PE Week Wire: Tuesday, November 18, 2008

As I noted yesterday, the California Public Employees’ Retirement System has finally updated its private equity performance data. The revised numbers now bring us through the end of Q2 2008, which makes sense given traditional lag-times in GP reporting and the need to reconcile those reports with actual cash-flow data.

But something is missing. Actually, there are 96 things missing — 96 funds listed in the prior report that are not listed in the new report. What this means is that CalPERS disposed ofover 25% of its private equity fund investments between the end of 2007 and the end of June 2008 (not including 2008-vintage funds or the California Emerging Ventures portfolios). Among the missing are multiple funds from firms like Alta Partners, Weston Presidio and Kohlberg & Co.

Some of the 96 funds simply ran their natural course, like a Warburg Pincus vehicle from 1990. But most of them are of more recent vintage, including seven funds raised in 2005 and ten funds raised in 2004. This means secondary sales, as part of a PE portfolio reorganization announced last year. CalPERS does not publicly-disclose how much it lost/gained off its secondary sales, so I’ll have to add that to the FOIA list. In the meantime, a Wire reader put together a helpful spreadsheet comparing the 12/31/2007 holdings to the 6/30/08 holdings. View it here.

*** Kodiak Venture Partners isn’t quite yet on my list of “walking dead” VC firms, but it’s getting close. Reminds me of the teenage girl who runs upstairs during a horror movie, and locks her door so the beastie can’t get her. Odds are pretty good that the door won’t hold, but every now and then her boyfriend slays the beastie from behind, hugs are had and the credits roll.

Chris Greendale quietly left Kodiak last week, making him the third partner to depart in 2008, and fifth to leave since Kodiak raised its third fund in 2004. The others this year were John Abraham and Mike Schiavo, following Elliot Katzman (late 2006) and Illan Carmi (2005). That’s a whole bunch of turnover for a small partnership, and further dims the hopes for a fourth fund.

Kodiak originally began pre-marketing Fund IV in late 2006, with plans to hold a dry close in Q1 2007. Katzman’s surprise defection to Commonwealth Capital Partners in December of that year derailed the process, but sources said it would be restarted by Q2 of 2008. But that didn’t happen (at least not successfully), and Kodiak has now called down over 70% of its Fund III capital. Assuming it wants to hold at least 20% for follow-on investing, that leaves relatively little room for new deals.

I spoke yesterday with two of Kodiak’s four remaining partners, Dave Furneaux and Andrey Zarur. They acknowledged that Greendale was gone (he’s still on Kodiak’s website), but declined to provide any context. Instead, they said that the firm was in as good of shape as could be expected given the lack of liquidity options, and that it would raise a new fund either late next year or in 2010.

Zarur also pushed back on the notion that Kodiak’s personnel upheaval is particularly important, noting that the firm was still doing some interesting new deals of the seed-stage variety (e.g., Lumicell Diagnostics). He’s right that returns are what matter most, but LPs and entrepreneurs also place a high value on consistency. Or at least more consistency than Kodiak has provided. It’s asking a lot of folks to enter into a long-term commitment with an organization whose own partners have not done the same…

*** Speaking of former Kodiak partners, word is that John Abraham is in talks to raise a first-time fund with Marcia Hooper (ex-Castile Ventures) and Rashid Ashraf (VC Fund of New England). No details yet, but this either reflects extreme confidence or a massive threshold for pain. Most LPs don’t even want to hear about follow-on fundraising right now, let alone a brand new one.

*** Quiz Time: Can you name the former banking big who has partnered with Blackstone Group for a PE platform that will focus on distressed banks and other financial institutions? Hint: He’s a Philly guy who earlier this year joined a Boston-based firm. And I can’t say this with any degree of confidence, but it’s likely that he gets his cheesesteaks at Bella Italia. I used to live near his digs, and Bella is simply better than anything on 9th Street.

