peHUB Wire: Wednesday, October 14, 2009

As you know by now, peHUB is hosting a cleantech event in Boston later this month, with a focus on helping investors and executives navigate Washington D.C.’s regulatory and financial landscape. We’ve got a great panel but, truth be told, one of the first cleantech VCs I reached out to turned me down flat. His brief email reply was as follows:

“Thanks, but no, not my thing, getting money from governments. Others are more expert and better at holding their noses.”

I didn’t think too much of his response at the time, except that it further confirmed libertarian sentiments that he’s expressed elsewhere. But then I (fi! nally) got around to finishing Josh Lerner’s new book Boulevard of Broken Dreams, which focuses on the historical relationship between government, entrepreneurship and venture capital. One takeaway was that the VC – and others who think like him – are ignorant of the substantive role that government played in the VC industry’s formation.

For example, Lerner writes about how the rise of Silicon Valley was largely on the back of U.S. military contracts, particularly at pioneering companies like Federal Telegraph, Magnavox, Fairchild Semiconductor and Hewlett-Packard.

Moreover, the federal SBIC program helped build the Bay Area and Route 128 ecosystems that enabled VC-backed companies – and VC firms themselves – to thrive. Finally, the Labor Department’s 1979 clarification of the “prudent man” rule enabled pension fund managers to begin investing in high-risk asset classes like venture capit! al (not to mention that most or today’s large VC firms receive tons of their own capital from public sources).

To be clear, Lerner’s book is not a wet kiss to Washington or state governments. He finds plenty of faults, and spends most of his time uncovering lessons that should be learned. But he also acknowledges historical realities, which conflict with the notion that venture capital’s “thing” doesn’t involve government involvement on the financial or regulatory fronts. Failing to recognize that history may lead to failing your portfolio companies and, ultimately, your investors.

*** Speaking of said cleantech event, get your ticket now.

*** CalPERS has Fed Ex’d me docs related to placement agents it has (indirectly) done business with. I’m expecting them to arrive this morning, and will post about them at peHUB later today.

***! Big kudos to the Rosewood Crescent Hotel, where I’m staying while in Dallas. I was getting ready to go for a run yesterday, when I realized that I had forgotten to pack a t-shirt. After deciding that I’d look silly in shorts and a Brooks Brothers button-down, I asked the front desk to direct me to the closest store where I could get outfitted. They instead told me to head down to the gym, where a ready supply of laundered t-shirts and shorts were available for hotel guests to borrow. That’s the type of small thing that gets remembered…

*** Just a reminder that tonight’s peHUB Dallas Shindig begins at 5:30pm, at the Uptown Bar & Grill. It is completely sold out, which means we can’t take walk-ins. But don’t worry, the response was so great that we’ll certainly be back. Thanks for sponsors Landmark Partners, New Capital Partners and Staff One.

Top Three

Cisco Systems has agreed to buy wireless telecom equipment maker Starent Networks Inc. (Nasdaq: STAR), for $2.9 billion. The $35 per share purchase price represents nearly a 21% premium to Mnday’s closing price. Starent raised around $95 million in VC funding before going public in June 2007. Shareholders continue to include Matrix Partners, North Bridge Venture Partners and Highland Capital Partners.

KKR is leading a $160 million investment into International Far Eastern Leasing Co Ltd., a Chinese financial leasing firm. State-owned Sinochem Group would retain a control position. Other members of the KKR consortium include GIC and China International Capital Corp.

Integrated Diagnostics, a Seattle-based deveoper of preventative and personalized diagnostics using genomic and proteomic technologies, has raised $30 million in Series A funding. Interwest Partners led the round, and was joined by The Wellcome Trust andDievini Hopp Biotech Holding. Integrated Diagnostics was founded by Amgen founder Leroy Hood.

VC Deals

Ooyala Inc., a Mountain View, Calif.-based online video and advertising platform, has raised $10 million in Series C funding. Rembrandt Ventures led the round, and was joined by return backer Sierra Ventures. The company has now raised around $20 million.

