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Random Ramblings Sequoia Capital is becoming a perpetual fund-raiser. Already this year we’ve seen a China-focused offering, an $861 million late-stage fund and the expectation that something will soon emerge from its acquisition of India-based WestBridge Capital. Now, word comes that Sequoia also is raising its twelfth early-stage fund, with a $450 million target and an anticipated close date of June 30. Ok, I know some of you are thinking: “Big deal. Sequoia closed its last early-stage fund in 2003, so of course they’re heading back to market.” Others of you are wondering why you're at work on the Friday before Memorial Day, but that’s really a digression from… The big deal is that Sequoia is expected to ban most funds-of-funds from the new early-stage vehicle. This could include existing LPs like HRJ Capital (a.k.a. Champion Ventures), Flag Capital, HarbourVest, Knightsbridge and Commonfund. Multiple sources say that the decision is rooted in Sequoia’s belief that funds-of-funds have been trading too much off of Sequoia’s brand in order to: (A) Raise new funds-of-funds, and (B) Use that capital to help fund competitors to Sequoia. This belief is not believed to be specific to any of the aforementioned fund-of-funds managers, but more applicable to the overall fund-of-funds category. Sequoia is correct, but the ripples from its decision could include widespread weakening of the entire fund-of-funds market. What follows is entirely hypothetical, but please bear with me: Assume that other top-tier firms follow Sequoia’s lead going forward (not too unlikely since Sequoia often acts as the VC market pace-car). The result would be a severe flattening of the VC fund-of-funds hierarchy, since groups like Flag would no longer be able to differentiate themselves based on access. I’m not suggesting the end of funds-of-funds -- they provide too valuable an outsourced discretionary role to understaffed/undereducated institutions, and most also make more money off of LBOs – but there could be an overall FoF market-size reduction because the potential for success is diminished. Funds-of-funds, like all LPs, make commitment decisions based as much on future funds as on the current one. In other words, a fund-of-funds manager invests in the first Primack Ventures fund because it believes that this commitment will engender access to future – and presumably more successful – Primack Ventures funds. Without that carrot, the stick of first-time commitment risk becomes more ominous. Sequoia declined to comment, and it may either reconsider or prove to be an isolated outlier. But the alternative is far more intriguing. *** Kathryn Gould may have retired from Foundation Capital, but she’s sticking around the VC market as an angel. Gould has formed a new vehicle that will use her personal wealth to invest between $50,000 and $200,000 in startups like Before The Call, a Pleasanton, Calif.-based on-demand sales lead intelligence company that recently scored $2.7 million in Series A funding led by Labrador Ventures. *** Quiz Time: Can you name the Pennsylvania-based VC firm that is about to lose a trio of partners who want to start their own fund. Hint: This isn’t the first time that the firm has lost three partners to the siren call of independence. *** Two additional notes on the Abry/Providence settlement. First, the deal frees up some existing escrow for F&W. Second, Providence already has issued a capital call. *** A reader at Bain Capital's annual meeting yesterday reports that the Burger King himself was in attendance. You know, the always-smiling mascot from the ads that I love and my wife hates. On a more relevant note, Bain told LPs to expect a sub-$1 billion China fund to be raised sometime in 2007.
*** More on this next week, but IDG Ventures Europe is not long for its IDG affiliation. In fact, it’s no longer even listed at www.idgventures.com. *** Finally, the PE Week Wire will not publish Monday, in observance of the Memorial Day holiday. Enjoy the long weekend...
