The surprising thing about the Founders Fund’s announcement that it had raised its first institutional fund Tuesday was that the firm had not sewed up the details of a much smaller fund it announced three months before.
Teamwork takes time, but one might have expected the Founders Fund partnership with Accel Partners and Facebook on a $10 million seed fund to move a little faster. After all, Accel’s Jim Breyer and Facebook’s Peter Thiel both sit on the board of Facebook—and it’s hard to imagine them having a tough time putting the dough together. They’ve been working on it since mid-September.
Thiel says he expects the partnership should be cemented within a few more weeks and indicated that the Founders Fund has invested in a “handful” of undisclosed Facebook applications.
The market for such applications has delivered more sizzle to the investors involved than actual steak. Bay Partners, for example, announced it would allocate a certain portion of its latest fund to invest in Facebook applications in July. The firm hired PR firm Porter Novelli in advance of the announcement to help publicize the move. The firm’s Facebook strategy was part of a firm-wide overhaul after several partner departures.
Journalists went nuts for the firm when it launched the Facebook investment strategy, far exceeding the partners’ expectations. The program accounts for only a tiny part of Bay’s $300 million fund, but gets nearly all attention. Bay has since asked the PR firm to do less so that the partners can focus on deal making, says Salil Deshpande. The firm has done six deals to date, only one of which has been publicly announced.
Journalists were quick to compare the Facebook applications allocations to the Java funds of the mid 1990s when they first came out. Doing so was a way to provide shielded skepticism for the programs. The Java funds were, on the whole, less than top-quartile performers.
The power of Facebook’s platform for startups may more readily be likened to that of eBay. The real money won’t be made by the small vendors setting up shop to sell cowboy hats or baseball cards. Venture-style return for the market comes with a feature that everyone can use. VCs need to look for the PayPal of Facebook.
Then again, some believe they have already found it. The one Bay Partners deal to be announced so far is its investment in Buddy Media, the makers of the AceBucks virtual currency application. Facebook users can earn the currency by playing games, taking surveys, inviting their friends to use an application. AceBucks has opened its own programming code to application developers in a bid to become the standard currency for Facebook. It could be one of the few break-out opportunities the platform has to offer.
The Founders Fund’s Peter Thiel, a co-founder of PayPal, is an investor as well, Deshpande says. Accel Partners, however, is nowhere to be seen.
alex.haislip@thomson.com
*Read about the $220 million Founders Fund II: http://pehub.com/wordpress/?p=1842
*Time is running out to get your entries in for the Buyouts Magazine Deals-of-the-Year award!…Get details at http://www.buyoutsnews.com/story.asp?sectioncode=17&storycode=43413.
*This year’s Gary Snoman cartoon is hilarious: http://www.blueprintventures.com/holiday07.html
Top Three
General Electric Co. (NYSE: GE) has reached an agreement to buy one of its main competitors in the market to finance mid-sized leveraged buyouts. A formal announcement of GE’s acquisition of the mid-market lending division of Merrill Lynch & Co. (NYSE: MER) is expected later this week, Buyouts is reporting. www.buyoutsnews.com
Chicago lawyer Joseph Collins has been indicted on fraud and other charges in connection with the 2005 collapse of commodities and derivatives firm Refco Inc. The Wall Street Journal reported that federal prosecutors in Manhattan announced 11 counts against Collins, of the law firm Mayer Brown LLP, which was not named in the indictment. Phillip Bennett, former chief executive of Refco, and others have also been indicted in connection with the Refco collapse. In July, Thomas H. Lee Partners LP, which purchased a stake in Refco in 2004, sued Mayer Brown for allegedly failing to inform Lee about bogus loan transactions.
