peHUB Wire: Tuesday, March 10, 2009

We hear a lot of complaints from venture capitalists about the lack of an IPO market, but isn’t this a far bigger problem for mega-buyout firms? After all, isn’t an IPO the only viable exit option for a market leader that was taken private (Clear Channel, SunGard, HCA, etc.)? The only way to get a trade sale is to run the company into the ground (buy the best company, make it second-best), while sponsor-to-sponsor deals are unlikely due to both high leverage loads on the original deal and the likelihood of an original consortium (i.e., fewer firms left to sell to).

At least VCs still have trade sale opportunities for most of their revenue-generating companies, or could sell to provide equity. What’s Plan B for the mega-funds?

*** Erin has a brief but important piece over at peHUB, trying to imagine the logistics of winding-down European buyout firm Candover. The private equity industry doesn’t really have an existing infrastructure for this sort of thing, because it’s never really been required.

The last BIG firm the wind down was Forstmann Little, but that was much less complicated a process than what Candover would face. Not only was Forstmann Little notoriously thin on staff, but it had far fewer existing portfolio companies than does Candover. Plenty of VC firms have also wound down, but those companies are far easier to sell off on the direct secondaries market (most of Candover’s investments are too large).

I wonder if this situation will prompt a new type of niche service provider: The buyout wind-down firm. It may not get too many clients – Candover is particularly vulnerable because it has a publicly-listed parent company – but the individual accounts would keep it plenty busy…

*** Only real upside I see for Candover in such a situation would be employee retention (rather than a flood of voluntary exits), due to the dearth of other opportunities.

*** Speaking of wind-downs, there’s a new fund is being shopped to invest in distressed and liquidating VC portfolio companies. The proposed principals are Marty Pichinson of shutdown firm Sherwood Partners and George Hoyem of Blueprint Ventures. Doesn’t seem to have gotten much traction yet, but it sounds like an interesting idea on paper. Not sure what the name is, but my vote would be for ABCapital…

Pichinson is an obvious choice for this sort of thing, since he’s Silicon Valley’s official gravedigger. Hoyem is a bit more surprising, but makes sense when you consider that Blueprint has repositioned itself as an investor in corporate orphans (i.e., spinouts/carveouts).

I spoke to both Hoyem and his current partner Bart Schachter about what the success of this venture would mean for Blueprint. The basic answer seems to be one of wait and see, but both emphasized synergies – which makes me think that Blueprint and ABCapital could possibly work side-by-side. The big caveat, of course, is that Blueprint would need to raise another fund. It tried doing so last year, then pulled the plug and hopes to return to market in Q4 or in early 1010. It currently has cash for existing portfolio companies, but not to invest in new ones.

*** Like father like son: Frank Bonsal Jr., co-founder of New Enterprise Associates, has joined New Markets Venture Partners as a special partners. His son, Frank Bonsal III, has been there for more than a year, but the formal announcement was just made today.

New Markets invests in the IT, education and healthcare spaces. Its first fund was capped at $25 million, and it recently held a $20 million+ close on a second fund that’s targeting around $40 million.

*** Hey student entrepreneurs: Highland Capital Partners has just begun accepting applications for its third-annual Summer@Highland program, which is designed to “provide selected student entrepreneurs with the environment and resources for advancing their startup initiative/company to the next level.”

Specifically, selected entrepreneurs and teams will receive a financial stipend for the summer, complimentary office space in Highland’s Massachusetts or Silicon Valley locations and access to Highland’s investment staff (for advice, etc.). There is no investment commitment either by participating entrepreneurs or Highland, but if you really hit it off…

Applications are being accepted through April 9. Get more info at:

*** Hey undergrads (and their parents): True Ventures has just launched something called the True Entrepreneur Corps, a program that will partner undergrads with some of the firm’s portfolio companies. Basically summer internships, with a $2k stipend on top. Application deadline is April 15, and you can get more info at:

Top Three

Palm Inc. (Nasdaq: PALM) said that it will exercise its right to remarket 18.5 million common shares held by Elevation Partners, in an effort to boost capital ahead of its Pre smartphone launch. The shares have a current market value of approximately $105 million. Under terms of the remarket, Elevation would receive the $49 million it originally paid for the shares, while Palm would receive all net proceeds in excess of $49 million.

Moody’s Investors Service has cut the corporate family rating of Clear Channel Communications to Caa3, which is nine steps below investment grade. The company was taken private last year for $17.9 billion by Bain Capital and THL Partners.

Scott DePasquale has joined the Boston office of Braemar Energy Ventures as a principal and executive-in-residence. He previously was a senior vice president with GE Energy Financial Services, where he led the group’s Boston-based VC activities.

VC Deals

PicoChip, a Bath, England-based provider of signal processing products for wireless communications, is raising $25 million in Series E funding, according to a regulatory filing. It already has secured around $15 million, including $5 million via the cancellation of existing promissory notes. Backers include Highland Capital PartnersScottish Equity Partners and Atlas Venture. It had previously raised over $64 million.

Stemgent Inc., a Cambridge, Mass.-based provider of stem cell technologies and research tools, has raised $14 million in Series A-1 funding, according to a regulatory filing. Backers include HealthCare Ventures and Morgenthaler Ventures.

Cornerstone OnDemand Inc., a Santa Monica, Calif.-based provider of talent management software and services, has raised around $9 million in Series E funding, according to a regulatory filing. Backers include Meritech Capital, Bay Partners and Bessemer Venture Partners. The company had previously raised over $32 million.

TopSchool, a Denver-based SaaS provider of administrative solutions for small to mid-size higher education institutions, has raised $7 million in second-round funding. New World Ventures led the round, and was joined by Access Venture Partners, Education Sales Management and return backer Alsop Louie Partners.

