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Random Ramblings: A New VC Model Venture capital firms often change their investment strategies, whether it be in terms of industry focus, geographic focus or company stage focus or deal size. The basic VC fund structure, on the other hand, seems to be timeless. For the uninitiated, this typically means: (i) A certain amount committed capital; (ii) An annual management fee charged on committed capital for LPs to pay GPs; (iii) A profit-sharing structure known as carried interest and; (iv) A set initial investment lifecycle and overall fund lifecycle. The most common terms are a 2-2.5% management fee with a 20-25% carried interest and a 5/10 year lifecycle, but it differs from firm to firm. The only real exceptions are corporate venture funds (e.g. Intel Capital), select evergreen funds (e.g. General Atlantic) and some public-private hybrids (meVC). Now there is another. It’s called Stage 1 Ventures, and is being headed up by David Baum and Jon Gordon. Baum is a former general partner with Prism who left during last year's management shakeup, while Gordon is a serial tech entrepreneur whose companies have included Phoenix Technologies, EndPoints, DiagSoft and Patterson Labs. On its surface, Stage 1 is aimed at helping to fill the capital gap left by early-stage firms that have moved downstream. A bunch of these have launched on the West Coast – True Ventures, Tugboat Ventures, etc. – but Waltham, Mass.-based Stage 1 should help fill a continuing void here in the Rt. 128 corridor. But it isn’t the investment strategy that is of primary interest. It is the fund structure. Stage 1 has developed a unique model that puts more LP capital to work than do typical VC funds. It also will encourage the general partner to cut bait faster on troubled portfolio companies. The way it works is as follows: Stage 1 will raise a small general fund with an enlarged management fee and a standard carried interest. That management fee, however, will not be charged on committed capital, but rather only once capital has actually been invested. The firm estimates that this change should result in a guarantee that 92.5% of all LP monies will be invested in portfolio companies. The Stage 1 fund does not contain capital for follow-on investments. Instead, Stage 1 will evaluate each of its fund investments, and then use strict metrics for determining which ones deserve continued support. For example, they must be able to secure a “top-tier” VC firm to help lead the next round (i.e. Stage 1 will not lead twice in a row). For a portfolio company that does meet its hurdle, Stage 1 will form what it calls an SPIV, or special purpose investment vehicle. Think of it like a private SPAC, except funded by limited partners instead of the public markets. Each SPIV will probably be a bit larger than the entire initial fund, and will follow the aforementioned fee and carried interest structure. Stage 1 initially planned to let each LP decide which SPIVs they would like to participate in, but initial feedback has been that LPs would prefer it to be structured as a capital call. No final decision has yet been made. Expect initial LPs to be smaller institutions like municipalities, although Baum has lots of larger contacts via his time spent fund-raising for Prism. Curious to hear what LPs think… *** SAP Ventures is reloading, with the additions Palo Alto-based partners Jai Das (formerly of Agilent Ventures) and Nino Marakovic (formerly of meVC). It also has snared Andreas Weiskam, who had been working in SAP Corporate Development. The SAP Ventures team remains separate from the NetWeaver fund announced earlier this year, with the former more focused on ROI and the latter more focused on product ecosystem development. Expect additional partner hires in both *** Speaking of quiet additions, Chris Olsen has joined Sequoia Capital as a partner focused on the software and services sectors. He previously had been with Technology Crossover Ventures. *** A revised version of yesterday’s LBO Ceiling column is available here. The original version included some transposed statistics. I sent out a correction email, but it seems that not everyone got it. *** Zero2IPO, a Beijing-based VC data aggregation company, is launching its own fund.
Willis Stein & Partners has retained Evercore Partners and Lehman Brothers to help evaluate a possible sale of Ziff Davis Holdings, a New York-based publisher of titles like PC Magazine, eWeek and CIO Insight. Ziff Davis reported $5.7 million in EBITDA for Q2 2006, on revenue of $45.2 million. Willis Stein acquired the company in 1999 for $780 million from Softbank. www.ziffdavis.com VeraLight Inc., an Albuquerque, N.M.-based developer of a diabetes screening system, has raised $17.5 million in Series B funding. Psilos Group led the deal, and was joined by CMEA Ventures and return backers vSpring Capital, Wasatch Venture Fund, The Dow Chemical The Carlyle Group reportedly is planning to raise a $1 billion private equity fund focused on the
Digital Domain, a Venice, Calif.-based digital studio and production company, has raised $31 million from Falcon Investment Advisors and GunnAllen Financial. www.digitaldomain.com Freedom Fuels LLC, a Hampton Iowa-based biodiesel production company, has secured over $17 million of a $22 million funding round, according to a regulatory filing. No institutional backers were listed. www.freedomfuelsllc.com EnterpriseDB Corp., an Edison, N.J.-based enterprise open-source database company, has raised $16.5 million in Series B funding. Fidelity Ventures led the deal, and was joined by return backers Charles River Ventures and Valhalla Partners. EnterpriseDB also secured a $3.5 million line of credit from Comerica Bank. www.enterprisedb.com Oakley Networks Inc., a Salt Lake City-based provider of information leakage detection and prevention, has raised $12 million in Series B funding from Duff Ackerman & Goodrich Ventures. www.oakleynetworks.com PayEase Inc., a Santa Clara, Calif.