GroundWork Open Source Inc., a San Francisco-based provider of open-source systems! and network management software, has raised $5 million in Series D funding. Canaan Partners led the round, and was joined by fellow return backers Jafco Ventures, Mayfield Fund and SAP Ventures.

Amuso, a UK-based operator of online trivia contests for cash prizes, has raised $1.5 million in new VC funding. Return backer Mangrove Capital Partners was joined by undisclosed angel investors.

Shazam Entertainment Ltd., a London, UK-based developer of music recognition technology, has raised an undisclosed amount of Series D funding from Kleiner Perkins Caufield & Byers. It previously raised over $! 18 million from firms like DN Capital, Acacia Capital and IDG Ventures Europe.

Amarin Corp. (Nasdaq: AMRN), an Ireland-based developer of cardiovascular and CNS drugs, has agreed to raise $70 million in PIPE financing. raise up to $60 million in PIPE funding. New backers include Abingworth Management led the new investors, which also included APG Asset Management, Great Point Partners, RA Capital and Tavistock Life Sciences. Return backers — who participated in a PIPE last year — include Fountain Healthcare Partners, Longitude Capital, Sofinnova Ventures and OrbiMed Advisors.

Buyouts Deals

Aquiline Capital Partners has completed its acquisition of Conning & Co., a Hartford, Conn.-based provider of services and solutions to the insurance market, from Swiss Reinsurance Company Ltd. No financial terms were disclosed. Conning has approximately $70 billion of general account assets under management and $100 billion of total assets under contract.

Berkshire Partners has made a private equity investment in Grocery Outlet Inc., a Berkeley, Calif.-based discount grocer with over 135 stores in the Western U.S. No financial terms were disclosed.

Glencoe Capital has acquired Novo 1, Waukesha, Wis.-based provider of inbound and outbound customer interaction solutions. No financial terms were disclosed. Glencoe did the deal out of its Michigan Opportunities Fund, and said that it would create more than 300 new jobs in the State of Michigan.

Milestone Partners has agreed to purchase Mariner Finance LLC, the consumer finance arm of First Mariner Bancorp (Nasdaq: FMAR). The deal is valued at approximately $10.5 million, and is expected to close by December 15.

PE-Backed IPOs

RailAmerica Inc. (NYSE: RA), a portfolio company of Fortress Investment Group, shares closed trading yesterday at $13.75 per share, after pricing its IPO at $15 per share.

VS Holdings Inc., the North Bergen, N.J.-based parent company of retailer The Vitamin Shoppe, has set its IPO terms to around 9.1 million shares being offered at between $14 and $16 per share. It would have an initial market cap of approximately $443 million, were it to price at the high end of its range. The company plans to trade on the NYSE under ticker symbol VSI, with JPMorgan, BoA and Barclays serving as co-lead underwriters. Vitamin Shoppe has been owned since 2002 by Irving Place Capital Management (f.k.a. Bear Stearns Merchant Banking). It had filed for an IPO in 2007, but withdrew the offer due to market conditions.

PE-Backed M&A

Camber Corp., a Huntsville, Ala.-based provider of IT, engineering and training services to federal government agencies like the DoD, has acquired Veritas Analytics, a Sterling, Va.-based provider of intelligence analysis and risk assessment services for commercial enterprises and government. No financial terms were disclosed. Camber Corp. is a portfolio company of New Mountain Capital.

Firms & Funds

First Reserve Corp., an energy-focused buyout firm based in Greenwich, Conn., has adopted the United Nations’ Principles for Responsible Investing. The principles consist of “a set of global investment best-practices that incorporate environmental, social and governance criteria into investment decision making.”

Omega Funds, a direct secondaries firm focused on the healthcare sector, has completed three transactions, totaling 25 companies at an original sellers’ cost of more than $125 million. The only identified seller was Lombard Odier, which sold stakes in nine portfolio companies.

Human Resources

Michael Blum has joined ORIX USA as a managing director and head of corporate development and strategic opportunities. He previously spent 16 years with Merrill Lynch.