peHUB Wire: Friday, September 10, 2010

The clouds are gathering over Times Square, Facebook is taking over the planet, and, having spent time pondering the latest 970-page edition of our home-grown Investment Benchmarks Report, we’re left puzzled.

Why do we have to go back to 1995-vintages and earlier before seeing buyout and mezzanine funds consistently generating a distributions-to-paid-in multiple of more than one? Have distributions really been that bad? And, if so, what does that signify for the secondary market? Must think this through…

…But first some Friday Feedback. Brad Feld, managing director of Foundry Group, struck the biggest chord of the last two weeks. His column attempted to bring some sanity to the debate over whether Super Angels are the new seed-stage VCs. His basic premise: the Super Angel model has its flaws, and earth will continue to need both Super Angels and VCs.

Tom writes: “VCs sure seem to be getting overly defensive about this Super Angel thing. VCs would do better to invest in seed deals and let their successes stand as testament to their strength in this area than continually posting about a problem that may be so small it might be better ‘argued’ in Twitter, than a blog…”

Brad Feld responds: “I’m been a seed investor for 15+ years, both as an angel investor and a VC. Read the article carefully—I’m not defensive at all about Super Angels. I love ‘em and support ‘em. I’m just trying to point out an interesting dynamic that I think merits discussion.”

George: “The idea that VCs will support a sideways investment 5 years down the road feels a bit unlikely Brad. The truth is, most VCs will look to the market to judge the appetite to continue funding a portfolio company and if they don’t see anyone chomping at the bit, the conversations begin taking a different tone. Same path, different end…”

Brad responds: “I disagree with your assertion about sideways investments. I’ve supported a number of them and had plenty that ended up winners. I give you Return Path as a prime example…Three VCs—me, Greg Sands (Sutter Hill), and Fred Wilson hung in from 2000-2005 until Return Path caught its mojo. It started accelerating in 2006 and now dominates a segment (e-mail deliverability) that it pioneered…I’ve got plenty of other examples, but this is one that sticks out whenever someone says ‘but VCs bail after a few years if things aren’t working as planned.’”

*** A piece by Jeff Bussgang of Flybridge Capital Partners called out policy-makers for not doing more to support innovation. This, in turn, inspired Jeff to write an email nearly as long as the column. A sampling:

“…Before looking at policy solutions, which at best will have marginal impacts, we should look to ourselves a bit. C’mon, another Sarbanes-Oxley rant? Does a few more firms going public with a bit lower costs make them hire that many more people that much faster? Another bi-partisan commission? We’re all capitalists here, yet we’re ignoring the biggest potential impact of all: the application of private capital. Perhaps the VC community should turn its focus outward beyond IT, biotech and clean tech for other great innovations, in other great industries, with other great entrepreneurs…What impact would the application of private sector capital have on areas like agriculture, building, education, etc.? I’m willing to bet that the sort of world class investing discipline that VCs brin! g to the technology world could drive similar opportunities in a number of industries, and that impact will be far greater than a few policy changes could ever hope to achieve.”

Top Three

The Blackstone Group’s $4.7 billion buy of Dynegy has received approval from the U.S. Department of Justice and the Federal Trade Commission. The regulators also allowed a Blackstone affiliate to sell four of Dynegy’s natural gas-fired assets to NRG Energy. The sale of Dynegy to Blackstone is still subject to customary closing conditions, including the approval of Dynegy shareholders.

The Securities and Exchange Commission is investigating some investment advisory firms. The Wall Street Journal reported the probe is focused mainly on firms that channel money into hedge funds. However, the WSJ said the sweep could include alternative investment advisers focused on private equity and other registered advisers catering to pension funds. The SEC has identified about a dozen firms for questioning, but the list could increase, the newspaper added.

Kohlberg Kravis Roberts & Co. and TPG are potentially interested in Foster’s wine business, but they are not currently working on rival bids, sources told Reuters. The Financial Times said Thursday other PE shops, including KKR and TPG, were working on bids. Earlier this week, Australia’s largest brewer rejected a private equity offer worth up to $2.5 billion for its wine business. The name of the bidder was not disclosed.