Enclarity Inc., an Aliso Viejo, Calif.-based information management and analytic software company focused on the healthcare market, has raised $5.5 million in Series C funding. Return backers include Bain Capital Ventures and Ignition Partners. The company previously raised $16.5 million.

Notable Solutions Inc., a Rockville, Md.-based provider of distributed document management solutions, has raised $5 million from Edison Venture Fund.

Veracode Inc., a Burlington, Mass.-based provider of on-demand security analysis solutions, has raised $5 million of a $10 million “Series 3? round, according to a regulatory filing. Backers include .406 Ventures, Atlas Venture, Polaris Venture Partners, Macrovision Corp. and Symentec Corp.

Teraco Data Environments, a provider of vendor-neutral colocation facilities in South Africa, has raised R47.5 million ($4.57m) in Series A funding. Marlow Advisers led the round, and was joined by Pentangle Group and Treacle Private Equity.

Haute Secure Inc., a Seattle-based provider of free software to protect computers from malware, has raised around $1.6 million in Series A funding, according to a regulatory filing. Backers include Baseline Ventures and Sherpalo Ventures.

Lexy, a provider of a mobile news and entertainment publishing solution, has raised $1.25 million in seed capital from KPG Ventures.

Alphabeticall Inc., a New York-based Internet startup from lexicographer Erin McKean, has raised $1 million in Series A funding, according to a regulatory filing. Backers include Baseline Ventures and Roger McNamee. McKean is the former Chief Consulting Editor for American Dictionaries at Oxford University Press and was Principal Editor of The New Oxford American Dictionary (2nd edition).

Backtype Inc., a startup that helps users find, track and share Web 2.0 comments, has raised $300,000 in seed funding from True Ventures.

Global Value Commerce, a Raleigh, N.C.-based ecommerce company focused on the golf industry, has raised an undisclosed amount of venture capital from Southern Capitol Ventures.

Buyout Deals

CrossHarbor Capital Partners has been named “stalking horse” bidder in the proposed sale of equity interests in the Yellowstone Club. CrossHarbor’s bid is approximately $100 million.

Hale Capital Partners has acquired the Location Services business of Autodesk (Nasdaq: ADSK). No financial terms were disclosed for the deal, which results in an independent company named LocationLogic. Autodesk will retain a minority stake.

HM Capital Partners has acquired SunTerra Resources LLC, a Houston-based oil and gas exploration and production company focused that will use under-balanced drilling techniques. No financial terms were disclosed.

Marlin Equity Partners has acquired MDeverywhere Inc., a Hauppauge, N.Y.-based provider of SaaS for physician revenue cycle management. No financial terms were disclosed.

Northern Link, a Scotland-based private equity firm, has acquired a majority stake in salmon producer Lighthouse Scotland. The deal was valued at £17 million.

PE-Backed M&A

Aleri Inc., a Chicago-based provider of complex event processing for the financial services market, has acquired Mountain View, Calif.-based rival Coral8. No financial terms were disclosed. Aleri has raised over 430 million in VC funding since 1999, from firms like Allegra Partners, Early Stage Enterprises and St. Paul Venture Capital.

Seahorse Bioscience Inc., a North Billerica, Mass.-based maker of instruments and consumables for cell-based metabolic assays, has acquired BioProcessors Corp., a Woburn, Mass.–based maker of systems for optimizing biologic drug manufacturing. Seahorse also announced $6 million in new VC funding, from existing backers of both itself and BioProcessors. They include Commonwealth Capital, Oxford Bioscience, Flagship Ventures, Life Sciences Partners, FLIR Systems Inc, Healthcare Ventures, New Science Ventures and HLM Venture Partners.

Teachscape, a New York-based provider of professional development services for educators, has acquired Edgenuity Inc., a Sunnyvale, Calif.–based provider of analytic solutions to school districts to improve achiev! ement. No pricing details for the all-stock deal were disclosed. Teachscape has raised over $27 million in VC funding since 2000, from firms like Arcardia Partners, Sprout Group, Intel Capital, NewSchools Venture Fund, Quad Ventures and McGraw-Hill Ventures. Edgenuity had raised $5.6 million from Altos Ventures and Sigma Partners.

Firms & Funds

3i Group reportedly has retained Campbell Lutyens to shop between a group of portfolio interests on the secondary market, with hopes of raising up to £400 million.

Barclays PLC has agreed to acquire the operations of the Bear Wagner Specialists from JPMorgan Chase & Co. The deal is valued at approximately $30 million.

Epic Ventures is raising upwards of $150 million for its fourth fund, according to a regulatory filing. So far it has secured around $36 million in commitments. The firm previously was known as Wasatch Venture Fund, and focuses on early-stage IT companies out of offices in Salt Lake City and Santa Fe.

Oaktree Capital is raising upwards of $2 billion for a Senior Loan Fund, according to a regulatory filing. It already has secured more than $347 million in capital commitments.

Odyssey Investment Partners has closed its fourth fund with $1.5 billion in capital commitments. Credit Suisse served as placement agent. The mid-market buyout firm has offices in New York and Los Angeles, and had raised $750 million for its third fund in 2005.

Sankaty Advisors, a credit affiliate of Bain Capital, is raising up to $200 million for a Senior Loan Fund, according to a regulatory filing. So far it has secured around $85 million in capital commitments.

Human Resources

Limor Radoshitzky has left Israeli venture capital firm Star Ventures, where she had been a partner and chief financial officer. She had been with the firm since 1997. No word yet on her future plans. VentureWire first reported the departure.

KPMG has named Shawn Hessing as national managing partner of its U.S. private equity group. He joined the firm in 1979, and was named a partner in 1993.

The Riverside Co. has promoted 12 staff members, and made four new hires in Europe.