peHUB Wire: Monday, April 20, 2009

As I warned last week, the first quarter was not kind to venture capitalists. Actually, it’s more that venture capitalists weren’t kind to entrepreneurs. Or perhaps the economy wasn’t kind to limited partners, which caused venture capitalists to hoard their cash. No matter how you pick your posit, the end result is that VC investments were shockingly low over the first three months of 2009.

Venture capitalists disbursed just $3 billion into 549 companies last quarter, according to data released over the weekend by the MoneyTree three (PwC, NVCA & Thomson Reuters). That’s a 47% dollar drop from the $5.7 billion disbursed in Q4, and a 61% drop from the $7.74 billion disbursed in Q1 2008. The number of companies funded didn’t decrease quite as dramatically — suggesting that lowered valuations partially helped drive down the dollar numbers — but still were off 36% and 43.8%, respectively.

Every major industry sector experienced double-digit declines, while the percentage of first-time fundings stayed constant at around 20% (although the value of such deals fell by 48%).

The quarter’s largest deal was a $50 million Series E round for Anacor Pharmaceuticals, which came from Aberdare Ventures, Care Capital, GlaxoSmithKline, Rho Ventures, Schering and Venrock Associates. Twitter ranked ninth with $35 million. If you’re looking for a tiny silver lining, there already have been at least two larger deals in Q2 (FleetCor and A123).

The quarter’s busiest firm was Oak Investment Partners, which made 12 investments. Other (quasi) busybodies included SV Life Sciences (11), Draper Fisher Jurvetson (11), Venrock (11), Highland Capital Partners (10), Menlo Ventures (10) and Polaris Venture Partners (10).

It’s also worth noting that the decrease was not region-specific. Silicon Valley continued to lead the geographic pack, but fell 42% from Q1. New England followed, but was down 51 percent. The New York Tri-State region outperformed with its negative eight percent, while Southern California fell 43 percent.

You can download all the data spreadsheets by clicking here.

* I spent the weekend in Chapel Hill, as a judge of the 10th VCIC Finals. It was my fourth year participating, and can safely say that the quality of both the teams and the presenting companies improve each year.

A big congratulations to the winning team from UNC, which included Tom Bichard, Lewelyn D’Souza, Andrew Pearson, Diana Selezeanu and Elin Szymanowski.

The team from Oxford came in second (first European participant to place), while defending champs MIT rounded out the top three. Also wanted to give a special thanks to the four companies that presented, sat through eight straight due diligence sessions, negotiated terms with the teams, etc. They were: Avavia Biologics, Coldstor Data Inc., Entex Technologies and Republic of Fun. I’ll post a bit more on all this later today at peHUB.

* Steve Rattner situation: Erin was pretty thorough on Friday over at peHUB, but I do want to add one note: It’s incumbent on Rattner to either step down as auto czar, or to explain himself in a satisfactory manner. Maybe the SEC allegations are untrue. Maybe there is a perfectly acceptable explanation for how one of Quadrangle’s portfolio companies ended up in bed with Chooch. But Rattner is now in a position of public authority, and should be compelled to provide such information, if it exists.

Top Three

GlaxoSmithKline has agreed to acquire Stiefel Laboratories Inc., a Coral Gables, Fla.-based skincare pharmaceutical company that is partially owned by The Blackstone Group. The $3.6 billion acquisition would include $2.9 billion in cash, up to $300 million in cash earn-out payments and the assumption of $400 million in net debt.

WPP Group has sued some of its fellow investors in Spot Runner, accusing them of running a “pump and dump” scheme that netted $54 million at the expense of WPP and other company shareholders. Among the defendants are Battery Ventures and Index Ventures, plus Spot Runner’s co-founders and former AOL president Bob Pittman.

First Reserve Corp., an energy-focused private equity firm, has closed its twelfth fund with $9 billion in capital commitments. Limited partners include CalSTRS and CalPERS.

VC Deals

Meru Networks Inc., a Sunnyvale, Calif.-based WiFi company, has raised $30 million in fifth-round funding. Vision Capital Advisors led the round, and was joined by return backers Clearstone Venture Partners, NeoCarta Ventures, BlueStream Ventures, The D. E. Shaw Group, Evercore Partners, Tenaya Capital and Monitor Ventures. The company has now raised over $110 million in total VC funding since its 2002 inception.

BlueStripe Software, a Morrisville, N.C.-based provider of application service management solutions for IT infrastructure, has raised $8 million in Series B funding. Valhalla Partners led the round, and was joined by return backer Trinity Ventures.

Glycos Biotechnologies Inc., a Houston-based bio-processing company that uses carbon sources to produce chemicals, has raised $5 million in Series A funding from Draper Fisher Jurvetson and DFJ Mercury.

Lavante (f.k.a. AuditSolutions), a San Jose, Calif.-based provider of recovery audit solutions, has raised $5 million in Series B funding. Return backers include ATA Ventures and Venrock. The company has now raised $10 million.

Buyout Deals

Riverside Partners has sponsored a recapitalization of IZI Medical Products, a Baltimore-based provider of medical markers used in image-guided surgery, radiology and radiation therapy. No financial terms were disclosed for the deal, which was done in partnership with company management.

VenGrowth Partners has acquired the assets of Roll-Tite Inc., a Canadian maker of retractable metal covers for flat-bed trailers. No financial terms were disclosed. VenGrowth had originally acquired Roll-Tite in 2007, but the company was placed into receivership this past February.

Each week, peHUB posts a roundup of recent PE-backed downgrades. Here’s the latest.

PE-Backed IPOs

Ellora Energy Inc., a Boulder, Colo.-based oil and gas company, has withdrawn registration for an IPO. The company, a portfolio company of Yorktown Energy Partners, had planned to offer around 10.21 million shares at between $17 and $19 per share. Ellora had planned to trade on the Nasdaq, with Merrill Lynch and Raymond James serving as co-lead underwriters. Ellora had planned to trade on the Nasdaq, with Merrill Lynch and Raymond James serving as co-lead underwriters.

PE-Backed M&A

Schurman Fine Papers, a Weston Presidio portfolio company doing business as Papyrus, has sold its wholesale division to American Greetings Corp. (NYSE: AM) for approximately $18 million in cash and $2 million in equity (for a 15% stake in Schurman). As part of the deal, Schurman has acquired the retail store operations of American Greetings for approximately $6 million.

Firms & Funds

Abbott Capital Management has closed its sixth fund-of-funds with more than $1 billion in capital commitments. The vehicle will invest in VC, growth equity, buyout and special situations funds.

Bank of America Corp. (NYSE: BA) reported earnings this morning, topping analyst estimates but reporting an unexpectedly large increase in troubled loans.

Coller Capital and HarbourVest Partners are considering bids for 3i Group’s 400 million venture capital fund, according to UK newspaper the Independent.

Human Resources

Timothy Lewis has joined Atlantic Street Capital as a partner. He previously was a partner with turnaround consultancy CRG Partners Group.