peHUB Wire: Tuesday, June 1, 2010

Three years after first threatening to do so, the House of Representatives on Friday voted to change the tax treatment of carried interest. But before you despair or celebrate — depending on your ideological persuasion — please realize that this vote is kind of like the first goal of a hockey game. It matters, but there’s still a long way to go.

The next act takes place in the Senate, which is out forfor recess until next Monday (I’mimagining McConnell and Reid scaling the monkey bars). Upon return, the deliberative ones may favor some very different language.

Specifically, some Blue Dog Democratshave been mumbling about the House bill being too punitive on VC, PE, real estate and hedge fund managers (most Republicans are simply opposed to any change because, well, opposition is what they do best).

The House bill would change the tax treatment of carried interest from capital gains (15% today, 20% next year) to a hybrid ! of 25% capital gains and 75% ordinary income. This would be phased in over a three-year period, beginning in calendar 2011.

A possible Blue Dog proposal would be to make the mix a bit more equal — perhaps 60/40 instead of 75/25. This still won’t satisfy the financial services lobby (NVCA statement on House vote is hilariously hysterical), but it may be the type of compromise needed for passage. After all, even Friday’s House vote was a squeaker at 215-204.

So this long ride will last at least a couple more weeks. That’s ok. The VC/PE industry will still be around — whether or not it passes final muster.

*** Last week I wrote a bit about possible consequences of the House vote, in terms of investor behavior. Here’s one more possibility, particularly for VC firms: Smaller fund sizes with larger GP contributions.

How come? First, every dollar contributed by the GP is a dollar that will continue to be taxed as capital gains. Second, instituti! onal LPs are being stingy with their money, so such a strategy would r equire less fundraising. Third, smaller VC funds are in vogue right now anyway, as seed-stage investors have become the new rock stars (traditional VCs have become adult contemporary).

*** Answer Key: On Friday, I asked you to name the newest member of Technology Crossover Ventures? Your hint was that he comes from another VC firm whose name begins with “T”.

The answer is Tim McAdam, who is stepping down as a general partner with Trinity Ventures after a 10-year run.

“Our investment strategy has been moving more and more early-stage over the past year or so, whereas Tim’s more aligned with later-stage,” explains Larry Orr, a general partner with Trinity. “So we agreed earlier this year that he’d begin looking for other platforms.”

Orr added that the departure will not affect Trinity’s general partnership structure, and that the firm so far has committed approximately $300 million of its tenth fund (closed early last year).

McAdam will stick aroundat Trinity for the next few weeks, and the firm already has begun transitioning certain board seats. According to our database, his boards included Likewise Software, gWallet and SciQuest.Exited board seats include Cyclone Commerce (acquired by Sopra/Axway Software), IntruVest Networks (acquired by Network Associates) and Sabrix (acauired by Thomson Reuters).

*** Speaking of personnel moves, here’s a handful of other ones you may not have known about:

• Gil Dibner is leaving Israeli VC firm Genesis Partners, which he joined in 2005 as a principal. In an email, he says: “I am departing to pursue another exciting opportunity in the Israeli venture community.”

• Ric Fulop, co-founder of A123 Systems is joining North Bridge Venture Partners as a partner later this summer. The news was first reported by Scott Kirsner.

• Daniel Dupont is stepping down as a partner with Coller Capital, which he joined 11 years ago. The move comes as Coller begins raising between $4 billion and $6 billion for its next secondaries fund.

• Steve Hnatiuk has left Yaletown Venture Partners, where he was a founding partner. This comes soon after Yaletown held a final close on more than C$100 million for its second fund. Expect that Hnatiuk will turn up elsewhere this fall. Yaletown is in the late stages of adding a new cleantech-focused partner and later this year will add an IT-focused principal. More on all this later today at peHUB.

*** Where is the World? This afternoon I’ll be participating on the seed-stage investing panel at Angel Bootcamp, which is taking place at the NERD Center in Cambridge. For the rest of the week, I’ll be hanging out at Super Return, which is (thankfully) in Boston this year. Hope to see a bunch of you…

Top Three

Progress Rail Services, a unit of Caterpillar, has agreed to acquire Electro-Motive Diesel, a provider of locomotive products, from Berkshire Partners and Greenbriar Equity Group. The deal is valued at $820 million in cash.

Fisker Automotive, an Irvine, Calif.-based electric vehicle maker, has raised $35 million in new VC funding. No investor information was disclosed. The new money is part of a larger $189 million round, which includes a previously-announced $115.3 million infusion from A123 Systems, Ace Investments and Kleiner Perkins Caufield & Byers. The company has now raised around $350 million in VC funding, plus secured a $528 million low-cost loan from the Department of Energy.

ZipCar, a Cambridge, Mass.-based provider of car sharing services, has filed for a $75 million IPO. It plans to trade on the Nasdaq under ticker symbol ZIP, with Goldman Sachs and J.P. Morgan serving as co-lead underwriters. ZipCar has raised over $38 million in VC funding. Shareholders include Revolution Living (22.98% pre-IPO stake). Benchmark Capital (12.64%), Greylock Partners (7.12%), Smedvig Capital (5.57%) and Globespan Capital Partners.