Top Three

ISE Corp., a Poway, Calif.–based provider of hybrid-electric drive systems and components for heavy-duty vehicles, has raised $17.5 million in Series D funding. Siemens Venture Capital, Macquarie Clean Technology Fund and DTE Energy Ventures were joined by return backers RockPort Capital Partners and NGP Energy Technology Partners. It had previously raised around $37.6 million.

IPC Systems Inc., a portfolio company of Silver Lake Partners, has agreed to sell its Command Systems (PPSS) unit to West Corp. for approximately $167 million. PPSS provides premise-based public safety solutions that enable enhanced 911 services. Silver Lake bought IPC from GS Capital Partners two years ago for approximately $800 million.

BlackRock Inc. (NYSE: BLK) yesterday warned its employees of job cuts coming this week.

VC Deals

Ascent Therapeutics Inc., a Cambridge, Mass.-based developer of GPCR modulators, has raised $19 million in Series A funding. Backers include Novartis Option Fund, Healthcare Ventures and TVM Capital. It also has filled out its senior management team, including CEO Frederick Jones (former head of Devgen NV’s pharma unit).

Sol-Gel Ltd., a Revohot, Israel-based developer of topical products for the dermatology market, has raised $9 million in new VC funding. Medica Venture Partners led the round, and was joined by return backers JVP and DSM Corporate Venturing. The company had previously raised around $16.5 million since 2003.

RollStream, a Fairfax, Va.-based provider of enterprise community software solutions, has raised $6 million in Series B funding led by Core Capital Partners. The company had previously raised around $2.7 million from Grotech Capital Group, CIT GAP Fund and Amplifier Venture Partners.

ReGen Power Systems LLC, a New Salem, Mass.-based developer of a low-temperature differential engine to convert waste industrial heat to power, has raised $5 million from 21Ventures LLC and the Quercus Trust.

Taboola, an Israel-based developer of video recommendation solutions, has raised $4.5 million in second-round funding. Evergreen Venture Partners led the deal, and was joined by individual angels from Israel and the U.S.

Aligence Inc., a Camden, N.J.-based provider of video auditing solutions, has raised $4 million in Series A funding. Granite Ventures led the round, and was joined by return backer Next Stage Capital.

VibeAgent, a Charlottesville, Va.-based hotel search engine, has raised $3 million in Series A funding from individual angels.

Zacharon Pharmaceuticals Inc., a San Diego-based developer of small-molecule glycan inhibitors, has raised $3.5 million in Series A funding from Avalon Ventures. It also received more than $2.2 million in NIH research grants.

Casual Collective, a Berkshire, England-based social gaming site, has raised $1 million in seed funding from Lightspeed Venture Partners. The company was formed by game developers Paul Preece and David Scott, who created both Desktop Tower Defense and Flash Element TD.

Siimpel Inc., an Arcadia, Calif.-based maker of integrated optical microsystems, has raised an undisclosed amount of VC funding from DOCOMO Capital, the corporate venture arm of NTT DOCOMO. The company previously raised around $73 million from firms like Motorola Ventures and return backers DFJ, Global Catalyst Partners, Portage Venture Partners, Scale Venture Partners, Sun America Ventures and Zone Venture Partners.

Revance Therapeutics Inc., a Mountain View, Calif.-based drug company focused on the aesthetic medicine and personal wellness categories, has raised $8 million in venture debt funding from Leader Ventures and Horizon Technology Finance. It had previously raised around $64 million in VC funding from Bio*One Capital, Medicis Pharmaceuticals Corp., Essex Woodlands Healthcare Ventures, Vivo Ventures, Technology Partners, Shepherd Ventures and Palo Alto Investors.

Buyout Deals

Canterbury Park Capital has acquired around 58.2 million additional common shares of Paragon Pharmacies Ltd. (TSX: PGN), for around C$23.2 million. It now holds over 68 million shares, or a 69.9% ownership position.

Getrag Transmission Manufacturing LLC filed for Chapter 11 bankruptcy protection yesterday, citing a legal dispute with Chrysler over an unfinished $530 million transmission plant. Chrysler is owned by Cerberus Capital Management.

