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    PE Week Wire -- Monday, April 17

Monday Mouth-Off

The sky is gray, VC fundraising hit its highest Q1 levels since 2001 and my trash isn’t being picked up due to a statewide holiday known as Marathon Monday Patriots Day (which isn’t to be confused with Evacuation Day, which only affects The City of Boston). In other words, it’s time for Monday Mouth-Off.

First up is Rob Day of Expansion Capital Partners, who uses his blog to tear into my observations from last week’s cleantech business plan competition up in Lowell. Specifically, he disagrees that solar represents the largest cleantech opportunity, and also believes that cleantech VCs have an ulterior motive when saying that there isn’t enough dealflow to justify the recent cleantech fundraising/fund allocation surge. Read his blog post here. I’ll cede to Rob on the first point, due to his superior cleantech knowledge – although even he admits that solar is where cleantech VCs have been getting their precious few IPOs. But I’ll stick to my semi-grounded guns on the second issue.

I don’t doubt that Rob is seeing lots of cleantech dealflow, but I also saw a bunch of it in Lowell last week, and only a few of the companies were viable from a VC perspective. In other words, I qualify my comment about quantity by referring only to qualified quantity (sorry, just downed my third cup of coffee). At the same time, we’re seeing a boomlet in cleantech fundraising. Not only are new funds like DFJ Element and VantagePoint Cleantech Ventures being raised, but existing firms like Kleiner Perkins are allocating major dollars to the sector. Only time will tell, of course, but I reiterate my timeworn belief that VCs too often act like sheep. In this case, cleantech joins China as the newest grass (or sowthistle, depending on your preference).

*** J writes in on the Massachusetts tax issue: “The real dirty little secret about Massachusetts is that for the rich (or reasonably well off, say $250k and up), it is actually a cheaper place than many others.Look at the top marginal rates for New York, California, Illinois, New Jersey, etc, and they reach 8, 9 or 10%, and those brackets start at pretty low numbers ($50-$80k). In Mass, the top marginal rate is 5.3%, even if you are making millions.Overall and average figures are deceptive and tend to cover this fact up because they are weighted to the middle earner, but the real life impact for a $500k earner in Boston vs. New York City (with its own income tax) or L.A. is that Boston is substantially cheaper, not to mention that Mass. sales tax is less than either of those other two and not as sweeping (excludes most clothing and services).Mass cannot compete with the no-income tax states NH, TX, FL, WY etc, but for the rich it is definitely not such a bad deal as people think.”

*** Stephen writes: “I wonder if you saw Vijay Singh wearing a golf shirt with a Forstmann Little logo on it on Masters Sunday, clearly arranged by FL portfolio company IMG, who represents Singh. I could not figure how Forstmann/IMG could justify this use of such precious advertising space, given that Forstmann Little is not raising another fund, and is in little need of advertising?” I didn’t see it Stephen (watching golf, to me, is like watching Eighth & Ocean without the pretty people), but your question is a good one. While I search out an answer, has anyone else seen PE firms advertising in athletic venues? And no, CMGI Field does not count.

*** Some attorneys – three from the same firm -- wrote in to warn me about “general solicitation” for saying that Tengion is looking to raise $35 million in Series B funding. Oh, and for calling the company’s technology “fascinating.” As I’ve suggested before: A journalist stating facts about a pending securities offering is not solicitation, it’s reporting. Perhaps the adjective was inappropriate, but does anyone really believe that creating human organs (bladders, in this case) via a patient’s own cells isn’t fascinating?

*** Eric writes in to support VenturePAC’s practice of giving most of its political contributions to GOP candidates and causes, even though its members are almost-evenly divided in terms of political persuasion: “The association should be supporting politicians helpful to the group's business agenda, not merely passing along money based on what it perceives to be the aggregation of the individual member's personal political preferences. As a senior exec of a Fortune 100 company I often sent money to Democratic politicians in spite of my Republican affiliation. I didn't like it, wouldn't have voted for them, but saw a need to support them nonetheless for business reasons.”