VC Deals

East Africa Capital Partners Ltd. is planning a 20 billion shilling ($247 million) fund, Bloomberg reported. The vehicle will focus on information technology and real estate investments. East Africa Capital is a Nairobi, Kenya-based venture capital firm.

Ooyala Inc., a Mountain View, Calif.-based provider of video platform applications and services, has raised more than $22 million in a round of financing from new and existing investors. CID Group and ITOCHU Technology Ventures led the round. Current investors (Sierra Ventures and Rembrandt Venture Partners) also participated. Ooyala, which has raised a total of $42 million, expects a second closing within the next 60 days.

Good Start Genetics Inc. completed an $18 million Series A financing. The round was led by OrbiMed Advisors, Safeguard Scientifics Inc. and SV Life Sciences. Good Starts of Boston plans to use proceeds to complete the development and launch of its pre-pregnancy genetic test.

Buyout Deals

The Dallas-based middle-market buyout shop Highlander Partners, along with Flexpoint Ford, a private equity firm focused on healthcare and the financial service sectors, has acquired the practice management company Eagle Hospital Physicians. Terms of the deal weren’t disclosed.

Vestar Capital Partners V LP’s affiliates (Mountain Acquisition Corp. and Mountain Merger Sub Corp.) and Health Grades Inc. agreed to extend the offer period for proposed $8.20 a share tender offer for all Health Grades’ shares. The offer’s new deadline is September 16 at 9 AM, New York City time.

Limited Partners

Jane Mendillo, who manages Harvard University’s endowment fund, is disenchanted with private equity despite a 16.2% return in the asset class, according to the Wall Street Journal. The largest college endowment by assets in the U.S. is now valued at $27.4 billion, up from $26 billion a year earlier, the story said. Over the past decade, the Harvard endowment invested heavil! y in buyout funds but the field “has become more and more crowded—with capital, with managers and with investors,” Mendillo said in the story.

PE Exits

Publicly traded Maxim Integrated Products, has acquired the U.K.-based startup Phyworks for $72.5 million in cash. Phyworks, sold by a consortium of investors that includes Add Partners, Advent Venture Partners LLP, Atlas Venture and DFJ Esprit (formerly Esprit Capital Partners), makes high-speed communications chips.

Candover Investments plc’s Candover Partners Ltd. unit agreed to sell Equity Trust Holding Sarl, a provider of business administration and fiduciary services, to Doughty Hanson for an enterprise value of €350 million ($444 million). The deal represents a 24 percent uplift to the valuation of the business as at 30 June 2010 and a return of 1.5 times cost.

Claim Jumper Restaurants LLC filed for bankruptcy protection in a Delaware court. The Irvine, Calif.-based company plans to sell its assets and operations to an affiliate of Canyon Capital Advisors LLC. Claim Jumper listed assets in the $50 million-to-$100 million range and liabilities in the $100 million-to-$500 million range. The casual restaurant chain is listed as a portfolio company on the web site of Leonard Green & Partners.

PE-backed IPOs

Barclays Private Equity plans to raise at least €1.5 billion ($1.91 billion) for a new fund, as the firm prepares for a spin off from its parent bank in a few months. Its parent will reportedly not contribute to the proposed Fund 4.

Human Resources

Dave & Buster’s, an entertainment/restaurant chain, said Thursday that Starlette Johnson has resigned as president, chief operating officer and director effective Sept. 30. Oak Hill Capital Partners, a PE shop with more than $8.4 billion of committed capital, bought Dave & Buster’s in June.

Pageonce, the “personal finance assistant” startup, today announced Steve Schultz as its new COO. Schultz joins Pageonce from Yahoo!, where he was head of Yahoo! Finance and Yahoo! Real Estate businesses. Pageonce, based in Palo Alto, is backed by Pitango Venture Capital and Hillsven.

Navigation Capital Partners, an Atlanta, Ga.-based middle-market private equity firm, hired Marissa Swesey as a senior analyst. Swesey will manage the firm’s communications with investors and key external relationships. She previously worked as an analyst for Graham Partners.