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    PE Week Wire -- Wednesday, August 24

Mayfield Closes Fund, Is "Saddened" By LP Comments

Mayfield today announced that it has closed its twelfth fund with $375 million in capital commitments. The news comes about one week after this space reported that at least seven brand-name limited partners has opted not to re-up, due mostly to a combination of lousy returns and a serious disagreement over the way in which Mayfield went about paying off clawback liabilities on its eighth and ninth funds. I've got a bunch of Mayfield thoughts in no particular order, so here goes:

***I spoke yesterday with Kevin Fong, a Mayfield managing director who basically runs the firm along with Yogen Dalal. This was my first conversation with anyone from Mayfield since first hearing of the clawback/management fee issue in July, as the firm and its representatives had basically ignored my multiple calls and emails requesting comment (most likely because it was in fund-raising mode). Considering what I had written, my ears were prepared for a good deal of yelling.

But there were no raised voices, nor any suggestion that the column contained inaccuracies. Instead, Kevin was fairly contrite, acknowledging that returning to the LP community after five or six years of low returns was difficult and humbling. He wouldn't go into specifics about the clawback/management fee issue, but did say that he was "saddened" by the LP sentiments expressed in the column. What was a bit difficult to tell upon re-reading my notes, however, was whether his sadness related more to the fact that LPs actually held such sentiments, or that they had chosen to air them publicly. Below is part of the interview:

We were really saddened by the comments that were made [by the LPs]¡­ We pride ourselves on having very good LP communications, and encourage LPs to tell us both the good and the bad on a one-to-one basis¡­ We were very forthcoming to our LPs, and we believe we responded appropriately, and only acted on amendments that were viewed and signed by our LPs¡­ We also viewed those communications as one-to-one, and are disappointed by the fact that some LPs have chosen to use an alternate public channel to vent their frustrations¡­ Clearly we haven¡¯t done our job in encouraging them to get to us directly.

Again, I don't quite know what to make of this, particularly since almost all of the LPs I spoke to in Funds VIII and IX had, indeed, made their frustrations known privately, and took them public after the private avenue had failed. Moreover, while the amendments did, indeed, pass, they went through several stages and ultimately were not signed by all LPs (i.e., a formal protest against the decision).

All in all, however, Kevin certainly understands that Mayfield has to produce in order to keep its brand shiny, and seems willing to do it. He also stressed that the firm remains a fiduciary to many of the LPs who didn't return, and that it will obviously honor that commitment.

*** Mayfield certainly was paying attention to its recent bad pub, judging from the press release. Its second paragraph states: "The majority of the commitments of Fund XII derived from long-standing limited partners." Later, CFO and managing director James Beck is quoted as saying: "Mayfield XII brings together a diverse and discerning group of investors." Indeed, 75% of the commitments came from existing LPs. While this certainly is laudable, it does not address those who dropped, nor the fact that the fund itself is about 60% smaller than its predecessor (i.e., could have easily been filled with just 40% of existing backers maintaining pro rata stakes).

*** Speaking of LPs, Fong wouldn't say whether or not Mayfield refused FOIA-able pensions, but seemed to hint at it by saying that FOIA was an issue the firm paid a lot of attention to. I also asked him about the original Fund XII terms of a 2.5% annual management fee and 30% carry (not net of fees). Specifically, I wanted to know if they had been sweetened to entice certain LPs to return. He declined to comment on -- or confirm -- the specific numbers, but did say that the original terms stuck.

***A few personnel changes related to the fund close: Raj Kapoor was promoted from venture partner to managing director. Also, CFO James Beck got a managing director nod. Not listed as a managing director is COO and former CFO Harvey Schloss, who previously had announced his retirement.

***The firm is almost done committing Fund XI, which was never reduced in size, despite some talk to the contrary (there was, however, a secondary sale whereby departing GPs sold some interests to LPs and remaining GPs). The first Fund XII deals are expected to come before year-end.

*** Quiz time: Can you name the two former Mayfield partners who are out raising a first-time fund?



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    Top Three


Cerexa Inc., an Alameda, Calif.-based drug company focused on hospital-based infections, has raised $50 million in Series B funding. The deal formalizes Cerexa¡¯s spinout from Peninsula Pharmaceuticals Inc., which recently was acquired by Johnson & Johnson (NYSE: JNJ) subsidiary Ortho-McNeil Pharmaceuticals Inc. New Leaf Venture Partners (f.k.a. Sprout Healthcare) and Frazier Healthcare Ventures co-led the deal, and were joined by former Peninsula shareholders Domain Associates, Canaan Partners, OrbiMed Advisors, A.M. Pappas & Associates, Montreux Equity Partners, EGS Heathcare and CDIB BioScience Ventures. The $50 million also included the rollover and conversion of $16 million worth of Series A shares that Cerexa had raised earlier this year.

Sonic Healthcare Ltd. of Australia has agreed to acquire an 80% interest in Clinical Pathology Laboratories Inc., an Austin, Texas-based portfolio company of Summit Partners. The deal is valued at $300 million, including the possibility of another $20 million in earn-out payments. Sonic plans to acquire the remaining 20% equity stake over the next several years, while the current deal includes a debt facility from ANZ Bank and JPMorgan.

Mayfield has closed its twelfth venture capital fund with $375 million in committed capital. The firm also promoted Raj Kapoor from venture partner to managing director.

