peHUB Wire: Monday, March 30, 2009

Early Saturday morning, Ross Levinsohn confirmed reports that Jon Miller — his investment partner for the past several years and former CEO of America Online — is heading back to the operating world, as News Corp.’s new head of digital media. The deal isn’t official yet, but is expected to close once Miller’s non-compete with Time Warner expires tomorrow at midnight.

Most of the subsequent coverage has focused on what Miller’s move could mean for News Corp., but I’m more interested in the ramifications for Velocity Interactive Group — a venture capital firm that Miller and Levinsohn helped form in late 2007, via a partnership with the dysfunctional remains of ComVentures.

My initial reaction was that it would likely prove fatal, particularly given Velocity’s difficulty raising new money even with Miller. On the other hand, it’s also possible that Miller’s presence was a double-edged sword for certain LPs, given his well-known (and now indisputable) wanderlust. Not that his departure is a net positive, but perhaps it’s more a flesh wound than a death blow.

I discussed both scenarios over the weekend with Levinsohn, whose typical ebullience was subdued by either sadness or exhaustion (or both). “This is not catastrophic for Velocity, or the end of the firm,” he said. “But losing John is obviously very disappointing for me personally. He’s a good friend, and I’ve loved working with him.”

Levinsohn continued: “Jon, and to some degree me, got offered jobs all the time. Jon would seem to get offered a new one each week. LPs said it was distracting, so in that sense there is now more stability, more certainty. I’m not sure that there is a perfect scenario in which to lose a partner, but there are worse things than to lose one to one of the biggest buyers of Internet companies, and to do so on good terms. Plus, now I guess he’s one of our outside limited partners.”

Finally, Levinsohn insists that Miller never had an interest in runn! ing or buying Yahoo, as had been reported in a UK paper last November. “We had numerous conversations about what we could do to help, but they were always from an investor perspective. Our discussions with Icahn and others were about making investments or taking board seats, not about taking over.”

Those Yahoo discussions didn’t lead to any transactions, but they are worth keeping in mind when looking at Velocity’s future activities. It has very little dry powder remaining from the $300 million fund that ComVentures raised in 2005, and could try bolstering its reputation via engagements that involve more strategic advice than actual dollars. For example, Velocity participated last year in a bid for CNet, which also involved hedge fund Jana Partners and ventur! e firm Spark Capital. Unlike Jana and Spark, however, Velocity did not contribute equity — and only received a few million dollars in fee-related compensation.

Levinsohn said that Velocity is close to finalizing a pair of new deals, but declined to do into further detail. He added that Miller’s four board seats — Broadband Enterprises, CrowdFusion, Publish2 and True/Slant — will probably be reassigned to both himself and fellow Velocity team member Mickie Rosen.

It does not appear that Miller’s departure can trigger a key-man clause in the existing fund, which means that LPs will not be asked to ratify a continuation of the investment period. So business continues, even if it’s not as usual.

*** Castanea Partners this morning announced that it is acquiring Urban Decay, a premium cosmetics brand that sells through specialty retailers like Sephora. No financial terms disclosed, except that it was an all-equity transaction. One of the precious few such deals getting done right now, so I spent some time chatting about it with Castanea co-founder Rob Smith. Two quick quotes of note:

• “It’s an affordable luxury and, in some senses, is a replenishment business. In the aggregate, beauty businesses tend to do better than apparel businesses in a recession. If you have a beauty regimen, you’re more likely to stick by it, whereas you can keep wearing what’s in your closet without spending new money. It’s softened, but not as much as apparel or accessories.”

• “This is a nicely profitable business that, in other times, might have had some leverage available to it. But leverage isn’t required for us to see our way to a large return, and we would have never taken the last turn anyway.”

*** GameTime: With just three games left to go, we have a new leader: Dan Dorman, an associate with seed-stage venture firm G-51 Capital Management. Dan’s got 111 points so far, with UNC topping Michigan State in the final game. Close on his heels with 104 points a piece are Mike Gaiss of Highland Capital Partners (UNC beating UConn) and Cris Allen of Windjammer Capital Investors (who has no real shot, since he picked Louisville to win). Continued good luck to all…

Top Three

Advent International has agreed to acquire a 51% stake in the processing business of Fifth Third Bancorp (Nasdaq: FITB). The deal values the unit at $2.35 billion, with Advent expected to contribute $561 million in equity.

Castanea Partners has acquired Urban Decay Cosmetics LLC, a Newport Beach, Calif.-based premium cosmetics brand selling through specialty beauty retailers, from The Falic Group. No financial terms were disclosed.

Essex Woodlands Health Ventures has closed its eighth fund with $900 million in capital commitments. It will focus on growth equity investments in life sciences companies, across North America, Europe and Asia.

VC Deals

BioVex Inc., a Woburn, Mass.-based drug company whose lead candidate is designed to help treat advanced melanoma, has raised $40 million in a first close of its Series F round. Forbion Capital Partners led the round, and was joined by return backers including Credit Agricole Private Equity, Harris & Harris Group, Innoven Partners, New Science Ventures, Triathlon Medical Venture Partners and Scottish Equity Partners. The company previously raised around $110 million.

