peHUB Wire: Wednesday, July 15, 2009

I often hear that the best VCs are those who once sat on the other side of the table — investors who “get it” because they were once “in it.” On the other hand, that argument is usually coming from VC firms who just hired one of those ex-operators, or from an entrepreneur who just took funding from one.

So a simple question: Do ex-operators make the best venture capitalists?

To get an answer, I pulled out the latest edition of Forbes’ Midas List, which is supposed to rank the most successful venture capitalists. We can certainly quibble about Forbes’ inclusion methodology and individual results (the older skew, for example), but hopefully can agree that the overall list is a good sample of quality investors.

Next to each of the 100 Midas Listers, I put one of three classifications that best described the individual’s career prior to venture capital. They were: “C” for C-level executive, “O” for lower-tier operators and “! X” for those without, or virtually without, formal operating experience (ex-bankers, consultants, career VCs, etc.).

Let me add that I was fairly liberal on the operating classification. For example, both John Doerr and Mike Moritz got labeled “O,” even though each has been a VC infinitely longer than anything else (Doerr spent six years as a salesman for Intel, while Moritz spent less than a decade as a reporter for Time Warner and co-founder of newsletter company Technologic Partners).

The results showed that a majority (54) of the Midas List is comprised of the X’s, or individuals without an operating background. Moreover, just 21 of the remaining 46 held C-level executive jobs, while the remainder were a motley crew of vice presidents, salespeople and engineers.

On the other hand, seven of the Midas Top 10 were ex-operators, including five C-levelers.

What does this all mean? Basically that a venture capitalist’s resume is not necessarily an ! indicator of his or her future success. Plenty of operators and ex-ope rators have done well, and plenty of each have done poorly. It’s easy — and arguably intuitive — to say that one is better than the other, but that doesn’t make it true.

*** As we reported earlier this morning at peHUB, Huntsman Gay Global Capital has closed its debut fund with more than $1.1 billion in capital commitments. Two quick notes:

1. Both of the firm’s namesake managing directors — Bob Gay (ex-Bain Capital) and Jon Huntsman (founder of chemical giant Huntsman Corp.) — will donate 100% of their carried interest tophilanthropic organizations. Much of Gay’s take will go toward Unitas, a global micro-finance organization he founded, while Huntsman will be donating to his eponymous Huntsman Cancer Institute. Some of the other Huntsman Gay partners also will donate portions of their carry to other organizations, although no specifics were provided. This ! could work out to some sizable checks, given that Huntsman Gay partners contributed more than 10% of the fund’s capital.

2. I spoke last night with Gary Crittenden, the former Citigroup CFO who last week stepped down as chairman of Citi Holdings to join Huntsman Gay. Key quote: “I was an early employee of Filene’s Basement after it did its LBO years ago. Then I did chemicals deals with Monstanto and retail with Sears… In the last year I was directly responsible for the sale of 22 businesses related to Citi.”

*** A bit more info on last month’s shutdown of Clear, the airport security verification service that had raised $54 million in VC funding. A source tells me that the creditor was Morgan Stanley, with Clear owing around $33 million.

Some folks have expressed interest in an acquisition, but there are two big hairs: (1) Active litigation by company founder and ex-CEO Steve Brill; (b) An October 1 deadline, due to a req! uirement that Clear erase its user database by that date if it remains inactive (not sure whose requirement that is)…

Top Three

China Pacific Insurance, a portfolio company of The Carlyle Group, is planning to re-launch its Hong Kong IPO, after an earlier attempt failed due to market conditions. No word yet on an offering amount, although the original proposal was to raise 30 billion yuan (44.49b). Carlyle holds a 17% ownership stake.

Limerick BioPharma Inc., a South San Francisco-based developer ofsolutions for improving drug efficacy, has raised $15 million in Series C funding. OVP Venture Partners led t! he round, and was joined by return backers ARCH Venture Partners, Sevin Rosen Funds and Altitude Funds.