    VC Deals

Yeelion Inc., a Beijing, China-based company focused on personalized digital information, has raised $800,000 in Series A funding, according to a regulatory filing. The filing lists beneficial owners as Ignition Venture Partners and Gary Rieschel, a venture partner with Mobius Venture Capital.

Aerocrine AB, a Swedish medical device company focused on the monitoring of both nitric oxide and lung inflammation, has raised 17 million euros at a post-money valuation of 59 million euros, according to The Deal. Participants included CapMan PLC, HealthCap Venture Capital, Inv*stor Inv*stment Novare Ltd., Scandinavian Life Science Venture, H&B Capital and Life Equity Sweden.

NextWeb, a Fremont, Calif.-based fixed-wireless Internet service provider for businesses, has raised $3.5 million in Series E funding. The deal includes equity from Kaiser Permanente National Ventures and Saints Capital, plus a revolving line of credit from Silicon Valley Bank.

Profos AG, a German biotech company focused on the capture and detection of bacteria and bacterial components, has raised 5 million euros in new venture capital funding from Bio Fund Management of Finland and return backers Danisco Venture AS of Denmark and Capital Stake AG of Germany.

Sightline Technologies Ltd., an Israel-based medical device company focused on diagnosing and treating abnormalities in the large intestine, has raised $10 million in Series D funding. NGN Capital led the deal, and was joined by Vitalife, Israel Infinity Fund, Inventech and the Fishman Group.

Telabria Ltd., a UK-based regional network operator and wireless product developer, has raised over Gbp1 million in first-round funding from groups like Faroese Telecom.

    Buyout Deals

The Riverside Co. has agreed to buy the Sentinel business unit of GE Infrastructure, Water & Process Technologies for $44 million. Sentinel is a UK-based producer of branded residential heating system additives and chemicals.

Encore Acquisition Co. (NYSE: EAC) has acquired Crusader Energy Corp., an Okalahoma City-based exploration and production company backed by Kayne Anderson Capital Advisors. The deal is valued at approximately $107.5 million, with Lehman Brothers serving as financial advisor to Crusader.

TSL Education, a UK-based educational publisher controlled by News Corp. (NYSE: NWS), is on the block for between Gbp250 million and Gbp280 million, according to The Deal. Reported bidders include Apax Partners, Candover, Carlyle Group and Exponent Private Equity.

Texas Pacific Group has sold its 35% stake in Italian motocycle company Ducati Motor Holdings SpA to Inv*stindustrial, according to Milano Finanza.

    PE-Backed IPOs

Ikanos Communications, a Fremont, Calif.-based semiconductor company focused on enabling broadband services over existing copper lines, has set its proposed IPO terms to 6.4 million common shares being offered at between $10 and $12 per share. It plans to trade on the Nasdaq under ticker symbol IKAN, with Citigroup and Lehman Brothers serving as lead underwriters. Ikanos shareholders include Sequoia Capital, Walden International, Greylock Partners, Telesoft Partners and Ridgewood Ventures.

    PE-Backed M&A

Camilion Solutions Inc., an Ontario, Canada-based provider of product lifecycle management solutions, has acquired AbovePlan Corp., a software company that provides sales and marketing solutions to process-intensive industries like insurance and financial services. In connection with the acquisition, Camilion has named AbovePlan founder Ross Orrett as its new president and CEO. Camilion has raised VC funding from Celtic House Venture Partners and various individuals.

Mtekvision Canada, a subsidiary of South Korea-based Mtekvision Co. Ltd., has received Canadian court approval to buy the remaining assets of bankrupt Atsana Semiconductor Corp. for approximately Cdn$1.35 million. Atsana had raised around US$31 million in total VC funding, from such firms as Siemens Communications, Stata Venture Partners, GrowthWorks Capital, Business Development Bank of Canada, Covington Capital, Primaxis Technology Venture and Greenstone Venture Partners.

Harman International (NYSE: HAR) has acquired PhatNoise Inc., a Los Angeles-based provider of integrated digital media systems for automobiles. No financial terms were disclosed. PhatNoise has raised over $9 million in VC funding since its 1999 inception, from firms like Ascend Venture Group, Garage Technology Ventures and Tech Coast Angels.

    Firm & Fund News

Finistere Partners of San Diego is looking to raise between $50 million and $75 million for its fourth venture capital fund, according to The San Diego Union-Tribune. It already has $40 million in commitments, and will use the money to identify new technologies in Australia and New Zealand that can be used to found startup companies in the San Diego area.

Warburg Pincus may soon sue Shanghai, China-based Datang Telecom Technology Co Ltd., due to an alleged breach of contract related to the agreed-upon issuance of convertible bonds to Warburg-related companies. Datang says that the two sides currently are in negotiations.

    Human Resources

Melvin Spigelman has joined Wellington Partners as a New York-based venture partner focused on life sciences opportunities. He most recently served as a director of the Global Alliance for TB Drug Development, a nonprofit group focused on R&D related to tuberculosis. Germany-based Wellington is trying to raise its first life sciences-focused venture fund, with a target capitalization of 100 million euros.

Maximilian Schroeck has joined Cipio Partners as a managing partner, and head of the European secondary firm’s new office in San Jose, Calif. He previously served as managing director of Agilent Ventures.


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August 24, 2005


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