PE Week Wire: Tues., Oct. 23, 2007

Earlier this year, we discussed a white paper aimed at defining the responsibility of directors at VC-backed companies. The authoring group has since expanded and produced an updated version (download here), so let’s revisit. To begin, pardon some liberal plagiarism from my original column:

The paper’s basic premise is that VC-backed boards are particularly prone to dysfunction, due to: (1) Conflicting interests; (2) The regular addition of new board members following financing rounds; and (3) The likely presence of inexperienced members like first-time entrepreneurs, junior VCs or independent directors with strong domain knowledge but no background on VC-backed boards…

The general guidelines are as follows: First, the board should designate a member responsible for educating new and existing directors about their responsibilities and for implementing the guidelines. This can be a VC or someone else. Those general responsibilities are detailed in the whitepaper (basics like attendance, confidentiality, not using PDAs, etc.), and should be distributed to new directors before their initial board meeting.

The next two strokes… involve evaluation. The first evaluation is a self-review, where board members should annually fill out answers to a set of questions set out in the white paper… A review of the prior year’s self-review also is recommended. Next, the board is encouraged to engage in a thorough peer review process, which also is laid out in the whitepaper. The idea here is to generate feedback and to possibly provide a safe forum for the airing of grievances.

Ok, back to October. I spoke yesterday with venture capitalist Pascal Levensohn about the revised version, and he identified three key edits. They are:

1. The written self-reviews of board members raised certain liability concerns, so the revised white paper suggests that such self-reviews be conducted orally. The company’s outside counsel can serve as a data aggregator, and report the results to the entire board.

2. Conduct regular reviews of company CEOs. “This not only helps CEOs understand what the board wants of them, but also can help flesh out differences of opinion among the board members themselves,” Levensohn says.

3. New auditing regulations will eventually mean that auditors can no longer just presume that a company has high standards of control. Instead, they’ll actually have to test it, which could increase costs by 30 percent. Formal adoption of this white paper’s guidelines could help a company meet the standard.

My original analysis of the white paper was that it provides a useful structure to formalize a process that is otherwise scattershot. My only complaint was that it could wind up siting on the scrap pile of other voluntary guidelines, like those much-publicized valuation ones. This nag remains, as Levensohn and other firms are still willing to back, and reinvest in, companies that decline to vote on – let alone adopt – the guidelines.

But this complaint’s severity has significantly waned, for two reasons: (1) All participating firms to ask that all of their portfolio company managers read the guidelines, and often ask potential portfolio companies to do so. (2) The number of participating firms has grown exponentially since January, which corresponds to increased guideline exposure. For example, new co-authors include partners from such firms as Battery Ventures, Blueprint Ventures, Kodiak Venture Partners, IDG Ventures Boston, Gemini Ventures Israel, Scale Venture Partners and Technology Partners. It also includes some new academics, attorneys and accountants.

Levensohn says that the group’s next step is to publicize its findings, and that future efforts could include an online information resource center for VC-backed companies (like a more academic version of It may also aggregate some of the peer review data, to discover emerging trends. A worthy endeavor, and one we’ll keep following…

Top Three

Vestar Capital Partners has agreed to buy Radiation Therapy Services Inc. (Nasdaq: RTSX), an operator of radiation therapy centers. The deal is valued at $763.8 million, with RTS stockholders would receive $32.50 per share. News of the buyout sent the stock up more than 43% to close trading yesterday at $30.96 per share. Read the full story.

The Carlyle Groupand Apollo Group Inc. (Nasdaq: APOL) have formed a $1 billion joint venture, to make investments in the international education services sector. Apollo Group has committed up to $801 million and will own 80.1% of the joint venture.Carlyle has committed up to $199 million and will own 19.9 percent. Investments and funding will be subject to approval by the respective investment committees of both Apollo Group and Carlyle.

A123Systems, a Watertown, Mass.-based maker of lithium-ion batteries, has raised $30 million in Series D funding at a post-money valuation of around $350 million. The company has now raised $132 million in total funding. Backers include General Electric, Procter & Gamble, Alliance Capital, Motorola, Qualcomm, North Bridge Venture Partners, Sequoia Capital, CMEA Ventures, FA Technology Ventures, OnPoint, Carruth Management, the Massachusetts Institute of Technology and board chairman Desh Deshpande. Get full story.