CVC Capital Partners and Citigroup have agreed to acquire Shandong Chenming Paper Holdings Ltd. for approximately five billion yuan ($623 million). The company will use part of the proceeds to build its own pulp mill. Intersouth Partners has closed its seventh fund with $275 million in capital commitments. The Durham, N.C.-based firm will continue to make seed-stage and early-stage investments in the life sciences and IT sectors, with a particular focus on companies based in the Vonage Holdings Corp. (Nasdaq: VG) shares continued to fall on their second day of trading. The company closed at just $13 per share, after pricing its IPO at $17 and closing Wednesday trading at $14.85. Vonage had raised around $396 million in total VC funding from firms like Bain Capital, Meritech Capital Partners, New Enterprise Associates, 3i Group and Institutional Venture Partners. www.vonage.com
Agile Therapeutics Inc., a Sotto Wireless Inc., a Bellevue, Wash.-based provider of hybrid wireless solutions, earlier this year raised $8.02 million in Series A funding, according to a regulatory filing. Backers include VantagePoint Venture Partners and Ignition Partners. Read more about Sotto in today’s Seattle Post-Intelligencer. www.sottowireless.com RCD Technology Corp., a Quakertown, Pa.-based provider of technology for producing specialty RFID tags and RFID antennae, has raised Series A funding from NextStage Capital, Zon Capital and Ben Franklin Technology Partners. www.rcdtechnology.com
Sentinel Capital Partners has acquired Interim HealthCare, a Audax Group has acquired ColorMatrix Corp., a Cleveland–based provider of engineered solutions for manufacturers of thermoplastic products. No financial terms were disclosed, except that company founders and certain European shareholders will retain minority equity positions. Grace Matthews Inc. advised ColorMatrix on the sale. www.audaxgroup.com American Capital Strategies has acquired an 84% stake in FreeConference.com Inc., a Los Angeles-based provider of free telephone conference calling services. No pricing terms were disclosed for the deal, in which American Capital provided a senior term loan, senior subordinated debt, redeemable preferred equity, convertible preferred equity and common equity. Additional equity backers included company management, Glickman Capital and Broadstream Capital Partners. www.acas.com Warburg Pincus plans to acquire Shangdong, China-based food additive company Gum, according to the South China Morning Post. No overall deal size was reported, except that Warburg has lined up around $100 million in leveraged financing. www.warburgpincus.com Eddie Bauer Holdings Inc. (OTC BB: EDHC) has retained Goldman Sachs to “explore strategic alternatives to increase shareholder value, including among others, a possible sale.” The retailer emerged last year as a stand-alone company after the bankruptcy reorganization of former parent Spiegel Inc. In 2004, Spiegel had considered selling Eddie Bauer and had received private equity interest from firms like Bain Capital, Apollo Management, KKR, CSFB Private Equity and Cerberus Capital Management. Most of those firms, however, offered between $600 million and $700 million, whereas Spiegel was looking for closer to $1 billion. www.eddiebauer.com
SenoRx Inc., an Aliso Viejo, Calif.-based provider of minimally-invasive medical devices for the diagnosis and treatment of breast cancer, has filed to raise $86.25 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol SENO, with Banc of America Securities and Citigroup serving as co-lead underwriters. The company has raised around $42.6 million in total VC funding since its 1998 inception, from firms like MPM Capital, Domain Associates, Mayfield, Medicus Venture Partners, De Novo Ventures, Entrepreneurs’ Fund and Tyco Capital (shares now held by Protostar Equity Partners). www.senorx.com
Alterian (LSE: ALN) has acquired Dynamics Direct Inc., a Valencia, Calif.-based provider of email and online marketing solutions. No financial terms were disclosed. Dynamics Direct has raised over $22 million in VC funding since its 1998 inception, from firms like JPMorgan Partners, Pitango Venture Capital, Tamir Fishman Ventures, Concord Ventures, Mofet Venture Capital, Poalim Capital and Botticelli Venture Funds. www.alterian.com
Pantheon Ventures is looking to raise upwards of $2 billion for its seventh U.S.-focused private equity fund-of-funds, according to a regulatory filing. It already has secured $107.9 million in commitments from limited partners like The New York Times Cos. Pension Trust, the worker Benefit Plans ot the Lutheran Church-Missouri Synod and the Ohio Highway Patrol Retirement System.
Jeff Tobin and Matt Schafer have joined The Riverside Co. as operating partners in the firm’s micro-cap group. Tobin previously served as COO with Global Travel International, while Schafer was president and COO of Coachman Industries Inc. www.riversidecompany.com The Mid-Atlantic Venture Association (MAVA) has elected for new members to its board of directors. They are: William Corey, managing partner at PricewaterhouseCoopers LLP; Mark Levine, managing director of Core Capital Partners; Ryan Schwarz, managing director of The Carlyle Group; and Harry Weller, partner of New Enterprise Associates. Each will serve a three-year term. www.mava.org
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