peHUB Wire: Tuesday, July 27, 2010

There were a dozen venture capital deals announced yesterday, representing more than $100 million in raised capital. But this morning I’d like to focus on less than 1% of that tally: The $975,000 round for LearnBoost, which is developing a Web-based gradebook for teachers.

Not interested in online education innovation? That’s ok, because this column is more about the financing than the company itself.

Specifically, LearnBoost raised its $975k from four “big” venture capital firms: Atlas Venture, Bessemer Venture Partners, Charles River Ventures and RRE Ventures. It also had a bunch of angel participation – including from James Hong and Naval Ravikant – which means the average VC firm invested around $230k (assuming an even split and $10k per angel – all of which may be wrong).

Seems like mighty wide syndication for such a small deal, and perhaps plays into the whole “seed-stage bubble” meme.

So I spent some time on the phone with Rafael Corrale! s, a LearnBoost co-founder who thought up the company while at Harvard Business School. Here was his basic explanation:

“With a company like mine, you usually either take no VCs or a couple of VCs. If you take none, you’re not married to any one firm when it’s time to raise the next round. But if you raise from a couple and one or both pass on the next round, you’re dead in the water. So we’re doing the extreme – by having four, we’re removing the importance of idiosyncratic reasons why one or two VCs could pass.”

In other words, he’s (very) worried about signaling risk. He acknowledges that a similar problem could arise if three of the firms punt next time around, but adds that such a scenario probably means the company really doesn’t deserve that next round.

Now not every startup has the luxury of such excess VC fawning – other firms have offered to invest since LearnBoost closed the round last month – but Corrales seems to be proving a Chris Dixon’s ! recent argument that the seed-stage boom is being driven by smarter entrepreneurs. He even has established a common monthly reporting process to all investors, so as to preempt redundant questions that would otherwise distract the company from the business of its business.

But at what point to dumber entrepreneurs simply begin aping the smarter ones, leading the boom to morph into a bubble?

A bunch of bloggers suggest that we’re already there, as evidenced by an influx of new seed-stage firms, the institutionalization of super-angels and “big VC” participation in deals like LearnBoost. The data itself shows more ambiguity. For example, CB Insights just released a report showing that seed-stage valuations actually are declining in Boston and New York.

My gut on this is that the seed-stage market is still more upswing than bloated downswing. Lots of VC-backed industries remain rightly unaffected – biotech, tel! ecom, cleantech, etc. – and no existing VC shop I know of has significantly reconfigured its investment strategy toward seed-stage deals (CRV and Atlas, for example, have had seed-stage funding programs for years). Moreover, we need to remember how large the seed-stage void was just a year or two ago. Finally, I believe that the Web savvy of many seed-stage investors — and blogosphere emphasis on seed-ready B2C tech deals — may be exaggerating their importance vis-à-vis venture capital as a whole.

That said, I’m interested in getting your thoughts: Is a deal like LearnBoost just a case of a hot startup attracting lots of VC interest, and managing to add lots of networks without too much accompanying dilution? Is it a sign of big VC desperation? Is there a bubble and, if so, who will it hurt most when it pops? And what important questions am I missing?

Top Three

Pace PLC has agreed to acquire 2Wire Inc., a San Jose, Calif.-based provider of broadband service delivery platforms. The deal is valued at $475 million in cash, inclusive of $55 million of 2Wire cash on hand. 2Wire raised nearly $200 million in VC funding since 1998, although some backers sold out in a secondary offering two years ago to strategics like AT&T and Alcatel-Lucent. Remaining shareholders include Technology Crossover Ventures, Meritech Capital Partnersand Oak Investment Partners.

Lion Capital has agreed to buy French frozen food company Picard Surgeles from BC Partners. No financial terms were disclosed, but published reports put the price-tag at around $1.9 billion.

Solera Network! s, a South Jordan, Utah-based provider of network monitoring and forensics, has raised $15 million in Series C funding. Trident Capital led the round, and was joined by return backers Allegis Capital and Canopy Ventures.

VC Deals

Immune Design Corp., a Seattle-based, has raised $32 million in Series B funding. ProQuest Investments led the round, and was joined by return backers Column Group, Versant Ventures and Alta Partners.

Xtreme Power Inc., a Kyle, Texas-based maker of energy storage and power management systems, has raised $29.5 million in new VC funding. Return backer Sail Venture Partners was joined by new investors Bessemer Venture Partners,Dow Chemical Co., Fluor Corp. were joined byPOSCO and SkyLake Incuvest and Co.

BuzzLogic, a San Francisco-based provider of software that helps marketers monitor blogosphere conversation, has raised $8.8 million in Series B funding. Return backers include Adams Capital Management andAckerley Partners. The company previousl! y raised $9.6 million.