VC Deals

Siimpel Inc., an Arcadia, Calif.-based maker of integrated optical microsystems, has raised $21.5 million in Series D funding at a post-money valuation of approximately $49 million. SunAmerica Ventures led the deal, and was joined by Motorola Ventures and return backers DFJ, Global Catalyst Partners, Portage Venture Partners, Scale Venture Partners and Zone Venture Partners.

Rapport Inc., a Redwood City, Calif.-based semiconductor company focused on multicore reconfigurable architecture, has raised $18.5 million in Series C funding led by Centurion Holdings. Get more info.

Optichron Inc., a Fremont, Calif.-based developer of signal linearization technology, has raised $12 million in Series C funding. Return backers include Battery Ventures, TL Ventures, VentureTech Alliance and U.S. Venture Partners. The company also named Tom Carlson as CFO. Get more info.

Bit9 Inc., a Cambridge, Mass.–based provider of application control and device control solutions, has raised $10 million in third-round funding. 406 Ventures led the deal, and was joined by return backers Atlas Venture, Highland Capital Partners and Kleiner, Perkins, Caufield & Byers. Bit9 has now raised $25.8 million in total funding, plus a $2 million federal grant. Get more info.

High Throughput Genomics Inc., a developer of microplate-based gene expression assay technology for the pharma and life sciences sectors, has raised $10 million in the first tranche of a Series C funding round. Merck Capital Ventures led the deal, and was joined by Arcturus Capital and return backers Solstice Capital and Valley Ventures. The Tucson, Ariz.-based company previously had raised just under $5 million. Get more info.

Levanta Inc., a San Mateo, Calif.–based provider of Linux data center automation, has raised $8 million in new VC funding. Backers include Levensohn Venture Partners, vSpring and Walden International. Get more info.

Sequoia Capital has invested less than $5 million for around a 20% stake in Chinese wealth management company Noah Private Wealth Management Centre, according to Reuters. Shanghai-based Noah will use the capital to expand its network, and eventually plans to go public on a U.S. exchange.

Compagnie Sahelienne d’Industries (“Matforce”), a Senegal-based car dealership and energy equipment provider, has raised $2.86 million from the Aureos West Africa Fund. The deal gives AWAF a 10% ownership position, and comes on top of a $2 million loan guarantee from AWAF that will enable Matforce to secure the equivalent loan funding in local currency. Get more info.

Facebook Inc. has been sued by an Indiana woman who alleges that the social networking company has profited from its members sending thousands of unauthorized text messages to mobile phone users whose numbers previously belonged to other people. Lindsey Abrams claims that she began receiving the messages after receiving a new mobile number, and that she was told she couldn’t block the Facebook texting without cutting off other messages that she wanted to receive. Facebook has raised around $38 million in VC funding from Accel Partners, Greylock and Meritech Capital Partners. Read full story.

Buyout Deals

CVC Capital Partners has acquired a 29% stake in Chinese PET bottle maker Zhuhai Zhongfu Enterprise Co. Ltd., for $225 million. Get more info.

Energy Investors Funds and Enpower Corp. have agreed to acquire Landfill Energy Systems, owner and operator of 14 landfill gas-to-energy projects located in 7 states. No financial terms were disclosed for the deal, which will keep existing LES management in place. Get more info.

VMG Equity Partners has acquired Colorescience, a Dana Point, Calif.-based mineral makeup company. No financial terms were disclosed for the deal, which was first reported by the Orange County Business Journal.

Warburg Pincus has agreed to acquire an 11.2% stake in Havells India Inc., a listed Indian electric and power distribution equipment company. The deal is valued at $110 million.

Harvest Partners has completed its sale of U.S. Silica Co. to an affiliate of Harbinger Capital Partners. No financial terms were disclosed. U.S. Silica is a Berkeley Springs, West Va.-based maker of industrial silica sand.

American Capital Strategies has acquired a majority stake in Imperial Supplies LLC from Norwest Equity Partners for $112 million. Imperial Supplies is a Green Bay, Wis.-based distributor of after-market components to fleet and facility-based markets. Get more info.

PE-Backed IPOs

CVR Energy Inc., a Sugar Land, Texas-based producer of ammonia and urea-ammonia nitrate, raised $380 million in its IPO. The company priced 20 million common shares at 19 per share, compared to an earlier plan to sell 18.5 million shares at between $18 and $20 per share. It will trade on the NYSE under ticker symbol CVI, while Goldman Sachs and Deutsche Bank served as co-lead underwriters. Shareholders include Goldman Sachs and Kelso & Company.