Fitch Ratings has placed its ‘AAA’ long-term rating on FGIC Corp., the parent of Financial Guaranty Insurance Co., on negative watch because of potential losses the bond insurer may suffer from mortgage-related exposures. FGIC is more than $1 billion short of the capital needed to keep its top rating, Fitch said. FGIC, which is partly owned by The Blackstone Group, has responded to the ratings agency’s decision by stating that it has developed, and is actively pursuing, a comprehensive plan to enhance its capital resources. The insurance holding company added that the plan is intended to satisfy Fitch’s triple-A capital requirements, as well as those of Moody’s Investors Service and Standard & Poor’s. www.fgic.com
VC Deals
Cardiac Dimensions Inc., a Kirkland, Wash.-based company, has closed $35.5 million in new venture capital. The Series D financing was co-led by Johnson & Johnson Development Corp. and Lumira Capital, and included Mitsubishi UFJ Capital, Montgomery & Co., and West River Capital. Also participating were existing investors Frazier Healthcare Ventures, Interwest Partners, MPM Capital, and Polaris Venture Partners. www.cardiacdimensions.com
GainSpan, a Sunnyvale, Calif.-based innovator of Wi-Fi sensor network technology, has completed its Series B funding round, raising a total of $20 million. The round was led by Opus Capital with participation from returning investors Intel Capital, New Venture Partners, OVP Venture Partners and Sigma Partners. Opus General Partner Carl Showalter will join GainSpan’s board of directors. www.gainspan.com
Live Gamer Inc. emerged from stealth mode with $20 million in Series B funding as it prepares to launch a platform that will allow online gamers to buy and sell virtual property with real money. TheDeal.com reported that the New York startup received the capital from new investor Charles River Ventures of Waltham, Mass., and the returning Kodiak Venture Partners of Waltham and Pequot Ventures of Menlo Park, Calif. www.livegamer.com
BelAir Networks, an Ontario-based provider of mobile wireless broadband mesh network solutions, has received $17.5 million in financing led by new investors Export Development Canada and Wellington Financial. Existing investors BDC Venture Capital, Comcast Interactive Capital, McLean Watson, MMV Financial, Panorama Capital, T-Mobile Venture Fund, Trilogy Equity Partners, and VenGrowth Capital Partners Inc., and Ventures West Management also participated. www.belairnetworks.com
RedBrick Health, a Minneapolis-based health services company, has closed a $15 million Series B preferred stock financing that was led by Fidelity Ventures and included existing investors Highland Capital Partners and Versant Ventures. Dave Power, a partner at Fidelity Ventures, will join RedBrick Health’s board. www.redbrickhealth.com
Ribbit, a startup phone company in Mountain View, Calif., has raised a $10 million B round led by Allegis Capital, with KPG Ventures participating. Ribbit also has unveiled its Voice 2.0 platform. www.ribbit.com
Second Wind Inc., a Somerville, Mass.-based provider of electronics and software for the utility-scale wind energy industry, has secured $4 million in second round financing from Good Energies, an investor in the renewable energy and energy efficiency industry. www.secondwind.com and www.goodenergies.com
Buyout Deals
Stream Communications Network & Media Inc. (Nasdaq: SCNWF), a broadband cable company in Poland, has entered into a preliminary agreement to sell a majority interest in its Stream Communications subsidiary. The investor is Penta Investments Ltd. Penta will acquire a 51.14 percent in Stream Poland by purchasing 15,640 shares for PLN21.6 million ($8.6 million) and 16,900 newly issued shares for PLN23.4 million. The transaction is expected to close by Jan. 31.
Accel-KKR LLC, a Menlo Park, Calif.-based private equity investment firm, has acquired a majority stake in iTradeNetwork Inc., a Pleasanton, Calif.-based provider of on-demand software solutions to the food industry, together with the company’s management and employees. ABRY Partners, a Boston-based private equity firm, will hold the balance of the equity. Financial terms of the transaction were not disclosed.
