peHUB Wire: Thursday, March 4, 2010

Most of the debate over Chris Dodd’s financial reform bill has involved the proposed creation of a consumer protection agency. But there also are some smaller provisions in the 1,139-page bill that would directly impact angel investors and startup companies.

First up is Section 412, which would change the requirements under which someone can qualify as an “accredited investor.” Since 1982, individuals have been considered “accredited” if they had at least $1 million in personal assets and/or annual income of $200,000 ($300,000 in the case of a joint filing). Under Dodd’s proposal, however, the threshold would become subject to “price inflation” adjustments at least once every five years.

The bill does not explain the metrics that would be used to determine “price inflation,” although a 2007 SEC report used a Department of Commerce price index to project a 90% hightening of the asset floor. That same index would have caused the individual and joint income tests to increase to $388,000 and $582,000, respectively.

Accredited investor standards were originally created under a thesis that richer folks would have a better understanding of financial risk than would poorer folks, or would at least have the resources to hire knowledgable financial advisors. Moreover, while an accredited investor may lose his shirt on a poor private placement investment, someone of lesser means might also lose his pants, shoes and house.

I sort of accept the original logic, but fail to understand why Dodd wants to raise the standards. One million dollars may not be what it was in 1982, but it’s still a boatload of cash (if you run in circles where it is! n’t, just trust me on this). So is $200k in annual income. Moreover, i t doesn’t seem that the doings of accredited investors — particularly those on the lower end of the qualification ladder — had one whit to do with the financial crisis, nor do they pose any future risk on a systemic level.

Not surprisingly, the National Venture Capital Association and the Angel Capital Association oppose Dodd’s proposed changes – arguing that they would drain the angel investor pool at a time when seed-stage capital is already at a premium. It’s a valid point, but only at the Midwestern margins. After all, how many active angels in startup-heavy states aren’t worth at least $2 million?

More valid is the NVCA’s issue with another bill provision, which would repeal the federal preemption of state laws regulating securities offerings under Regulation D. Today, a startup can raise money from accredited investors in multiple states, and file with the SEC under a common offering document. Rules overseeing the cash you raise from John i! n California are are the same as the ones overseeing cash you raise from Jane in Florida.

Dodd’s bill, however, would allow each state to create its own set of regulations. Not only could that become a paperwork nightmare (read: larger legal/accounting costs), but it also could delay startup fundings if one state has a longer waiting period than another. Moreover, it actually could favor startup formation in larger states at the expense of startup formation in smaller states (folks might just try to get all their cash in Cali or New York).

I’m not sure if Dodd threw this in as an olive branch to states-rights conservatives, or if it has something specific to do with his home state of Connecticut. Or perhaps, as NVCA president Mark Heesen suggested, it’s to appease state regulatory agencies that keep carping about continually having their job functions shifted federal.

I have put in a call to the Senate Banking Committee’s press! office, but have not yet heard back. Really hoping too, though, becau se right now I can’t figure out any net-positive reason for these changes to be included in the final legislation…

Top Three

Morgan Stanley has found buyers for its 34.3% stake in Chinese investment bank CICC, but declined to name them. Reuters previously reported that KKR and TPG Capital were in talks for the position, which is expected to garner more than $1 billion. Morgan Stanley originally paid just $37 million.

Austin Ventures has partnered with three MySpace founders to acquire social gaming platform MindJolt. No financial terms were disclosed, although TechCrunch reports that AV has committed up to $20 million for the MindJolt and additional acquisitions.

NorthgateArinso, a KKR portfolio company that provides HR software and services, has agreed t! o acquire the HR management unit of Convergys (NYSE: CVG). The deal is valued at $100 million in cash, including an $85 million up-front payment.

VC Deals

Vaxart Inc., a San Francisco-based developer of oral-delivery vaccines, has raised $12.5 million in Series B funding led by Care Capital.

ShopIgniter Inc., a Portland, Ore.-based provider of multi-channel ecommerce software, has raised $3 million in Series A funding led by Madrona Venture Group.