Archemix Corp., a Cambridge, Mass.-based biopharma company focused on developing aptamer therapeutics, has set its IPO terms to 4.5 million common shares being offered at between $12 and $14 per share. It would have an initial market cap of over $261 million, were it to price at the high end of its range. This is virtually identical to Achemix’s valuation at the end of its most recent venture capital round. The company plans to trade on the Nasdaq under ticker symbol ARCH, with Banc of America Securities and Bear Stearns serving as co-lead underwriters. Archemix has raised around $135 million in VC funding since 2001, from firms like Atlas Venture (13.9% pre-IPO stake), Prospect Venture Partners (13.9%), Highland Capital Parnters (13.2%), SV Life Sciences (11.6%), KGaA (11.3%), Rho Ventures (9.6%) and Care Capital (5.3%).

BioForm Medical Inc., a San Mateo, Calif.-based developer of an injectable dermal filler for aesthetic improvement, has set its IPO terms to 10 million common shares being offered at between $9 and $11 per share. It would have an initial market cap of approximately $490 million, were it to price at the high end of its range. BioForm plans to trade on the Nasdaq under ticker symbol BFRM, with JPMorgan and Piper Jaffray serving as co-lead underwriters. The company has raised nearly $65 million in total VC funding since 2000, from firms like Essex Woodlands Health Ventures (20.5% pre-IPO stake), PTV Sciences (18.3%), Vivo Ventures (15.4%), Veron International Ltd. (9.6%) and Teknoinvest (9.1%).

PE Exits

OPNET Technologies Inc. (Nasdaq: OPNT) has acquired substantially all the assets of Network Physics Inc., a Mountain View, Calif.-based provider of application performance management software. The deal was valued at $10 million in cash. Network Physics had raised over $63 million in VC funding since 2000, from firms like Sofinnova Ventures, Trinity Ventures, Intel Capital, Lucent Venture Partners, Palomar Ventures, SunAmerica Ventures and VantagePoint Venture Partners. Get more info.

PE-Backed M&A

North Pointe Holdings Corp. (Nasdaq: NPTE) has agreed to sell its Home Pointe Insurance Co. subsidiary, which comprises its Florida homeowners and dwelling fire operations, to American Capital Assurance Corp., a subsidiary of Safe Harbour Holdings LLC. The deal is valued at approximately $15.3 million. Safe Harbour is backed by Arx Holding Corp., Flexpoint Partners and New Capital Partners.

Firms & Funds

Draper Fisher Jurvetson has closed its debut growth fund with $290 million in capital commitments. The vehicle will focus on “large opportunity” growth-stage private tech companies that have completed the initial development stage and are generating revenue. It has five current portfolio companies: Visto, Raydiance, Kajeet, UUSEE and Solar City. Get more info.

Mid Europa Partners has closed its third buyout fund with €1.5 billion in capital commitments. The general partner provided 30 million, with limited partners including: AGF Private Equity, Alpinvest, ATP Private Equity Partners, AP2, Auda Private Equity, AXA Private Equity, Caisse des Depots et Consignations, CAM Private Equity, Citigroup, European Investment Bank, Feri, Government Investment Corp of Singapore, Goldman Sachs,, HarbourVest, MetLife, OP Trust, Pantheon, TIAA and Unigestion. MVision served as placement agent. Get full story.

GP Investments of Brazil has closed its fourth Latin American private equity fund with $1.3 billion in capital commitments. Get more info.

Adveq, a European private equity fund-of-funds manager, said that it will open an office in Beijing. The firm already has offices in Zurich, Frankfurt and New York.

Human Resources

David Ruberg, a partner with Baker Capital, next month will become CEO of Interxion, a Baker portfolio company that provides carrier-neutral data centers and managed services in Europe. Ruberg has been chairman of the Interxion supervisory board since 2003, and will be succeeded in that role by Baker Capital founder John Baker. Get more info.

Andrew Kuo has joined The Blackstone Group as a Hong Kong-based managing director and vice chairman for Greater China activities. He previously served in a similar role for H&Q Asia Pacific and, before that, was with JP Morgan in Hong Kong. Get more info.