PE Week Wire: Tuesday, November 25, 2008

I typed that headline two months ago, and filed it away until actually publishing it became absolutely necessary. It’s not that I like to hide things from you, dear reader, but it was really for our own good. The longer I delayed, the longer it would be before venture capitalists and their portfolio companies learned that staying stealth had become oh so much easier. In the meantime, this space could keep providing startup funding scoops for your informational pleasure.

But yesterday I may have messed something up in a peHUB post, which makes it time to explain.

For years, I’ve been running VC funding and fundraising items with the suffix “according to a regulatory filing.” These forms have traditionally been submitted to the SEC in paper form, unlike most other filings that come in electronically. That means that Form Ds (as they’re known) were inaccessible via EDGAR, and could only be viewed in the reference room at SEC headquarters in Washington DC. My advantage was that the SEC had long ago struck a deal with Daddy Thomson (before he got married), whereby it sent all types of filings to our DC office to be scanned into a subscriber-only database called Thomson Research. I obviously have access to Thomson Research, and also to a backend FTP site where these scanned docs initially appear. A few times per week, I’d search through the backend and pull out items of note.

Last August, however, the SEC proposed several changes to Regulation D, including a move toward electronic filing. The stated goals were to reduce filing fees, promote transparency, promote federal/state regulatory coordination and improve data collection. As I wrote at the time:

“I would really like to make an argument against this proposal, but everything I come up with reeks of self-interest. It’s certainly true that certain stealth companies would prefer that their funding rounds remain difficult to uncover — and some VCs and VC attorneys have devised clever ways to disguise what a filer actually does (via bogus names or business descriptions) – but that shouldn’t be the SEC’s problem. If such public disclosure is required, then why should only a limited number of people have access? (That question is only partially rhetorical – as a compelling argument could really help me out.)”

No compelling argument arrived, and the rules were altered. Filers were allowed to begin electronic submissions two months ago, and all must do so next year. So my exclusivity is gone. Sad, but fair.

What I did not realize until recently, however, was that the SEC revisions actually remove more transparency than they add. Specifically, the Regulation D “form” requires far less information than did the original one. Among the missing items are the names of significant shareholders and the specific type of security (i.e., Series A preferred stock). It has added a new box for company revenue, but filers can simply check “Decline to disclose.” In fact, the new form provides so little information that I’m unlikely to be comfortable reporting on them in the future.

The best example of this came yesterday, when I reported on ten Regulation D filings over at peHUB. Nine of them used the old form, but one used the revised version. The outlier was CafePress, a provider of user-generated ecommerce solutions that had last raised VC funding in 2005 from Sequoia Capital. The revised filing indicated that the company had sold approximately $8.3 million in new equity and options/warrants, which I interpreted to be a new round of VC funding. I added that returning backers included Sequoia, based on the listed presence of a Sequoia partner on the CafePress board of directors.

For context and contrast, I’ve posted the new CafePress filing and an older CafePress filing here.

TechCrunch picked up the item, which quickly received a rebuke from CafePress. The company said: “We did not raise venture funding, nor have we raised funding from Sequoia since our series B in 2005.” Instead, it claimed to have issued $8.29 million shares of stock back in July, although it did not specify to whom those shares were issued. Perhaps to new employees…

It is a mistake I won’t make again, because I won’t cite the revised form without corroboration (except for VC/PE fundraising efforts, for which the form still works). That may sound like I just need to make an extra phone call, but the reality is that many companies used to either: (A) Refuse to comment on a filing without having first issued a press release, or (B) Denied having raised new money, until I actually produced their filing, and suggested they reconsider their denial.

Some companies may be forthcoming, but those will be the exceptions to the rule. Moreover, the reduction of Form D transparency also reduces a company’s incentive to confirm such information – and I’ll no longer know which investors to call, since they’ll no longer be listed.

So now everyone will soon have access to relatively meaningless information, rather than a select few of us having access to detailed information. Oh well, it was good while it lasted.

Top Three

MidCap Financial LLC has launched as aBethesda, Md.-basedcommercial finance company that will focus on middle-market lending to the healthcare industry. It has secured over $500 million in capital commitments from Lee Equity Partners, Genstar Capital and Moelis Capital Partners. It has also secured a long-term debt facility led by Wells Fargo Foothill. MidCap will be run by the former senior management team of Merrill Lynch Capital Healthcare Finance, including its founder Howard Widr! a.

Pocket Communications Northeast, a provider of unlimited use wireless voice and data services, has raised $100 million in private equity funding. Battery Ventures led the round, and was joined by Charles River Ventures and Pocket CEO Paul Posner.

Francisco Partners, a San Francisco-based buyout firm, has completed its acquisition of API Software Inc., a Wisconsin-based maker of labor management software for the healthcare market. No financial terms were disclosed.

VC Deals

Solairedirect, a Paris-based solar power producer, has raised €20 million in new VC funding. Backers include Demeter Partners, Schneider Electric Ventures, TechFund, MACIF, AGPM, UMR and Ofivalmo Partenaires.

Cellular Dynamics International, a Madison, Wis.-based developer of stem cell technologies for drug development and personalized medicine, has raised $18 million in Series A funding. Tactics II Stem Cell Ventures LP led the round, and was joined by Tactics II Ventures LP and the Wisconsin Alumni Research Foundation. In related news, CDI has absorbed sister companies – and fellow University of Wisconsin spinouts — Stem Cell Products Inc. and iPS Cells Inc.

