, NYSTRS, Tapiola and AIG. UBS served as placement agent.

VC Deals

ISGN Technologies Ltd., an India-based provider of knowledge process outsourcing solutions for the U.S. mortgage industry, has raised $25 million from New Enterprise Associates ($20m) and NEA-IndoUS Ventures ($5m). The deal was announced today, but closed back in May.

Eloqua Corp., a Toronto-based supplier of automated demand generation software and services for B2B marketers, has raised US$23 million in Series C funding. Bessemer Venture Partners led the deal, and was joined by return backers Bay Partners and JMKI Equity. Eloqua previously raised around $18 million.

Mintera Corp., an Acton, Mass.-based provider of high bit-rate optical transport systems, has raised $19 million in Series C funding. Polaris Venture Partners and RRE Ventures co-led the deal, and were joined by JDSU and return backers Court Square Ventures, Star Ventures and Portview Communications Partners. Mintera has now raised more than $73 million in total VC funding since 2000.

Firetide Inc., a Los Gatos, Calif.-based provider of wireless mesh networking solutions, has raised $14.4 million in Series D funding. Coral Capital Management led the round, and was joined by return backer Menlo Ventures. Firetide has raised around $46 million in total VC funding since 2003.

YuMe, a Redwood City, Calif.-based provider of online video advertising solutions, has raised $9 million in Series B funding. DAG Ventures was joined by return backers Accel Partners, BV Capital and Khosla Ventures.

Winery Exchange Inc., a Novato, Calif.–based maker of private label and branded alcohol beverages, has raised $5 million in equity funding from D.E. Shaw. It previously had raised around $27 million from firms like 3i Group, Camden Partners, Draper Richards and Venrock

Mint, a San Francisco-based provider of online personal money management solutions, has raised $4.7 million in Series A funding. Shasta Ventures led the deal, and was joined by First Round Capital and individual angels like Ram Shiram.

Leads360 Inc., a Los Angeles-based provider of on-demand customer acquisition and lead management solutions, has raised $3.25 million in Series A funding from Rustic Canyon Partners.

Penguin Computing, a San Francisco-based provider of Linux cluster virtualization, has raised just over $3.11 million in Series C funding, according to a regulatory filing. Shareholders include vSpring Capital, San Francisco Equity Partners, Weber Capital and Convergence Partners.

Fix8, developer of an application that combines animated video creation with user-generated content, has raised $3 million in Series 1A funding from Vickers Financial Group of Singapore. Fix8 is a division of virtual communications company Mobinex.

FishLabs, a German developer of Java-based 3D mobile games, has raised an undisclosed amount of first-round funding from Neuhaus Partners.

Mendel Biotechnology Inc., a Hayward, Calif.-based functional genomics company focused on plants, has raised an undisclosed amount of new VC funding. ZBI Ventures, Capricorn Investment Group and CFM participated as new backers, while existing shareholder Monsanto made an additional investment. The capital will be used to advance Mendel’s bioenergy seeds and feedstock business.

Buyout Deals

Advent International has agreed to acquire Viena, a casual dining restaurant chain in Brazil, from the company’s founding shareholder. No financial terms were disclosed. Viena was launched in 1975, and owns more than 60 restaurants in São Paulo and Rio de Janeiro.

Audax Group has acquired Affordable Interior Systems Inc., a Hudson, Mass.-based manufacturer of office systems furniture. No financial terms were disclosed. Sankaty Advisors provided acquisition financing, while Citizens Bank provided a working capital facility. AIS products include monolithic and segmented panel systems, tile-based stacking panel systems, floor-to-ceiling systems and panel and beltline raceway systems. It was advised on the sale by Lane Berry & Company.

Implus Footcare LLC, a footwear accessories company backed by FdG Associates, has acquired Sneaker Balls, a maker of air fresheners for footwear.

J.C. Flowers will submit a proposal for ailing U.K. bank Northern Rock in the next two to three weeks, according to The Times of London. The report says that Flowers believes it’s farther up the due diligence ladder than is Virgin Group, and already has put together a financing package.

LaSalle Capital Group and Marquette Capital Partners have acquired Cherry Vale Impressions LLC, an Indianapolis-based provider of embroidery, screen printing, digitizing and fulfillment services to the licensed apparel, corporate identity, promotional marketing, varsity wear and educational markets. No financial terms were disclosed. Cherry Vale founder and former owner Mark Bennett will serve as a consultant to the company, while Kurtis Speer has been named CEO.

Occam Capital has sponsored a management buyout of Irium, a France-based provider of ERP software solutions for heavy machinery companies. No financial terms were disclosed. Friedland Investment and company management both bought into the deal’s equity tranche, with lCredit Mutuel, BNP Paribas and BRED providing leveraged financing.

Primus Capital Funds has sponsored a recapitalization of Healthcare Management Systems Inc., a Nashville, Tenn.-based provider of IT solutions and business services to community and specialty hospitals. No financial terms were disclosed. New Star Financial provided debt financing for the transaction, while Brentwood Capital Advisors acted as exclusive financial advisor to HMS.

