PE Week Wire: Wednesday, May 28, 2008

Is founder involvement integral to a company’s success, or is his/her primary contribution found in the company’s very formation? It’s the old horse vs. jockey argument, and has been taken in a new direction by Hans Hyde of the University of Aberdeen Business School.

Hyde examined a sample of 6,800 companies formed in Norway between 1996 and 2003, which led to a set of approximately 12,500 unique founders. He then broke the founder sample into two sets: Founders alive at the end of 2005, and those who were dead.

For starters, Hyde found that 181 such founders fell into the expired category. Apparently one morbid takeaway is that entrepreneurs have a 1.7% chance of dying less than a decade into their company’s formation. That might sound high to twentysomethings in Silicon Valley, but the majority of Hyde’s Norwegian entrepreneurs was well over 40.

Moving on, Hyde found that companies with deceased founders underperformed those with living founders – but just barely. The former was five percentage points less likely to be in business four years after formation, while the results are even six years out. There also was no statistically significant difference in annual OROA (operating returns on assets). Hyde suggests that such minor differentiation could mean that a founder’s death is more likely to cause an “adjustment cost” than a cataclysm.

He also considers that his initial study was unduly influenced by the existence of absentee founders, or minority holders. So he also did a sub-study of majority shareholder founders. The upside is that majority shareholders are slightly less likely to die (1.2%). The downside (for founders) is that majority shareholding founders are still operationally disposable. The six-year survival rate for living majority shareholders is 61%, compared to 60% for dead ones. The OROA was the same as in the larger sample (8% compared to 6%).

Hyde concludes: “Founder death has only a slight average negative effect on firm performance.”

I’ve posted the study here for your downloading pleasure.

*** Foundry Group partner Jason Mendelson has started his own blog, after spending the past few years moonlighting over at Brad Feld’s URL. We like Jason, and will keep a close eye on what he has to say – even if it will probably have more to do with music than venture capital.

*** Private Equity Insider is reporting this morning that Citi has pulled the plug on the in-house buyout team it had relaunched last summer. Only group head Bill Comfort remains, although that may be only temprorary. I’ve heard the same thing, and will follow up later today on the website. If you have any info, please pass it along.

*** peHUB First Read

*** I’m pleased to announce that Connie Loizos is going to become a regular blogger over at peHUB. Connie was once my colleague, then left to cover the VC beat for the Merc, and then returned to Thomson Reuters to cover LPs for our print mags. She’ll keep doing some print stuff for VCJ, but I’m thrilled to have her over on this side. Here’s Connie’s inaugural post, on newbie firm Physic Ventures.

*** I finally got a BlackBerry. Not too happy about it. Was I the last holdout?

Top Three

MatlinPatterson Global Advisers has agreed to invest more than $530 million into Standard Pacific Corp. (NYSE: SPF). The move sent the troubled homebuilder’s shares up nearly 70 percent.

Visible World Inc., a New York-based provider of a tech platform that enables automated delivery of customized television advertisements, has raised $25 million in Series C funding. Adams Street Partners and AllianceBernstein co-led the round, and were joined by return backers Comcast Interactive Capital, Viacom, Dawntreader Fund, Time Warner Investments, Grey Ventures and Leucadia National. The company has now raised $61 million since 2000.

Jeff Richards and Jia Fen Wang have joined GGV Capital as a partner and venture partner, respectively. Richards is the former VP of digital content services with Verisign, while Wang was chairman of Bright Dairy & Food Company in China.

VC Deals

Pelago, a Seattle-based provider of software that combines smartphone mapping technology with social networking, has raised $15 million in Series B funding. T-Mobile Venture Fund led the round, and was joined by Reliance Technology Ventures, DAG Ventures and return backers Kleiner Perkins Caufield & Byers, Trilogy Equity Partners and Bezos Expeditions. The new Kleiner Perkins investment comes from its recently-announced iPhone fund.

SkyFire (fka DVC Labs), a San Jose, Calif.-based developer of mobile Web browsers, has raised $15 million in Series B funding. Lightspeed Venture Partners led the round, and was joined by return backers Matrix Partners and Trinity Ventures. The company previously raised a $4.8 million Series A round.

Ontela Inc., a San Diego-based maker of camera phone picture-saving technology, has raised around $10 million in Series B funding. Steamboat Ventures led the round, and was joined by return backers Hunt Ventures, Oak Investment Partners and Voyager Capital. It had raised a $4.5 million Series A round in late 2006.