VC Deals

Tetraphase Pharmaceuticals Inc., a Watertown, Mass.-based developer of synthetic chemistry technology for drug discovery and development, has raised $45 million in Series C funding. Excel Venture Management led the round, and was joined by return backers CMEA Ventures, Fidelity Biosciences, Flagship Ventures, Mediphase Venture Partners and Skyline Ventures.

SynapDx Corp., a Waltham, Mass.-based provider of diagnostic testing for the early detection of autism, has raised $9 million in Series A funding. Backers include Bain Capital Ventures, General Catalyst Partners, and North Bridge Venture Partners.

NanoPowers SA, a Swiss developer of artificial muscle technology, has raised CHF 5 million ($4.5m) in Series A funding. Novartis Venture Funds led the round, and was joined by Initiative Capital Romandie and Gran Plasa SA.

Snaptic, a San Francisco-based provider of note-taking and note-sharing apps for mobile devices, has raised $2.3 million in seed funding from Excel Venture Management and individual angels, according to VentureWire.

Mocana, a San Francisco-based prov! ider of security software for devices, has raised an undisclosed amoun t of third-round funding. Symantec Corp. led the round, and was joined by return backers Southern Cross Venture Partners and Shasta Ventures.

Buyouts Deals

The Blackstone Group is considered a leading suitor for Radio Shack (NYSE: RSH), according to the New York Post. A buyout could be worth upwards of $3 billion.

Centerbridge Partners, Blackstone Group and Paulson & Co. have won the auction for bankrupt hotel chain Extended Stay, agreeing to pay nearly $3.93 billion in cash. A rival bidder consisted of Starwood Capital Group and TPG Capital.

CKX Inc. (Nasdaq: CKXE), owner of the rights to American Idol, has received a $493 million buyout offer from a group that includes show creator Simon Fuller and former Barclays Capital dealmaker Roger Jenkins.

Oak Hill Capital Partners has completed its previously-announced acquisition of The Hillman Companies Inc. from Code Hennessy & Simmons, Ontario Teachers’ Pension Plan and certain members of company management. The deal was valued at $815 million, with Hillman’s publicly traded trust preferred securities to remain outstanding on the NYSE-AMEX. Hillman is a Cincinnati-based distributor of hardware items to retail customers. www.hill

Santander and National Australia Bank have reached the next round of bidding for 300 branches being sold by Royal Bank of Scotland. Spanish lender BBVA remains in the running, but needs to improve its original bid in order to move on.

PE-Backed IPOs

Ply Gem Holdings Inc., a Cary, N.C.-based maker of exterior building products, has filed for a $300 million IPO. It plans to trade on the NYSE under ticker symbol PEGM, with J.P. Morgan and Goldman Sachs serving as co-lead underwriters. CI Capital is Ply Gem’s majority shareholder.

TripWire Inc., a Portland, Ore.-based provider of IT security and compliance automation software solutions, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq un! der ticker symbol TPWR, with J.P. Morgan and Thomas Weisel Partners serving as co-lead underwriters. The company reports $74 million in 2009 revenue, compared to $62 million in 2008 revenue. Its net income rose to $19.58 million from $5.86 million. TripWire has raised over $110 million in VC funding. Current shareholders include Advanced Technology Ventures (22.38% pre-IPO stake), Bessemer Venture Partners (10.06%), International Venture Partners (8.71%) and Industry Ventures (5.7%).

PE Exits

Centocor, a unit of Johnson & Johnson (NYSE: JNJ) has acquired Respivert, a UK-based inhaled drug company. No financial terms were disclosed. Respivert had raised around $13.5 million from Imperial Capital, SV Life Sciences, Advent Venture Partners and Fidelity Biosciences.

Elekta has acquired Resonant Medical Inc., a Montreal-based provider of image-guided radiation therapy for treating cancer. The deal was valued at around C$30 million. Resonant Medical backers included iNovia Capital.

TDF said that it plans to sell of close its money-losing Finnish mobile broadband network. TDF backers include TPG Capital, Caisse des Depots and AXA Private Equity.

PE-Backed M&A

Covidien (NYSE: COV) has sold its U.S. radiopharmacy networkto Triad Isotopes Inc., an Orlando, Fla.-based provider of radiopharmaceuticals that are used for both diagnostic imaging procedures and disease treatment. No financial terms were disclosed. Triad Isotopes is a portfolio company of Parthenon Capital.

Genband, a Plano, Texas-based provider of IP infrastructure solutions, has acquired most of the assets of Nortel Networks’ carrier VoIP and applications solutions businesses, for approximately $282 million. Genbandwas being backed on the deal by existing shareholder One Equity Partners.

Firms & Funds

Canada Pension Plan Investment Board said that it may boost its emerging markets exposure this year, particularly in Asia.

Evercore Partners has completed its acquisition of a 49% interest in investment advisor Atalanta Sosnoff Capital.