peHUB Wire: Tuesday, September 1, 2009

The big news this morning is that eBay has agreed to sell a 65% stake in Internet calling company Skype to a group of private investors, at an enterprise value of $2.75 billion. The buyers include Silver Lake Partners, Canada Pension Plan, Index Ventures and Andreessen Horowitz.

Here’s my question: Does this mean that Index and Andreessen Horowitz are no longer venture capital firms?

This might sound like an academic question, but I mean it as a follow-up to Alan Patricof’s op-ed from Sunday’s NY Times. For the uninitiated, Patricof and former regulator Eric Dinallo argued that venture capital firms should be excluded from proposed requirements to register as investment advisors. They argued that VC firms do not pose the types of systemic risks that the rules are designed to guard against, and that imposition of such requirements could damage venture capital firms from a cost perspective. It’s also a case that the NVCA has bee! n making on Capitol Hill.

I agree with Patricof and the NVCA, that venture capital does not pose systemic risk. It is true that the economy would be severely harmed if most VC firms went belly-up tomorrow, but there is no conceivable scenario under which that would happen (save for nuclear holocaust, etc.). Venture capital commitments are relatively stable, and VC firms typically do not use leverage and other outside instruments.

What I have more trouble with, however, is crafting language under which venture capital would be excluded from the registration rules, which really were written with hedge and LBO firms in mind. If you just ask firms to check off a box, then Bill Ackman and Leon Black will officially (and ludicrously) convert to venture capitalism.

A solution, therefore, is to require “venture capital” firms to assert that their investments include something like the following characteristics: (1) Invest more than 90% of their capital in equ! ity-only deals; (2) Invest more than 90% of their capital in private c ompanies; (3) Hold 90% of their investments for at least three years.

An interesting byproduct here is that many of the best-known “venture capital” firms might not qualify. Sequoia Capital, for example, has a burgeoning PIPE practice, while many firms have begun using leverage both for buyouts and to help finance cleantech projects. And, yes, the Skype deal is being leveraged.

But such exclusions are relatively unimportant. Wealthy firms like Sequoia or NEA are not the ones that would really suffer from the added registration expenses. Instead, it would be the smaller shops with much lower overhead. Luckily, this latter group also happen to be the firms less likely to use leverage, do PIPEs, etc.

In short: Venture capital can should support reasonable compromise language that would protect its most vulnerable members, even though it would leave some of its bigger names exposed.

*** Jeffrey Barnes yesterday was asked to resign as a general! partner with Oxford Bioscience Partners, after the firm learned that he allegedly had not complied with policies governing personal securities trading. A firm spokesman said that his resignation was given with immediate effect, and that it was now expected to have a “material effect” on portfolio performance or firm operations.

The spokesman added that Barnes’ transgression involved personally trading in publicly-held OBP portfolio companies without the knowledge of his fellow partners. You can read the full story here.

My question for you, dear reader: Do you know of another situation in which a partner has been essentially fired for trading improprieties? Or is this a first?

*** Data Points: Global M&A volume for August was approximately $93 billion, according to Thomson Reuters. This includes around $7.2 billion of private equity volume, which is ! a marked decrease from the $13.22 billion in July. The percentage of P E as part of the M&A whole, however, only dropped from 8.4% to 7.7 percent.

Private equity volume last August was $13.5 billion, compared to $148 billion of global M&A. You can download the month-by-month spreadsheet by going here.

*** Congrats to my long-ago colleague Brad Spirrison, whose Chicago startup Appolicious today launched with $500k in seed funding from Apex Venture Partners.

Top Three

eBay has agreed to sell a 65% stake Internet calling company Skype to a group of private investors, including Andreessen Horowitz, Index Ventures, Silver Lake Partners and the Canada Pension Plan. The deal values Skype at $2.75 billion.

Gain Capital Holdings Inc., operator of the retail foreign exchange trading service, has filed for a $125 million IPO. The Bedminster, N.J.-based company plans to trade on the Nasdaq, with Deutsche Bank Securities and Morgan Stanley serving as co-lead underwriters. Gain Capital raised around $175 million in VC funding beginning in 1999, from firms like VantagePoint Venture Partners, Tudor Ventures, Edison Venture Fund, Cross Atlantic Capital, 3i Group and Blue Rock Capital.

Khosla Ventures has closed two new funds with more than $1 billion in capital commitments. Khosla Ventures III was targeted at $750 million, and will focus on early and mid-stage venture investments in the cleantech and IT spaces. Khosla Ventures also was targeting $250 million for its first seed-stage fund. The two new partners are Gideon Yu, former CFO for Facebook, and Jim Kim, previously a senior partner with CMEA Capital (peHUB reported Kim’s hiring last month).