PlaySpan Inc., a Santa Clara, Calif.-based operator of an in-game commerce network, has raised $16.8 million in Series B funding. Return backers include Easton Capital, Menlo Ventures, STIC International (South Korea) and Novel TMT Ventures (Hong Kong). It had previously raised $6.5 million.

Awarepoint Corp., a San Diego-based provider of real-time location systems, has raised $13.3 million in Series D funding. Cardinal Partners led the round, and was joined by Venrock and return backer Avalon Ventures.

KickApps, a New York-based developer of social networking tools for existing websites, has raised over $13 million in Series C funding, according to a regulatory filing. No new investor is listed, although an outside lead is likely. Return backers include Prism VentureWorks, Softbank Capital and Spark Capital. The company had previously raised $17 million.

Chromatin Inc., a Chicago-based developer of technology for incorporating entire chromosomes into plant cells, has raised around $12.6 million in Series C funding, according to a regulatory filing. Backers include Unilever Technology Ventures, Malaysian Life Sciences Capital Fund, Burrill & Co., Venture Investors LLC and Foragen Technologies. The company had previously raised nearly $23 million.

Cogentus Pharmaceuticals Inc., a Menlo Park, Calif.-based developer of antiplatelet therapies for cardiovascular disease, has secured $7.5 million of a $22.5 million Series C round, according to a regulatory filing. Listed backers include Keffi Group, Prospect Venture Partners and Ridgeback Capital. The company had previously raised over $62 million.

Spectrum Bridge Inc., a Lake Mary, Fla.-based provider of wireless communication system technology to allow real time auctioning of radio spectrum, has secured $7.38 million of an $8.15 million Series B round, according to a regulatory filing. Backers include Espirito Santo Ventures, Milcom Technologies, Telecommunications Development Fund and True Ventures.

FanSnap, a Palo Alto, Calif..-based live event ticket search engine, has raised $5.5 million in second-round funding led by return backer General Catalyst Partners. The company is currently in beta, and is run by Mike Janes, former chief marketing officer of StubHub.

GangaGen Inc., a Palo Alto, Calif.-based developer of products to treat bacterial infections, has raised $5.4 million in Series E funding, according to a regulatory filing. Shareholders include ATEL Ventures, Otsuka Pharmaceutical Co. and ICF Ltd.

Tactile Systems Technology Inc., a Minneapolis-based maker of medical devices for the treatment of lymphedema and venous insufficiencies, has raised $4 million in additional Series A funding from existing shareholder Galen Partners., a New York-based online marketing company that distributes promotional content via social networking sites, has raised $2.57 million in Series B-4 funding, according to a regulatory filing. Return backers include Allen & Co. and Avalon Ventures.

Kajeet, a Bethesda, Md.-based mobile virtual network for kids and tweens, has raised $1.05 million in Series B-1 funding, according to a regulatory filing. It had previously raised over $68 million, from firms like DFJ Growth Fund, Bessemer Venture Partners, Fidelity Ventures, Gabriel Venture Partners and InterWest Partners. It also secured $10 million in venture debt from BlueCrest Capital Finance.

LiveRail Inc., a San Francisco-based provider of online video advertising solutions, has raised $500,000 in Series A funding led by Pond Venture Partners.

Buyout Deals

Barclays Private Equity and Investcorp have acquired N&W Global Vending from Argan Capital and Merrill Lynch Global Private Equity. No financial terms were disclosed, although a Dow Jones report puts the price at around $960 million (including $750m in leveraged loans). N&W is an Italian manufacturer of food and beverage vending machines.

Empire Investment Holdings has acquired Polyester Fibers LLC from Leggett & Platt Inc. No financial terms were disclosed. Polyester Fibers LLC makes nonwoven materials for the bedding, furniture, filtration, and retail marketplace.

Hastings Equity Partners has sponsored a majority recapitalization of Quality Aircraft Accessories Inc., a Tulsa, Ok.-based repair station and provider of accessory parts to the general aviation aircraft industry. No financial terms were disclosed for the deal, which included leveraged financing from MFC Capital Funding.

KarpReilly Capital Partners and HIG Capital been withdrawn their $200 million offer to buy women’s apparel retailer Charlotte Russe Holding Inc. (Nasdaq: CHIC), after being rebuffed by the company’s board of directors. KarpReilly currently holds a 5.4% stake in Charlotte Russe.

PE-Backed M&A

Lineage Power Holdings Inc., a Dallas-based provider of power conversion solutions, has acquired Cherokee International, a provider of AC-DC custom and front-end power solutions. No financial terms were disclosed. Lineage Power is a portfolio company of the Gores Group.

Nuveen Investments Inc., a Chicago-based provider of investment services to institutional and high-net-worth investors, has agreed to acquire Winslow Capital Management, a Minneapolis-based firm focused on managing large cap growth stock portfolios for institutions and high net worth investors. No financial terms were disclosed, except that Winslow has approximately $4 billion in capital under management and advisement. Nuveen was taken private last year for $6.3 billion by Madison Dearborn Partners.

Human Resources

Apollo Investment Corp. (Nasdaq: AINV) has promoted James Zetler to CEO, from president and chief operating officer. In related news, executive vice president Patrick Dalton will take Zetler’s president and COO roles. Outgoing CEO John Hannon will retain his chairmanship of the company’s board.

Won Park has joined Covington Associates as an analyst. He previously was an analyst in Piper Jaffray’s financial institutions group.