Kyriba Corp., a provider of Web-based cash and treasury management solutions, has raised $7 million in new VC funding. Coface was joined by return backers GRP Partners and Banque Populaire. The company has now raised around $43.5 million since 2001.

Vopium AS, a Copenhagen-based provider of mobile telecom services for Europeans making international calls, has raised around €4.2 million in VC funding from Enex Group.

Medipacs, a Tucson, Ariz.-based developer of medical devices using hydrogel polymers, has raised $1.65 million in first-round funding led by Mesa Verde Venture Partners.

Buyout Deals

ACON Investments has acquired Chroma Oil & Gas LP, a Houston, Texas-based exploration and production company. The investment enabled Chroma to acquire a set of onshore oil and gas assets in South Texas, East Texas and South Louisiana from an undisclosed private company. No financial terms were disclosed.

The Blackstone Group and Wellspring Capital Management have completed their $1.3 billion take-private buyout of Performance Food Group Co. Performance Food stockholders received $34.50 per share. Performance has now been merged with Vistar Corp., a foodservice distributor already owned by Blackstone and Wellspring.

Buchanan Capital Partners has acquired a majority stake in Aqua Vital, a German water cooler company. No financial terms were disclosed.

Hammond, Kennedy, Whitney & Co. has completed a recapitalization of Airworx Construction Equipment & Supply, an Indianapolis-based provider of aerial equipment rental, sales and services. No financial terms were disclosed.

IKB, a German lender hit hard by the subprime meltdown, has four remaining buyout bidders: Lone Star Funds, Ripplewood, SEB and an investor group whose partners are unknown. TPG and J.C. Flowers had been expected to participate, but are not involved.

PE-Backed IPOs

Yangzhou Chengde Steel Tube Co Ltd. has retained Lehman Brothers to help it explore strategic options, which could include an IPO. The Carlyle Group acquired a 49% stake in the Chinese company last year for $100 million.

PE Exits

Actis has sold its stake in Shunda Holdings Co Ltd., a China-based upstream supplier to the solar power industry, to Suntech Power Holdings Co. Ltd. (NYSE: STP) and an undisclosed investor. No financial terms were disclosed.

Lonza has agreed to acquire Amaxa, a Cologne, Germany–based provider of technologies to the cell discovery market. No financial terms were disclosed. Amaxa has raised VC funding from firms like 3i, Earlybird Venture Capital and TechnoMedia Kapital.

Sharper Image and Linens ‘n Things both face auctions for all or part of their assets.

Firms & Funds

Bank of America will exercise part of an option to increase its stake in China Construction Bank (HK: 0939) to 10.75 percent. The new share purchase would be valued at around $1.86 billion.

The Blackstone Group’s Asia hedge fund practice has targeted an October launch, and is planning to raise between $500 million and $1 billion.

CapMan has agreed to acquire the management companies of Russian private equity fund Norum, from the company’s senior management, DnB NOR Bank and Sitra Management.

Hunt Ventures has closed its first institutional fund with $140 million in capital commitments. The Dallas-based firm was founded in 1998, to invest on behalf of Hunt Consolidated Inc. and HCI founder Ray Hunt. It will use some of the new capital to support existing portfolio companies, and the rest to make new investments.

TPG Capital is targeting $7 billion for a new fund focused on the financial services market, according to LBO Wire. It already has secured a $2.5 billion commitment from GIC and $100 million from the New Jersey State Investment Council.

Sullivan & Worcester LLP has formed a Climate Change Group to address a variety of environment-related business, legal and risk-management issues.

Human Resources

Rutland Partners has promoted Ben Slatter to the position of partner. He had joined the firm in 2001.

Nate Ford has been named head of the M&A group in Faegre & Benson LLP’s Denver office.

In Memoriam

Stuart Moldaw, co-founder of U.S. Venture Partners, passed away Saturday after a brief illness. He was 81 years old, and is survived by his wife, two daughters and four grandchildren.

Moldaw served as a general partner of USVP from 1980 to 1990, and helped form and run such companies as Ross Stores, Gymboree, Home Express, Pic-A-Dilly and Athletic Shoe Factory. He also was a noted philanthropist.

The Moldaw family is planning a private ceremony, and asks that any memorial gifts be sent to the Moldaw-Zaffaroni Boys and Girls Club of East Palo Alto, Eastside College Preparatory School, SFMOMA or the Jewish Community Federation of San Francisco.