PE Week Wire: Tuesday, October 14, 2008

Last Friday, I asked you to name the university endowment that’s trying to sell a large portfolio of private equity fund commitments. I probably should have italicized the word “large,” or perhaps used a more emphatic synonym like humongous. The result was that some of you offered up schools like Duke and Stanford – both of which have assets for sale on the secondary market, but not of the scope I was suggesting. Then yesterday one of you got it right, which means it’s time to share…

The answer we were looking for was Harvard. The Ivy Leaguer has retained Cogent Partners to pitch what could be one of the largest secondary sales of all time, with an optimistic asking price in excess of $1 billion. The available portfolio includes a variety of venture capital and buyouts funds, albeit none of its crème de la crème VC (i.e., Sequoia Capital or Kleiner Perkins). It also doesn’t include mega-buyout funds like Blackstone or KKR, but that’s a byproduct of Harvard not investing in them (if you want such fund stakes, there’s plenty available from other sellers).

“But Dan,” says our rhetorical reader. “Didn’t you recently write that the secondary market was virtually frozen, because buyers can’t get comfortable on valuations?”

Yes I did, and that’s one of a plethora of reasons why this sale may not get done. Here are some others: (1) It’s basically impossible to finance something this large, which would require either syndication with other secondaries firms or perhaps a partnership with sovereign wealth funds; (2) Harvard is not a motivated seller, in that it is not facing a liquidity crunch. That makes it unlikely to accept a deep discount; (3) There is some real fear about buying from Harvard, in that they are smart money and you (by virtue of buying from them) will be proven dumb. This isn’t just a reflection of the Crimson pedigree, but of the respect afforded Harvard PE investment chief Peter Dolan and new Harvard CIO Jane Mendillo (a former PE investor, which means she knows more about the asset class than does the typical CIO).

It’s worth noting that each of the above caveats was expressed by a potential buyer, which sadly leads to a counter-caveat: They could simply be trying to talk this thing down, in order to get a better deal. We’ll know soon.

Harvard and Cogent declined to comment, naturally.

*** Did Barack Obama just propose to eliminate capital gains taxes on venture capitalists? The same Barack Obama who most VCs believe will increase their tax burdens?

The answer seems to be yes, upon my first reading of a new economic stimulus plan released yesterday, called the Small Business Emergency Rescue Plan. Here’s a snippet:

“Barack Obama believes that we need to encourage investment in small businesses to help create jobs and turn our economy around. That’s why Obama will eliminate all capital gains taxes on investments made in small and start-up businesses. Unlike John McCain, who wants to give $200 billion in new tax cuts to America’s largest and most profitable businesses, Barack Obama wants to cut taxes for the small businesses that create jobs but struggling with restricted access to credit alongside skyrocketing health care and energy costs.”

That would seem to cover venture capitalists, or at least those who still engage in early-stage investing. I’ve put in a call to Obama’s campaign to see if there’s any fine print that would exclude institutional investment, but have not yet gotten a call back. At the very least, angel investors would seem to be covered.

The only caveat (today’s secret word), and it’s a big one, is that Obama favors a change in the tax treatment of carried interest — from capital gains to ordinary income. That means the new proposal would be irrelevant for most institutional VCs, since they would no longer be paying the capital gains tax that Obama now vows to eliminate. If this new plan were enacted absent the carried interest change, however, it could not only spur angel investment, but also prompt VC firms to increase their early-stage activities…

Obama’s new plan also includes an emergency lending facility for small businesses, which would be run through the SBA. You can download the full plan here, and also read some reaction from the NVCA.

*** My favorite press release of the day comes from Istithmar World, the investment arm of Dubai World, which announced that it’s opening an office in New York. Before finding out who’ll actually run the office, however, the firm wants to let you know that it has been “designed by renowned US-based interior designer Nate Berkus, and interior architect Ahmad Sardar Afkhami…” What’s the opposite of “sign of the times?”

Top Three

OpenGate Capital has agreed to buy TV Guide Magazine from Macrovision Solutions Corp. (Nasdaq: MVSN) for an undisclosed amount. The deal is expected to close around December 1, and is not subject to Macrovision shareholder approval.

Plantation Energy, an Australian maker and exporter of densified biomass fuel pellets, has sold a majority ownership stake to Dedham Capital, in exchange for an $80 million private equity investment. Initial proceeds will be used to build a new manufacturing plant in Albany, Western Australia.

Cerberus Capital Management wants to retain an interest in any company formed via a merger with Chrysler, according to Reuters.