Richard Zannino has joined CCMP Capital as a managing director, and co-head of the firm’s consumer, retail and media investment practice. He previously was CEO of Dow Jones, and is a former CFO for both Saks Fifth Avenue and Liz Claiborne.

VC Deals

Vidacare Corp., a San Antonio-based provider of intraosseous access technology to the medical market, has raised $7.6 million in Series D-1 funding. Piper Jaffray led the round, and was joined by firms like Tullis Health Investors and Incyte Venture., a Boston-basedonline content company focused on obituaries and related information, has raised $1.2 million in additional Series B funding. The round total is now $5.5 million, including past funding from Dow Jones and former parent company Eons. No new investors were identified, except that they come fromboth the “funeral service and the Boston tech community.”

Constructive, a Vancouver-based provider of online partner community solutions, has raised an undisclosed amount of VC funding from Yaletown Venture Partners.

Pathway Genomics, a San Diego-based provider of personalized genomics tests, has raised an undisclosed amount of first-round funding. Backers include The Founders Fund, Edelson Technology Partners, and Western Technology Investment.

Buyouts Deals

Bain Capital is in exclusive talks to buy a minority stake in Beijing Outsell Health Product Development Co Ltd., a Chinese tea maker. The deal would be worth around $50 million.

PE-Backed M&A

Nycomed AS , a Danish drug company, and an unnamed Japanese drug company are in talks to buy Solvay’s pharmaceuticals unit. The deal could be worth upwards of €5 billion. Nordic Capital holds a 51% stake in Nycomed, with other shareholders including DLJ Merchant Banking Partners, Blackstone Group and AlpInvest.

Paperworks Industries, a paper mill owner backed by Sun Capital Partners, has agreed to acquire The Specialized Packaging Group. No financial terms were disclosed, although the combined company reportedly will have annual revenue of $350 million.

Pilot Travel Centers LLC has agreed to acquire the fuel-stop business of bankrupt oil company Flying J. As part of the deal, Pilot Travel would provide Flying J with $100 million in DIP financing. CVC Capital Partners last year acquired a 47.5% stake in Flying J, while Pilot Corp. holds the remainder.

PE Exits

Nuance Communications Inc.(Nasdaq: NUAN) has acquired Jott Networks Inc., Seattle-based startup that converts voice into text and delivers it via email. No financial terms were disclosed. Jott had raised around $7.4 million in VC funding from firms like Bain Capital Ventures, Draper Richards, Ackerley Partners and Atomico.

Softbank Capital Partners has sold its shares in video chat community Paltalk back to the company. Softbank invested $6 million in Paltalk five years ago. No financial terms of the buyback were disclosed, except that the terms represented a profit for Softbank.

Firms & Funds

Huntsman Gay Global Capital has closed its debut fund with more than $1.1 billion in capital commitments. The firm will focus on middle-market buyouts, of companies with more than $20 million in EBITDA.

Level Equity has been formed by Ben Levin and George McCulloch, former managing directors with Insight Venture Partners.

Moxie Capital has been formed as a New York-based buyout firm focused on the consumer sector. It is being run by Bodil Arlander, a founding partner of Bear Stearns Merchant Banking (now Irving Place Capital).

Human Resources

Geoff Hill has agreed to join Roark Capital Partners as a vice president, effective January 1, 2010 . Hill is currently president of Cinnabon Inc., where he will remain throughout 2009 in order to help company president Gary Bales manage the transition. Cinnabon is part of Focus Brands, a Roark Capital portfolio company.

P. Jayendra Nayak has joined Advent International, as an operating partner focused on Indian investment opportunities. He is the former chairman and CEO of Axis Bank.

Paul Pr! essler has joined Clayton, Dubilier & Rice as an advisor. He previously was president and CEO of Gap Inc., and before that spent 15 years with TheWalt Disney Company.

High Road Capital Partners has promoted both Ben Schnakenberg and Adi Blum to the position of vice president. Schnakenberg joined last year as an associate from LaSalle Bank, while Blum was with Citigroup Global Markets.