LensX Lasers Inc., an Aliso Viejo, Calif.-based maker of cataract surgery lasers, has raised $22.36 million in Series B funding, according to a regulatory filing. Versant Ventures was joined by return backers InterWest Partners and SV Life Sciences. The LenxX founding team is the sale group that founded IntraLase, a VC-backed company acquired by AMO in 2007 for $808 million.

Pliant Technology, a Milpitas, Calif.-based developer of solid-state drive storage devices for enterprise computing, has raised $15 million in Series C funding. Menlo Ventures led the round, and was joined by return backers Arcturus Capital, Divergent Ventures and Lightspeed Venture Partners. It had previously raised $12.4 million.

TargAnox, a Boston-based drug startup focused on oxidative stress, has raised $5.1 million in Series A funding, according to Xconomy. Ascent Biomedical Ventures led the round, and was joined by Partners Innovation Fund.

City Sports, a Boston-based athletic retailer, has raised $3.5 million in new equity funding, according to a regulatory filing. The company is owned by Highland Consumer Fund, a growth equity fund affiliated with VC firm Highland Capital Partners.

Novira Therapeutics Inc., a Philadelphia-based developer of antiviral therapeutics, has raised $550,000 in seed funding from BioAdvance.

TweetDeck, a UK-based maker of free software that helps organize Twitter streams, has raised $300,000 in seed funding led by Betaworks, according to a regulatory filing. Peter Kafka had previously reported on the round, saying that it would come in south of $500,000.

InStream Media Inc., a Waltham, Mass.-based provider of targeted marketing programs delivered through brick and mortar retailers at the point of sale, has raised an undisclosed amount of Series A funding. CommonAngels and Stage 1 Ventures co-led the round, and were joined by individual angels.

Buyout Deals

Charter Communications has filed for Chapter 11 bankruptcy protection. Under a pre-arranged reorganization plan, Charter bondholders like Apollo Management will invest more than $3 billion into the company in exchange for a m! ajority equity position.

Flight Options LLC, a Cleveland-based private aviation company, has raised an undisclosed amount of new funding from Directional Capital and existing shareholder Resilience Capital Partners. Resilience and H.I.G. Capital first invested in Flight Options last year.

Ritchie Capital has objected in a court filing to the “fire sale” of bankrupt Polaroid Corp., which is expected to be auctioned off today to Genii Capital.

Warburg Pincus has agreed to buy the ice machine business of Manitowoc Co. (NYSE: MTW) for $160 million. Manitowoc is selling the unit in order to meet anti-trust requirements for its $2.7 billion acquisition of Enodis Ltd.

PIPE Deals

LoopNet Inc. (Nasdaq: LOOP) has agreed to sell $50 million in convertible preferred stock to Calera Capital and existing backers Trinity Ventures and Rustic Canyon Partners. The securities would be convertible into LoopNet common stock at $6.72 per share, or a 10% premium to Friday’s closing price. LoopNet is a San Francisco–based online marketplace for commercial real estate and businesses for sale in the United States.

PE Exits

3i Group has sold its 12.6% stake in TTP Group PLC back to the company for an undisclosed amount. TTP is a European technology, product development and incubation company.

CI Capital Partners has agreed to sell Valley National Gases, an Independence, Ohio-based distributor of industrial and medical gases and welding supplies, to Matheson Tri-Gas Inc., a subsidiary of Taiyo Nippon Sanso Corp. No financial terms were disclosed.

HitecVision has agreed to sell Technor AS, a maker of safety products like fire prevention equipment, to Simtronics ASA for approximately $27.4 million.

Firms & Funds

Charles River Ventures has closed its fourteenth fund with $320 million in capital commitments. peHUB had previously reported that the fund was closing, but we were a bit low at $300 million.

New Capital Partners has closed its second fund with $140 million in capital commitments. The private equity firm focuses on small-cap and lower mid-market businesses in the southeastern U.S. and Texas. Atlantic-Pacific Capital served as fund placement agent.

Russia Partners has raised $800 million for its third fund, which will focus on the Russian pharmaceutical, food retail, dairy, metallurgy and services sectors.

The Carlyle Group reportedly is raising its second Asia real estate fund with a $1 billion target.

Crédit Agricole Private Equity has formed investment partnerships with three seed capital organizations: Soridec, a regional fund in France’s Languedoc Roussillon area; BioGeneration Ventures, a Dutch group focused on life sciences; and Objectif Gazelles, an angel group.

Morgan Stanley ranked as the top global M&A adviser, in Q1 league tables compiled by Thomson Reuters.

Human Resources

Jeff Hammer and Paul Sanabria have joined Houlihan Lokey to co-lead a team focused on the secondary market for partnerships and other private investments held by institutional investors. They were previously with Bear Stearns & Co.

Mike Reid has joined Frog Capital (f.k.a. Foursome Investments), a London-based private equity firm focused on the cleantech and IT sectors. He previously was part of 3i Group’s growth equity team.

Jean-Michel Steg, former Citigroup banking chief for France and Belgium, has joined The Blackstone Group as a senior managing director in the firm’s corporate M&A and restructuring advisory group. He will work out of a new Paris office, which he also will lead.

Dawn Hudson has joined strategic advisory The Parthenon Group, as vice chair. She previously was president and CEO of Pepsi Cola, North America. At Parthenon, she will focus on the consumer, retail and sports management sectors.