Elemental Technologies, a Portland, Ore.-based provider of massively-parallel video processing solutions, has raised $7.5 million in Series B funding. Steamboat Ventures led the round, and was joined by return backers General Catalyst and Voyager Capital.

Caringo Inc., an Austin, Texas-based provider of object based storage software for digital content, has raised $5 million in new VC funding. No investor information was disclosed, but the company previously raised capital from Austin Ventures and Vodafone Ventures.

HireVue Inc., a Salt Lake City-based provider of video interviewing and decision management solutions, has raised $5 million in Seri! es B funding. Granite Ventures led the round, and was joined by return backer JCP Capital.

Workstreamer, an Austin, Texas-based provider of a real-time business listening platform, has raised $3.5 million in Series A funding from Austin Ventures.

Great Lakes Pharmaceuticals Inc., a Cleveland-based developer of an antimicrobial catheter lock solution, has raised $3.1 million in Series B funding. Charter Life Sciences led the round, and was joined by Early Stage Partners and return backers Everett Partners, Ohio TechAngel Fund and North Coast Angel Fund.

ConnectYard Inc., a Wayne, N.J.-based developer of a centralized social media communications platform for education institutions, has raised $500,000 in Series ! A funding from the Jumpstart NJ Angel Network.

Photizo Group Inc., a Versailles, Ky.-based research and consulting firm for the managed print services market, has raised an undisclosed amount of funding from Meritus Ventures.

Buyouts Deals

Actis has sponsored a management buyout of Mediterranean Smart Cards Co., a Egypt-based electronic payment processor that operates in over 20 African nations. No financial terms were disclosed.

Angel Broking, an Indian stock brokerage and wealth management firm, is in talks to raise upwards of $64 million from private equity firms like Blackstone Group, General Atlantic and TPG Capital.

Artissimo Designs, a provider of moderately-priced wall decor, has raised an undisclosed amount of equity funding from Huron Capital Partners.

Parallax Capital Partners has acquired Daptiv Inc., a Seattle-based provid! er of on-demand project and portfolio management software and services. No financial terms were disclosed. Daptiv had raised nearly $40 million in VC funding from Bay Partners, Kennet Venture Partners, Pinpoint Venturesand Vault Capital.

The Riverside Company has acquired Celvitae, a Madrid, Spain-based cord blood bank. No financial terms were disclosed.

PE-Backed IPOs

MakeMyTrip Ltd., an Indian online travel portal, has filed for a $100 million IPO. It plans to trade on the Nasdaq under ticker symbol MMYT, with Morgan Stanley serving as lead underwriter. The company reports a $6.2 million loss for the fiscal year ending March 31, on $83.56 million in revenue. Shareholders include Softbank Asia Infrastructure Fund (51.32% pre-IPO stake), Tiger Global Private Investment Partners(12.14%), Helion Ventures (11.97%) and Sierra Ventures (7.98%)

MediaMind Technologies Inc. (f.k.a. Eyeblaster), a New York-based provider of digital marketing services and technology, has set its IPO terms to 5 million shares being offered at between $14 and $16 per share. It would have an initial market cap of approximately $285 million, were it to price at the high end of its range. The company plans to trade on the Nasdaq under ticker symbol MDMD, with J.P. Morgan and Deut! sche Bank serving as co-lead underwriters. Shareholders include Sycamore Technology Ventures (33.9% pre-IPO stake), Insight Venture Partners (22.6%) and Eli Barkat (managing director of BRM Capital).

PE-Backed M&A

Aqua-Chem, a Knoxville, Tenn.-based maker of osmosis technology and water pretreatment equipment, has acquired Specific Equipment Co., a Houston-based provider of fluid-handling systems for the petroleum industry. No financial terms were disclosed. Aqua-Chem is a portfolio company of Altus Capital Partners.

PE Exits

Acuity Brands Inc. (NYSE: AYI) has acquired Renaissance Lighting Inc., a Herndon, Va.-based maker of solid-state LED architectural lighting. No financial terms were dislcosed. Renaissance Lighting has raised over $27 million in VC funding, from Altira Group, NGen Partners, Rockport Capital Partners and Sumitomo Corp.

Integrated Broadband Services has agreed to acquire SinglePipe Inc., a Louisville, Ky.-based provider of VoIP solutions for cable. No financial terms were disclosed. SinglePipe has raised over $10 million from Chrysalis Ventures and Meritus Ventures.

Human Resources

Doron Grosman has joined Court Square Capital as the firm’s first resource partner. He most recently was president of Hexcel Corp. (NYSE:HXL), a $1.3 billion carbon fiber materials manufacturer. The Lancer Group served as recruiter for Court Square.