*** Finally, many of you ask how friends/colleagues/high school sweethearts can sign up for the PE Week Wire. One way is to just send me an email with “Wire Yes” in the heading. A new and improved way, however, is to forward this email and have them click the Subscribe button on top of the right-hand navigation bar...

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    Top Three

Kohlberg Kravis Roberts & Co. has agreed to acquire the software business of Flextronics International Ltd. (Nasdaq: FLEX). The deal is valued at approximately $900 million, with Flextronics retaining a 15% stake. This would be KKR’s first deal in India. Leverage will be arranged by Citigroup Global Markets and Merrill Lynch.

Level 3 Communications Inc. (Nasdaq: LVLT) has agreed to acquire ICG Communications Inc., an Englewood, Colo.-based communications infrastructure company. The deal is valued at $163 million, including $36 million in cash and $127 million in unregistered shares of Level 3 common stock. ICG is controlled by M/C Venture Partners and Columbia Capital.

South Korean prosecutors have issued arrest warrants for Park Sang-bae, former vice governor of the Korea Development Bank, and Rhee Sung-kun, president of the Korea Development Bank’s venture capital unit (KDB Capital). The pair are accused of participating in an alleged bribery scheme that involved kickbacks for writing off debts for Hyundai Automotive Group affiliates.

    VC Deals

Zinc Matrix Power Inc., a Camarillo, Calif.-based silver-zinc battery developer, has raised $7.2 million in Series C funding. Return backers include Intel Capital, OnPoint Technologies and Five States Energy Co.

ViXS Systems, a Toronto-based developer of video processing and networking chipsets, has raised US$18 million in Series E funding led by New Enterprise Associates. The company has raised around $64 million in total VC funding since its 2001 inception.

Environmental Support Systems Inc. (ESS), a Tempe, Ariz.–based provider of operational risk management software and services to the environmental, health and safety market, has raised $8 million in new VC funding co-led by Grayhawk Venture Partners and DCA Capital Partners.

DiVitas Networks Inc., a Mountain View, Calif.-based provider of mobile enterprise communications solutions, has raised $6 million in VC funding led by Clearstone Venture Partners. DiVitas also secured a $2 million credit facility from Lighthouse Capital Partners.

Reata Pharmaceuticals Inc., a Dallas-based drug company focused on cancer and neurodegenerative diseases, has raised around $15 million in Series D funding, according to a regulatory filing. Return backers include Cardinal Partners and StarTech Early Ventures. is in the market for VC funding, according to the Baltimore Business Journal. SC&H Group is serving as its placement agent.

Revive Systems, a McLean, Va.-based provider of network security and reliability software, is planning to close on a $2.5 million Series A round later this month, according to The Washington Business Journal. It launched last December with $200,000 in seed funding from Novak Biddle Venture Partners, which has committed $1.8 million to the new deal. Chart Venture Partners also is expected to participate.

SimpleTuition Inc., a Boston-based company focused on simplifying the financial aid process, has raised $4.4 million in Series A funding. Atlas Venture and IDG Ventures Boston co-led the deal, with Eric Hjerpe of Atlas and Jeff Bussgang of IDG joining the SimpleTution board of directors.

Kaboodle Inc., a Santa Clara, Calif.-based provider of an online service for online information management, has raised $3.55 million in Series A funding. Backers include Shea Ventures, Garage Technology Ventures, Alpha Group and angels like Ron Conway and Rajeev Motwani.

    Buyout Deals

Alta Communications has acquired New Homes Realty Inc., a Clearwater, Fla.-based provider of buyer’s agent services for new and resale homes. No financial terms were disclosed.

Texas Pacific Group has signed a strategic partnership with the Nurol-Limak-Ozaltyn-Tutsab consortium, regarding the latter’s Mey Alcoholic Beverages. No financial or strategic terms were disclosed. Mey Alcoholic Beverages is Turkey’s leading producer of raki.