VC Deals

Endosense, a Geneva, Switzerland-based med-tech company focused on improving the efficacy, safety and reproducibility of catheter ablation for the treatment of cardiac arrhythmias, has raised $36 million in Series B funding. Edmond de Rothschild Investment Partnersled the round, and was joined by Neomed, GIMV, VI Partners, Sectoral Asset Management, Ysios Capital Partners and Initiative Capital Romandie.

Medsphere Systems Corp., a Carlsbad, Calif.-based provider of open-source healthcare enterprise solutions like electronic health records, has raised $12 million in combined private equity and debt financing. Backers include Azure Capital Partners, Epic Ventures, Thomas Weisel Venture Partners and Western Technology Investment.

Queplix Corp., a ! Sunnyvale, Calif.-based provider of physical-to-cloud migration for legacy enterprise applications, has raised $1.5 million in Series A funding from Javelin Venture Partners.

Silicon Mitus Inc., a Seoul, South Korea-based fabless maker of power management ICs, has raised an undisclosed amount of Series B funding. ePlanet Ventures led the round, and was joined by return backer Walden International., a Chicago-based company that matches individuals and families with child care, has raised an undisclosed amount of new funding from backers like Matt McCall (New World Ventures), Brian Hand (Timelines co-founder) and the I2A Fund.The company previously raised a $7.5 million Series ! A round from Point Judith Capital and Apex Venture Partners.

Buyouts Deals

Citigroup has received multiple bids for Japanese telemarketer Bellsystem24, which is expected to fetch more than $1 billion. Bidders include CVC Capital Partners, KKR, Permira, Bain Capital and Itochu Corp.

GenNx360 Capital Partners has acquired Clariant Corp.’s specialty silicones business, which has been renamed SiVance LLC. No financial terms were disclosed.

J.F. Lehman & Co. has completed its acquisition of marine services business Drew Marine from Ashland Inc. (NYSE: ASH). The deal was valued at approximately $120 million. An earlier LBO Wire report said that the transaction would include more than $70 million in debt financing, with CIT and BNP Paribas arranging senior debt, and Babson Capital arranging! around $20 million in mezzanine notes.

JLL Partners and Warburg Pincus have proposed a plan to recapitalize residential construction company Builders FirstSource Inc. (Nasdaq: BLDR), in which they hold a combined 49.9% stake. The deal would include Builders FirstSource conducting a $75 million rights offering at $2 per share, plus a debt-for-equity swap.

North River Capital has acquired Wayne Manufacturing Corp., a LaOtto, Ind.-based maker of component parts for the transportation industry. No financial temrs were disclosed. News of the sale was first reported by the Greater Ft. Wayne Business Weekly.

Icos Capital, a Dut ch growth equity firm, has invested an undisclosed amount in BiAqua, a developer of bio-based solutions for water contamination issues. BiAqua is a spinout of the Delft University of Technology.

PE Exits

EMC Corp. (NYSE: EMC) has acquired FastScale Technologies Inc., a Santa Clara, Calif.-based provider of data center software platforms. No financial terms were disclosed. FastScale had raised $11.5 million in VC funding, from firms like ATA Ventures, Leapfrog Ventures and Hunt Ventures.

PE-Backed M&A

Fastech Investment Group, a portfolio company of NewSpring Capital, has agreed to acquire Transcend Communications, a Minneapolis-based reseller and integrator of IP telephony, network & video solutions. No financial terms were disclosed for the deal, which is expected to close by month’s end.

Firms & Funds

Apollo Management has dropped plans for an annex fund due to limited partner opposition, according to The Financial Times.

Capstone Partners, a private equity placement agent, has opened an office in Shanghai. It will be led by Sheng Lu, a former partner with Heidrick & Struggles.

Human Resources

Anthony Bull has joined Gresham Private Equity as a London-based partner. He previously was a principal with Mitsui Private Equity.

Norm Colbert has joined Petsky Prunier LLC as a partner and head of its capital markets practice, private placements practice and WestCoast investment bankingefforts. He previously was global head of JP Morgan’s private placements group.

Chris Groobey has joined Wilson Sonsini Goodrich & Rosati as a Washington, D.C.-based partner in the law firm’s energy and cleantech practice. He previously was with Baker & McKenzie.

Peter Notz has joined Drum Capital Management as! a vice president and manager of investment diligence. He previously was a senior associate with HRJ Capital.

Pacific Alliance Group, an Asia-focused alternative asset manager, has hired four ex-Deutsche Bank executives to expand its distressed investing team. They are: Anshumann Woodhull, Kanak Kapur, Anil Gorthy and Stuart Blieschke.

Correction: Alta Partners promoted Robert Alexander to the position of director. He joined the San Francisco-based VC firm in 2005 as a principal.