The Federal Trade Commission granted antitrust clearance for Darden Restaurants Inc.’s proposed sale of its Smokey Bones Barbecue & Grill restaurant chain to Barbeque Integrated Inc., which is an affiliate of Sun Capital Partners. The price is approximately $80 million. www.darden.com
Kubera Cross-Border Fund Ltd., an investment company that trades on the London Stock Exchange, has acquired a significant minority interest in Ocimum Biosolutions for an equity investment of up to $17 million, including a pro rata investment by affiliates of Kubera Partners LLC. Ocimum is a life sciences research and development-enabling company. www.kuberapartners.com
Vienna Capital Partners, an Austria-based private equity firm, has agreed to acquire an additional 9.5 percent interest in Hungarian bank FHB Nyrt from HSBC. The deal is conditional on authorities granting VCP permission to hold more than a 15 percent of FHB, which specializes in mortgage lending. The transaction would bring VCP’s stake in FHB to 19.3 percent. www.vcpag.com
Quercus Trust of Los Angeles has committed to make an equity investment in ThermoEnergy Corp. (Nasdaq: TMEN), a Little Rock, Ark.-based company. Quercus has purchased approximately 6.7 million units for $5 million. Quercus is committed to make an additional investment of between $7 million and $8.5 million. www.thermoenergy.com
PE-Backed IPOs
GlassHouse Technologies Inc. has filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering. The Framingham, Mass.-based provider of information technology consulting, technology integration and other services has not yet determined the numbers of shares to be sold and the offering price. Goldman, Sachs & Co. will serve as the sole book-running manager. J.P. Morgan Securities Inc. is acting as a joint lead manager, with Banc of America Securities LLC and Thomas Weisel Partners LLC acting as co-managers. www.glasshouse.com
Elixir Pharmaceuticals Inc., a Cambridge, Mass.-based pharmaceutical company focused on drugs for metabolic diseases like diabetes and obesity, has registered its plans for an initial public offering of 5 million shares. Elixir anticipates net proceeds of approximately $67.1 million based on a $15 per share offering price. According to VentureWire, Elixir raised $85.6 million from investors including ARCH Venture Partners, Boston University Community Technology Fund, CDB WebTech, CDIB Bioscience Venture Management, Hercules Technology Growth Capital Inc., JAFCO Ventures, MPM Capital, Oxford Bioscience Partners, Tredegar Investments, and YFY Bioscience.
Orion Energy Systems Inc., a Plymouth, Wis.-based maker of energy-efficient lighting systems, has raised $100 million from its initial public offering that priced in the middle of expectations. Reuters reported that the 7.7 million share offering sold for $13 per share, compared with a forecast range of $12 to $14. Underwriters, led by Thomas Weisel Partners, have the option to purchase an additional 1.2 million shares to cover overallotments. www.oriones.com
PE Exits
BUPA has acquired health-care concern Health Dialog – delivering a 15-fold return to Spencer Trask Ventures on an eight-year investment. The transaction values Health Dialog at $775 million. In January 2000, Spencer Trask Ventures co-investors closed $10 million in a Series A financing. www.spencertrask.com
Kirtland Capital Partners has sold its portfolio company, International Graphics Inc., to Pouschine Cook Capital Management LLC. Financial terms were not disclosed. Kirtland is a Cleveland-based private equity firm focused on equity investments in middle-market niche manufacturing, distribution and business service companies. www.kirtlandcapital.com
PE-Backed M&A
Waste Industries USA Inc. (Nasdaq: WWIN), a Raleigh, N.C.-based non-hazardous solid waste services company, has entered into a definitive merger agreement with an investor group led by Lonnie C. Poole, Jr., the company’s founder and chairman, and Jim W. Perry, the company’s president and chief executive officer, and financial partners Macquarie Infrastructure Partners and Goldman Sachs. The group will acquire Waste Industries shares that the investors do not already own for $38 a share in cash, or a total of approximately $544 million. www.waste-ind.com
Allied Systems Holdings Inc., facing a slew of objections from creditors, has withdrawn its $67 million bid for fellow auto hauler Performance Transportation Services Inc. LBO Wire also reported that both companies are controlled by Yucaipa Cos., the Los Angeles private equity firm founded by billionaire Ron Burkle. Yucaipa took over Allied earlier this year after funding the Atlanta company’s own exit from Chapter 11. www.pts-inc.-biz
The Carlyle Group and Mercapital have reached an agreement to acquire Arsys, a Spain-based provider of Web hosting and domain registration services, for €160 million ($230 million). Carlyle and Mercapital will invest equally to acquire majority ownership of Arsys, while the founders of the company will retain a minority stake. www.carlyle.com