-based payment services platform provider, has secured $9.11 million of a $12.5 million Series E round, according to a regulatory filing. Backers include TechAlliance Corp., CapInfo, Plainfield Special Situations, Maxima Ventures and WI Harper Group, www.payeasenet.com Netcordia Inc., an Annapolis, Md.-based provider of network analysis tools, has raised $10 million in Series B funding. Trinity Ventures led the deal, and was joined by return backer Novak Biddle Venture Partners. www.netcordia.com SnagAJob.com Inc., a Richmond, Va.-based online employment site, has raised $9 million in its first round of institutional funding. Adams Street Partners led the deal, and was joined by Baird Venture Partners and C&B Capital. www.snagajob.com AutoQuake Ltd., a UK-based seller of cars on eBay, has raised $6 million in Series A funding led by Accel Partners. www.autoquake.com PixFusion Inc. (a.k.a. Kideo.com), a New York-based provider of personalized audio and video products, has raised $4.2 million in VC funding. Mercury Capital Partners led the deal, and was joined by Stonehenge Capital Co. www.kideo.com
Vue Technology Inc., an Aliso Viejo, Calif.–based provider of RF networking and item-level RFID solutions, has raised in $5.02 million Series A-2 funding. The company was formed last year via a spinout from MeadWestvaco’s New Ventures Group. Vue backers include Partech International and Canaan Partners, while MeadWestvaco has retained an equity stake. www.vuetechnology.com
Big Tent Design Inc., a Menlo Park, Calif.-based Web startup, has raised $2 million in Series A funding from Mohr, Davidow Ventures, according to a regulatory filing. Company executives include Nicholas Chim, a onetime MDV associate who co-founded The Personal Bee. 4Home Media Inc., a Saratoga, Calif.-based software startup focused on home automation, has secured $1.52 million of a $2.86 million Series A round led by Pond Ventures, according to a regulatory filing. Etsy Inc., a
Permira has acquired All3Media (f.k.a. Chrysalis TV), a UK-based independent producer of television programming, from Bridgepoint for £320 million. Company management also participated. Bridgepoint led a £45 management buyout of All3Media in July 2003. www.permira.com www.all3media.com European Capital has acquired a 72% stake in Farrow & Ball Ltd., a UK-based provider of luxury decorative paints and wallpapers. The €126 million “one-stop” deal included common equity, senior term loans, senior subordinated notes and loan notes. Farrow & Ball management also participated in the deal’s equity tranche. www.europeancapital.com www.farrow-ball.com European Capital has acquired an 80% stake in Avery Weigh-Tronix Holdings Ltd., a UK-based provider designer and manufacturer of weighing equipment and solutions to the industrial and food retail markets. The €123 million “one-stop” deal included preferred and common equity, senior term notes and senior subordinated notes and loans. Avery Weigh-Tronix management also participated in the deal’s equity tranche. www.europeancapital.com www.averyweigh-tronix.com Altana AG is expected to receive interest from at least four parties for its pharmaceutical division, according to The Financial Times Deutschland. They are: EQT Partners, KKR, Solvay SA and Nycomed (controlled by Blackstone, CS Private Equity and Nordic Capital). The deal could be worth up to €5 billion. www.atlana.com Northrup Grumman Corp. (NYSE: NOC) reportedly has put its navigation systems unit on the auction block, with hopes of receiving up to $1 billion. ISIS Equity Partners has sponsored an £8 million management buyout of Micro Librarian Systems Ltd. from Clearwater Capital Management and Montagu Private Equity. Micro Librarian is a provider of library management systems to the
Littlejohn & Co. is looking to sell El Segundo, Calif.-based defense engineering testing and research company Wyle Laboratories Inc., according to The Wall Street Journal. GES gcp Enterprise Software Group has acquired Infoniqa, an Austrian IT services firm. No financial terms were disclosed. Infoniqa has raised VC funding from firms like 3i Group and Invest Equity.
Sensus Metering Systems Inc., a Raleigh, N.C.–based provider of metering solutions for gas, water, electric and heating utilities, has acquired Advanced Metering Data Systems LLC from LongVue Capital. No financial terms were disclosed. AMDS is a New Orleans-based provider of remote utility meter monitoring and metering wireless connectivity. Sensus is a portfolio company of The Jordan
Matrix Partners has closed its first India-focused fund with $150 million in capital commitments. It will focus on consumer services opportunities, and by co-led by Avnish Bajaj, former co-founder and CEO of Indian online marketplace Baazee.com, and by Rishi Navani, previously a managing director at WestBridge Capital Partners. www.matrixpartners.com
Richard Aiello has joined Welsh, Carson, Anderson & Stowe as a senior operating executive. He most recently served as senior vice president of strategic investments for First Data Corp. (NYSE: FDC). www.welshcarson.com Ross Posner has joined Allstate Investment’s alternatives team, after having served as a principal with Heritage Partners. He will focus on both fund commitments and co-investments. www.allstateinvestments.com David Dedyo has joined Paul, Laura Ring has joined Castile Ventures as vice president of strategic relations. She is a former director of the high-tech services group at Coopers & Lybrand (now PwC), and also served as executive director of the Mass Networks Communications Council (formerly the Mass Telecom Council), the Association for Corporate Growth and the Application Service Provider Industry Consortium (now Comptia). www.castileventures.com Markus Mittermaier and Edward Chan have joined the
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July 31, 2006 
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