VC Deals

Webaroo, an India-based provider of free group text messaging services, has raised $11 million in first-round funding. Backers include Charles River Ventures and Helion Venture Partners.

BillShrink, a Redwood City, Calif.-based, has raised $8 million in Series B funding. Trinity Ventures co-led the round with return backer Bessemer Venture Partners.

MyThings, a London-based provider of an organization system for online purchases and receipts, has raised $5 million in Series B funding co-led by Dotcorp Asset Management and GP Bullhound Sidecar. ReadWriteWeb has more.

MDX Medical Inc. (a.k.a., a Lyndhurst, N.J.-based provides of online doctor evaluation services, has raised $4 million in VC funding. Participants include Milestone Venture Partners, Greycroft Partners, Cross Atlantic Partners and return backer Health Venture Group.

MirriAd, a London-based provider of embedded advertising solutions, has raised £2 million in second-round funding led by Oxford Technology Enterprise Capital Fund.

Primet Precision Materials Inc., an Ithaca, N.Y.-based maker of nanopowders and material systems, has raised an undisclosed amount of new Series B funding from Morgan Stanley. No financial terms were disclosed. The company previously held an $8 million first close on the round from Draper Fisher Jurvetson and Cayuga Venture Fund.

Cierra Inc., a Redwood City, Calif.-based developer of a system for percutaneous PFO closure without leaving behind a heart implant, has shut down. The company had raised around $28 million in VC funding, including a $21.3 million Series C round in 2005 at a post-money valuation of around $54.5 million. Backers included The Foundry, Delphi Ventures, Frazier Healthcare Ventures, Morgenthaler Ventures and Split Rock Partners.

Buyout Deals

Linens ‘n Things will likely begin liquidation sales at its remaining stores later this week, after the retailer failed to find a buyer that would keep the company in operation.

Marlin Equity Partners has acquired the assets of Furitechnics Group, a Commerce, Calif.-based developer of houseware products for professional and home chefs, like the Rachael Ray branded line of cutlery. No financial terms were disclosed. Marlin has renamed the company Furi Brands Inc.

Reddington Gulf, a distributor and service provider of IT and telecom products in the Middle East and Africa, has raised $98 million in private equity funding from Investcorp, in exchange for a minority ownership stake.

Riverside Partners has acquired both Solar Works Inc. and SolarWrights Inc., and merged them into what it claims is the largest solar energy integrator in the Northeastern U.S. No financial terms were disclosed.

Tenaska Capital Management has agreed to acquire the owner of the Covert Generating Plant located near South Haven, Michigan. No financial terms were disclosed.

PE-Backed M&A

Canopy Financial, a San Francisco-based provider of technologies for connecting healthcare and financial services, has acquired health plan services provider CareGain from Fiserv Inc. (Nasdaq: FISV), according to VentureWire. No financial terms were disclosed. Canopy Financial has raised around $26 million in VC funding from firms like Granite Global Ventures and Foundation Capital.

PE Exits

AIG Highstar Capital has completed the sale of its 50% interest in Intergen NV to Indian infrastructure developer GMR Infrastructure Ltd. No financial terms were disclosed. InterGen is a global power generation company based in The Netherlands. It was acquired in 2005 by Highstar and Ontario Teachers’ Pension Plan.

iEurope Fund has sold its stake in ATech Elektronika, a Slovenian maker of electronics assemblies. No financial terms were disclosed, except that the sale represented an 18% IRR and 2.3x cash-on-cash return for iEurope.

Firms & Funds

Charterhouse Capital Partners has held a €3.6 billion first close for its ninth European buyout fund, according to LBO Wire. The overall target is €6 billion. Limited partners include the Massachusetts Pension Reserves Investment Management Board and the Washington State Investment Board.

Istithmar World Capital, the investment arm of Dubai World, is opening an office in New York. It is the firm’s first office in the Americas, and will be headed by Felix Herlihy and John Amato.

Merrill Lynch has raised $2.65 billion for an Asian real estate opportunity fund.

Human Resources

Dave Hills has joined KPG Ventures as a general partner. He is the former president and CEO of LookSmart Ltd. (Nasdaq: LOOK).

Paul Delaney has joined Griffin Financial Group as senior managing director and head of its private equity placement group. He previously was founder and CEO of boutique placement firm Patronus Capital Advisors, which is being merged into Griffin. Before that, Delaney founded the Bear Stearns Private Funds Group and served as a partner with Pomona Capital.

Hiro Yoshihara, former international vice chairman of KPMG, has joined Permira as a senior advisor. He will focus on Japanese opportunities in the tech, media and telecom sectors.