The Pennsylvania Health Department has approved the sale of Manor Care Inc. (NYSE: HCR), a nursing-home chain, to The Carlyle Group, despite concerns raised by the state’s largest health care union. The Associated Press reported that officials of Toledo, Ohio-based Manor Care sought to convince state regulators that the $6.3 billion sale would not affect the quality of care provided to more than 7,000 patients in Pennsylvania. www.carlyle.com
American Capital Strategies Ltd. (Nasdaq: ACAS), a Bethesda, Md.-based alternative asset management company, has invested in the formation of SunFuel Midstream, which will acquire, build, finance and operate midstream biofuel infrastructure assets. SunFuel Midstream will be based in Dallas, Texas. www.acas.com
Firms & Funds
Founders Fund Management, a San Francisco-based venture-capital firm, has raised $220 million for a new fund to go after early-stage deals. The firm beat the $120 million target it set for the fund more than eight months ago. The firm is well known for backing Facebook, the social networking Web site. www.foundersfund.com
Mid-market buyout shop Milestone Partners has begun fundraising for its latest offering, Milestone Partners III LP, targeting $200 million, reported LBO Wire. According to a person familiar with the firm, a $240 million hard cap has been established. Milestone Partners, St. David’s, Pa., generally invests between $5 million and $25 million of equity per transaction in companies with values ranging from $15 million to $100 million.
Najafi Cos., a Phoenix-based private investment firm, plans to provide up to $100 million to its new start-up portfolio company, Energy Capital Investments LLC. ECI will deploy the funds as investment capital across a range of energy projects including solar, geo-thermal, biomass and other forms of alternative energy. www.najafi.com
European Capital Ltd.’s board has declared a fourth quarter dividend of €0.14 (20 cents) per ordinary share payable Jan. 28 to shareholders of record Dec. 28. This is an 8 percent increase from the third-quarter rate of €0.13 per share. European Capital is an investment company for pan-European equity, mezzanine and senior debt investments. www.EuropeanCapital.com
Azoogle.com Inc., the New York-based online marketing solutions provider, has launch its “Epic Ad Center” featuring an Ad Wizard that allows advertisers to create display, text and coupon advertisements for free.. AzoogleAds is an end-to-end online marketing solutions provider that is backed by TA Associates and Stripes Group. www.azoogleads.com
General Electric Co.’s (NYSE: GE) GE Energy Financial Services unit plans to invest $54 million and co-finance the acquisition of The Peregrine I, a ship drilling for oil in deep water off the coast of Brazil. GE Capital Markets is a mandated lead arranger for $259 million in senior debt facilities along with WestLB AG, which will serve as an agent and as another mandated lead arranger. GE Transportation Finance joined with GE Energy Financial Services in underwriting the debt. Mike Mullen Energy Equipment Resources, a Dallas-based offshore assets investor, and Pareto World Wide Offshore, a Norwegian private equity fund, are also investors in Peregrine I.
Human Resources
Embarq Corp. (NYSE: EQ) has named Lead Director Bill Owens as non-executive chairman and General Counsel Tom A. Gerke as interim chief executive officer. They replaced Dan Hesse, who also resigned as president of the Overland Park, Kan.-based company. Hesse is joining Sprint Nextel’s president and chief executive. Bill Owens is managing director, chairman and chief executive of AEA Holdings Asia, a private equity fund. www.embarq.com
Sierra Ventures has promoted Vispi Daver to partner and Navam Welihinda to associate, according to VentureWire. Daver joined Sierra in 2004 and works on the firm’s software investments in the United States and cross-border investments in India. Welihinda started at Sierra in 2006 as an analyst and has been involved with deal sourcing and due diligence on a variety of new investments. www.sierraventures.com
Send Word Now, a provider of on-demand alerting and response services, has appointed industry veteran Tony Schmitz as president and chief executive officer. Schmitz has been an advisor to Send Word Now since 2004 and joined the board earlier this year. In October 2004, Schmitz was a founding General Partner of Pine Street Capital Partners, a New York-based private equity firm where he remains as a managing director. www.sendwordnow.com
Correction: Velocity Interactive Group’s Web site may be found at www.velocityig.com, not at www.velocity.com as reported Tuesday.
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