A general rule of thumb for venture capitalists says that if you want to lead a deal, simply offer more attractive terms than those offered by your competition. Rules, however, are made to be broken.
During a recent bidding war for a Series C offering from e-business software provider Peakstone Corp., three venture houses submitted term sheets, but the issuer did not end up selecting the one with the most generous valuation. Instead, Peakstone chose JP Morgan Partners to lead the $12 million deal, arguing that deep pockets and institutional connections made good fiscal sense in the long run.
“[JP Morgan Partners] has a very strong software practice, and also the sort of contacts that come from being part of such a large company,” said T.M. Ravi, founder and CEO of Peakstone. “We felt that bringing them in as the lead would give them a strong interest in us, which is what we want them to have.”
The round technically closed last Tuesday, and was filled out by existing investors Advanced Technology Ventures, JAFCO and Bay Partners. The company had last raised venture capital in June, 2000, when it nabbed $15 million at a post-money valuation of $59.8 million. The most recent financing is considered a down round, although no specifics were available at press time.
“We’re assuming that the company is now fully financed,” said Patrick Lee, a principal with JP Morgan Partners and new Peakstone board member. “They will use this money to help grow the business, especially trying to get some more partnerships in place.”
Ravi agreed that partnerships will be key, and said that a reseller agreement with IBM Global Services will be announced later this week. As part of the deal, IBM will offer Peakstone’s eAssurance software as part of its new e-Business Management Services package.
To date, Sunnyvale, Calif.-based Peakstone has raised $32 million over three rounds of venture capital financing.
Dan Primack can be contacted at:Daniel.Primack@tfn.com