Local Dirt, a Madison, Wis.-based developer of agricultural logistics software for local food markets, has raised an undisclosed amount of VC funding from Peak Ridg! e

Buyouts Deals

High Road Capital Partnershas acquired Celco Controls, a Winnipeg-based maker of customized automation control systemsfor a variety of industries. No pricing terms were disclosed. Bank of Montreal provided senior debt financing, while BMO Capital provided subordinated notes.

ProSiebenSat1, a Germany-based commercial broadcaster owned by KKR and Permira, said it will keep its Q4 dividend flat. It also refrained from providing a 2010 outlook.

PE-Backed M&A

HomeAway Inc., an Austin, Texas-based operator of an online vacation rentals website, has acquired, a global online directory of bed-and-breakfast properties. No financial terms were disclosed. HomeAway has raised over $480 million in VC funding, from firms like Technology Crossover Ventures, Institutional Venture Partners, Redpoint Ventures, Trident Capital and Austin Ventures.

Playdom, a Mountai! n View, Calif.-based social gaming company, has acquired Bellevue, Wash.-based Facebook developer Offbeat Creations. No financial terms were disclosed. Playdom company recently raised a $43 million Series A round at around a $300 million post-money valuation, from New Enterprise Associates, Lightspeed Venture Partners and Norwest Venture Partners.

Pregis Corp., a Deerfield, Ill.-basedsupplier of protective packaging solutions,has acquired IntelliPack, a Tulsa, Ok.-based developer of foam-in-place packaging technology. No fina! ncial terms were disclosed. Pregis is a portfolio company of AEA Inves tors, while VentureWire reports that IntelliPack has raised VC funding from Red River Ventures and First Capital Group.

Worksoft Inc., a Dallas-based provider of solutions for accelerating deployment of SAP applications, has acquired TestFactory, aprovider of performance and life cycle management solutions. No financial terms were disclosed. Worksoft has raised over $25 million in VC funding from firms that include Austin Ventures and Crescendo Ventures.

PE Exits

Afilias Ltd., a Dublin, Ireland-based provider of Internet infrastructure services, has acquired DotMobi, a Dublin-based provider of Internet domain addresses for mobile phones. No financial terms were disclosed. DotMobi has received investments from Visa International, Ericsson, Google, GSM Association, Hutchison 3, Microsoft, Nokia, Orascom Telecom, Samsung Electronics, Syniverse, T-Mobile, Telefónica Móviles, Telecom Italia and Vodafone.

Pacific Equity Partners, an Australian private equity firm, reportedly is considering a sale or IPO for its Hoyts cinema chain, which is believed to be valued at up to A$1 billion.

Firms & Funds

Advent International plans to open an office in New York City. It will be led by managing director Tim Franks, who is relocating from London. Other staffers will include two principals relocating from Boston — Mohammed Anjarwala and Andrew Crawford — and former Sun Capital pro Kevin Feinblum.

Harbor Pacific Capital, a Los Altos, Calif.-based VC firm focused on tech companies in the U.S. and Asia, has held a $32.8 million first close on its debut fund, according to a regulatory filing.

SVG Capital shares jumped today after reporting! that Permira — a buyout firm in which SVG is the largest investor — cut debt and saw significant portfolio performance improvements.

Human Resource

Mike Callow has joined the London office of European tech advisory Clipperton Finance. He previously was with private equity firm Kennet Partners.

David Istock has joined Cowen Group as a San Francisco-based senior professional focused on technology M&A. He previously was with UBS.

Mark Montgomery has joined Claritas Capital as the firm’s first entrepreneur-in-residence. He was co-founder of Echo, a Nashville, Tenn.-based digital media and services company acquired by IAC/Ticketmaster in 2007.

Broadpoint Capital has named Michael Volcker as head of the investment grade group in its debt capital markets unit. He joined the firm last July from Bank of America, and had been running Broadpoint’s preferred/hybrids unit within the debt capital markets division.