Rivenrock Capital has agreed to acquire Small World Toys Inc. out of bankruptcy, and reinstalled members of its former management team. Rivenrock was co-founded in 2004 by John Nelson, former president and COO of Small World Toys, and David Adams. Nelson will serve as CEO of the company, with Adams taking over as CFO. Former COO John Matisse will come back in the same position. Small World is a Culver City, Calif.-based maker of specialty toys and educational products for children.

PE-Backed IPOs

Neutral Tandem Inc., a Chicago-based provider of tandem interconnection services to competitive carriers, has set its IPO terms to around 6.65 million common shares being offered at between $11 and $13 per share. It would have an initial market cap of approximately $384 million, were it to price at the high end of its range. The company plans to trade on the Nasdaq under ticker symbol TNDM, with Morgan Stanley and CIBC World Markets serving as co-lead underwriters. It has raised around $29 million in VC funding from firms like DCM-Doll Capital Management, New Enterprise Associates, Mesirow Capital Partners, Montagu Newhall Associates and Wasatch Venture Fund.

PE Exits

ATS Corp. (OTC BB: ATCT) has agreed to acquire Number Six Software Inc., a Vienna, Va.–based provider of application development and IT consulting to both government and commercial customers. The deal is valued at approximately $36 million, including $3 million in ATSC common stock and $6 million of promissory notes and deferred payments. Number Six Software has raised around $3 million in VC funding from Blue Water Capital and individual angels.

Discovery Communications (Nasdaq: DISCA) has agreed to acquire HowStuffWorks, an online source of informational online content. No financial terms were disclosed, although The Wall Street Journal pegs the amount at $250 million. HowStuffWorks has raised around $82 million in VC funding from firms like Capital Research & Management, Chilton Investment Co., Centennial Ventures, Southeast Interactive Technology Funds, and Chartwell Investments.

PE-Backed M&A

InfoSpace Inc. (Nasdaq: INSP) has agreed to sell its mobile services business to Motricity Inc., a Durham, N.C.-based provider of mobile marketplace management solutions. The deal is valued at $135 million in cash, and is expected to close within the next 90 days. Credit Suisse Securities is advising InfoSpace on the deal. Motricity has raised around $180 million in venture capital funding, from Carl Icahn, Technology Crossover Ventures, New Enterprise Associates, Massey-Burch Capital, Noro-Moseley Partners, Intel Capital, Qualcomm Ventures, Sienna Ventures, TriState Investment Group, Wakefield Group and Advanced Equities.

CLK Design Automation Inc., a Littleton, Mass.-based maker of static timing and power analysis solutions, has acquired Synchronous Design Automation, a developer of clock tree synthesis and optimization tools for advanced digital chip designs. No financial terms were disclosed. CLK has raised $9 million in VC funding from Atlas Venture and Morgenthaler Ventures.

E&B Giftware, a Yonkers, N.Y.-based portfolio company of Milestone Partners, has acquired Valeo Inc., a Sussex, Wis.-based maker of fitness accessory and workplace safety products. No financial terms were disclosed. GE Antares led the leveraged financing, while Carl Marks Advisory advised Valeo on the sale.

Medical Specialties Distributors LLC, a Stoughton, Mass.-based supplier of healthcare products and biomedical equipment rentals and services, has acquired of Wren Medical Systems Inc., a Gurnee, Ill.-based distributor of infusion and enteral therapy products to both the alternate site and acute care markets. No financial terms were disclosed. MSD is a portfolio company of MBF Healthcare Partners.

Smalltown, a San Francisco-based user-generated content site for local communities, has acquired Local2Me, an online community for Bay Area residents. No financial terms were disclosed. Smalltown last year raised in Series A funding from Formative Ventures.

Firms & Funds

Abraaj Capital has held a $1.2 billion second close for its infrastructure and growth capital fund, which will focus on opportunities in the Middle East, North Africa and South Asia. This brings the fund’s total commitments to $1.7 billion, with the $2 billion target expected to be reached by year-end.

China Citec Bank is bidding to buy a stake in Bear Steans, although further details are not yet available.

Genstar Capital has formed a strategic relationship with Dr. David Dodd and Bud Ingalls, in order to accelerate Genstar’s investment efforts in the life sciences sector. Dodd is the former CEO of Serologics Corp., while Ingalls served as Serologics CFO (and, more recently as CardioMEMS CFO).

Ogilvy Renault LLP, a Canadian law firm, has launched a cleantech practice.

Human Resources

Advent International has made four new hires to its Boston-based North American deal team. They are: Mohammed Anjarwala, principal, previously with SFW Capital Partners and Bain Capital Partners; Nicholas Pike, associate, formerly with the financial sponsors and leveraged finance groups of UBS Investment Bank; Chris Ryan, associate, previously with The Parthenon Group; and Sarah Smith, associate, previously with McKinsey & Company.

Merrill Lynch & Co. is denying a CNBC report that its chief financial officer may be replaced within the next few months. The report said that Jeffrey Edwards was on the firing line, after assuring analysts on July 17 that Merrill was adequately protected from the summer’s credit crunch. Just this month, Merrill said that credit troubles would cause it to take around $5 billion in Q3 write-downs.