    PE-Backed IPOs

Alien Technology Corp., a Morgan Hill, Calif.-based provider of radio frequency identification products and services, has filed to raise $138 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol RFID, with Bear Stearns serving as lead underwriter. Alien Technology has raised over $220 million in total VC funding since its 1999 inception, from firms like Advanced Equities, Sevin Rosen Funds, New Enterprise Associates, Rho Ventures and CMEA Ventures.

Hexion Specialty Chemicals Inc., a Columbus, Ohio-based maker of thermosetting resins, has amended its proposed IPO terms around 18.52 million common shares being offered at between $26 and $28 per share. It previously was offering 20 million shares at between $21 and $24 per share, with the big change being that controlling shareholder Apollo Management will sell around 13.9 million shares instead of 7.9 million shares. It plans to trade on the NYSE under ticker symbol HXN, with Credit Suisse and Goldman Sachs serving as lead underwriters. Apollo formed Hexion last year as a rollup of Borden Chemical Inc., Resolution Specialty Materials LLC and Bakelite AG.

Burst Media Corp., a Burlington, Mass.-based provider of Internet advertising solutions for specialty-content publishers, is planning to float an IPO on London’s AIM later this week. Shareholders include Summit Partners.

Novacea Inc., a South San Francisco-based drug company focused on oncology, has set its proposed IPO terms to 6.25 million common shares being offered at between $11 and $13 per share. It plans to trade on the Nasdaq under ticker symbol NOVC, with Bear Stearns and Credit Suisse serving as lead underwriters. The company has raised nearly $110 million in VC funding since its 2001 inception, from firms like Apax Partners, Domain Associates, New Enterprise Associates, ProQuest Inv*stments, Sofinnova Ventures and Versant Ventures.

    PE Exits

Pogo Producing Co. (NYSE: PPP) has agreed to acquire Latigo Petroleum Inc. for approximately $750 million in cash. Latigo is a Tulsa, Okla.–based exploration and production company formed in 2002 by Warburg Pincus, JPMorgan Partners and Latigo management.

    PE-Related M&A

Automatic Data Processing Inc. (NYSE: ADP) has sold its claims services business (CSG) to Solera Inc., a San Diego-based claims processing company owned by GTCR Golder-Rauner. The deal was valued at $975 million in cash, with GTCR participating.

InfoHighway Communications Corp., a Melville, N.Y.-based provider of broadband communications services, has acquired Future Telecom, a New York-based reseller of voice and data communications. No financial terms were disclosed. InfoHighway is a portfolio company of GTCR Golder-Rauner.

MedAssist Inc. has acquired Capstone Solutions LLC, a Nashville, Tenn.-based provider of healthcare revenue cycle outsourcing solutions. No financial terms were disclosed. MedAssist is a Louisville, Ky.-based based provider of outsourced patient eligibility, accounts receivable management, and collections services to hospitals. It is controlled by RoundTable Healthcare Partners.

Data Impact and Speedscan have merged to form a single provider of document management services and technologies. The company will operate as Data Impact in the U.S., and as Speedscan in all other markets. Shareholders include existing Speedscan backer Colonial First State Private Equity.

    Firm & Fund News

Madrona Venture Group of Seattle has closed its third fund with $167 million in capital commitments.

Norwest Venture Partners has closed its tenth fund with $650 million from sole limited partner Wells Fargo.

China Construction Bank Corp. is in early talks to acquire a minority stake in Bear Stearns & Co. for up to $4 billion, according to The Wall Street Journal. The deal would be structured in convertible notes, and would give China Construction up to a 20% position.

Cerberus Capital has launched a firm website at

    Human Resources

Michael Liang has joined Baird Venture Partners as an associate focused on life sciences. He previously was with Advent Venture Partners.

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April 17, 2006

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