Mervyn’s Holdings LLC has asked a court to approve the sale of all its remaining property leases. The company filed for Chapter 11 bankruptcy protection on July 29.

Pennington Allen Capital Partners has acquired the 25% stake it did not already own in Bliss Industries LLC, a Ponca City, Okla.-based maker of hammermills, pelletmills, coolers and related equipment. No financial terms were disclosed. As part of the transaction, Bliss president Greg Alles will take over as CEO, with company founder Bill Bliss retiring.

Wellman Inc., a bankrupt portfolio company of Warburg Pincus, said that the court has approved its reorganization plan. This company will sell $120 million of convertible notes via a rights offering in exchange for $90 million in cash, with its first and second-lien holders to receive 70% and 30% of its common stock, respectively.

PE-Backed IPOs

BlueArc Corp., a San Jose, Calif.-based manufacturer of unified network storage systems, has withdrawn registration for a $103.5 million IPO. It had originally filed in Septemver 2007, with Credit Suisse and Lehman Brothers serving as co-lead underwriters.

BlueArc has raised around $170 million in VC funding since 1999, from firms like Meritech Capital Partners (31.2% pre-IPO stake), Crosslink Capital (20.33%), Morgenthaler Ventures (13.03%), Apax Partners, Weston Presidio, RWI Ventures, Dell Ventures, CTTV Investments, Celtic House Venture Partners, The Parkmead Group and Fort Washington Capital Partners.

PE Exits

Teradyne Inc. (NYSE: TER) has completed its $360 million, or $15.65 per share, acquisition of Eagle Test Systems Inc. (Nasdaq: EGLT), Mundelein, Ill.-based provider of automated test equipment for the semiconductor manufacturing industry. ETS went public in 2006, and still counted private equity backer TA Associates among its significant shareholders.

PE-Backed M&A

American Internet Services Inc., a San Diego-based provider of data center co-location services, has acquired San Diego data center Complex Drive. No financial terms were disclosed. Seaport Capital recently acquired AIS, alongside Viridian Investment Partners and DuPont Capital Management.

Boingo Wireless Inc., a Santa Monica, Calif.-based operator of Wi-Fi networks, has acquired Wi-Fi networks for the WSDOT ferries division (WSF) from Parsons Transportation Group. No financial terms were disclosed for the deal, which allows Boingo to add 11 ferry terminals and 15 ferries in Washington State to its national airport network. Boingo has raised over $63 million in VC funding from Mitsui & Co., New Enterprise Associates, Sternhill Partners, Evercore Partners, Steelpoint Capital and Red Rock Ventures.

FleetPride, an independent aftermarket distributor of heavy-duty truck and trailer parts, has acquired Automotive Brake Co. of Newburgh Inc. No financial terms were disclosed. FleetPride is owned by Investocrp, Banc of America Capital Investors and company management.

Novafora Inc., a Cupertino, Calif.–based maker of video processors, has agreed to acquire Transmeta Corp. for $255.6 million, or between $18.70 and $19 per outstanding share. Novafora has raised VC funding from Gemini Israel Funds and Vertex Venture Capital.

Rotorcraft Leasing Company LLC, a Broussard, La.-based portfolio company of H.I.G. Capital, has acquired of the production management flight services business of Bristow Group Inc. (NYSE:BRS). No financial terms were disclosed.

Whitcraft, a portfolio company of Golub Capital, has acquired Reliable Manufacturing Co., a Bloomfield, Conn.-based maker of precision components for the aerospace industry. The deal included $25 million in subordinated notes arranged by Golub.

Firms & Funds

Macquarie Group posted a 43% drop in first-half profits, and wrote off US$750 million in assets.

Human Resources

Fredrik Cassel has been promoted to partner at Nordic venture capital firm Creandum. He joined the firm in 2003, and has led deals for Spotify, Cint, Pintavision and Videoplaza.

Thomas King has joined KeyBanc Capital Markets as a managing director in the firm’s financial sponsors group. He previously was with CIT Investment Banking Services, where he focused on M&A.