A Stealth Explanation? This past Sunday's edition of the San Jose Mercury News included a brief Q&A with three partners from legendary venture capital firm Kleiner, Perkins, Caufield & Byers. It led off with a question about Google, and then came the following exchange:
This interview has created a fair amount of buzz among VCs in Silicon Valley, although John Doerr could create buzz just by buying a box of Tic-Tacs and muttering something about how he likes the orange ones best. Anyway, I've spent much of the past 24 hours talking about, and thinking about this interview. My conclusion? The Kleiner guys are right... and they are wrong. They are right that more VC-backed companies are staying stealth, and that they are doing so for longer periods of time. Many VC firms now are recomending that seed-stage and Series A deals get kept under wraps until the portfolio company secures some customers and hits various product milestones (often coinciding with a Series B round). This actually has been happening for quite some time, but there actually is some quantitative evidence to support the notion that it is happening with greater regularity in 2004 than it was in 2003. A goodly portion of MoneyTree data is compiled by surveys sent in from venture capital and private equity firms. When filling out such reports, firms have the option to keep certain company information (name, management, business description, etc.) confidential. This is rarely employed, but Kirk Walden, national director of venture capital research with PricewaterhouseCoopers (which works on the MoneyTree survey), looked up some interesting numbers for me yesterday. In all of 2003, just 40 companies were marked as "confidential" when first entered into the system. Over the first three quarters of 2004, however, that number stood at 50. If you extrapolate this data to year-end - even without including an expected rise in overall Q4 disbursements - you'll find a 32% rise in "confidential" reporting. It is impossible to attribute all of this to an increase in stealth preference (increased fear of disclosure also could be a contributing factor), but it certainly accounts for much of it. Where the Kleiner folks are wrong, however, is in accepting the Mercury News' premise that this increase in stealth preference is, in part, responsible for the Q3 decrease in overall venture capital disbursements. It simply is not true, because the quarterly MoneyTree numbers include all of those "confidential" deals, including round amounts. The specifics may not be publicly available, but they are rolled into the aggregate reports. You can't even really argue that VCs are increasingly reluctant to report stealth-mode deals, given the notable increase in reported "confidential" deals. I spoke to someone from a particularly active in seed-stage and early-stage fundings, who says that while his firm reports many of its deals as "confidential," it continues to report the same percentage of deals as it did in 2003, 2002, etc. (the firm typically does not report anything under $1 million). Finally, even if the previous paragraph were disputed, an increase in stealth-mode reporting reticence would not have a terribly significant impact on quarterly disbursement figures. Most stealth deals are for startup rounds. Using MoneyTree numbers, such deals only accounted for 1.64% of the Q3 total (an average of $2.85 million per deal). It gets a bit larger when you add early-stage deals (19.51% -- average of $4.53 per deal), but even a 150% increase in such transactions would not have made up for the $1.5 billion less that was raised in Q3 than in Q2. Unrelated: Don't forget to fill out the ACG/Thomson DealMakers Survey that we emailed to you last week. Those who respond will earn the chance to win free subscriptions and conference passes to our events. We'll announce winners in this column once all the results are in. Go here to take this survey.
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Fidelity Ventures has closed its fourth fund with $250 million from sole limited partner Fidelity Investments, according to sources familiar with the situation. They add that the firm soon will launch a search for one more full-time investment partner. In related news. Fidelity Ventures announced that it has hired former Wavesmith Networks Inc. CEO Thomas Burkardt as a venture partner. www.fidelityventures.com
JDS Pharmaceuticals LLC, a New York-based acquirer, commercializer and marketer of late-stage drugs in targeted niche markets, announced that it has raised $62 million in Series A funding. The deal closed back on August 25, with AIG Healthcare Partners and Galen Partners participating. So far, JDS has acquired two compounds, including one that already had been commercialized.
Auna Group SA, Spain's second-largest telecom company, could soon receive a buyout offer worth around Euro 11 billion ($14.24 billion), according to Dow Jones. The report says that Auna has not yet been formally approached, but that the Lazard-advised investor consortium includes Apax Partners, Blackstone Group, Carlyle Group, CVC Capital Partners and Providence Equity Partners. The selling parties likely would be major shareholders Santander Central Hispano SA (27% ownership), Endesa SA (32.6%) and Union Fenosa (19%). www.auna.es
MetraTech Corp., a Waltham, Mass.-based provider of Web-based billing platforms for network service providers, has raised $7.5 million in new venture capital funding. Return backers include Meritech Capital, Accel Partners and Vesbridge Partners. MetraTech has raised approximately $37 million in total VC funding since its 1998 inception, including a $23 million infusion in 2000 at a post-money valuation of approximately $130 million. www.metratech.com UReach Technologies Inc., a Holmdel, N.J.-based provider of enhanced communication products and services, has raised $5 million in Series B funding. Argo Global Capital led the deal, which follows the company's August acquisition of Priority Call Management. The company has raised approximately $35 million in total VC funding since its 1998 inception. www.ureach.com Boston Scientific Corp. (NYSE: BSX) has made an equity investment in San Diego-based vascular stent maker REVA Medical Inc., with an exclusive option to purchase the company at a later date. No financial terms of the investment were disclosed. REVA has been backed by VC firm Domain Associates since its 1998 inception. www.teamreva.com www.bostonscientific.com ActiveGrid Inc., a San Francisco-based developer of commercial open-source software, announced that it has raised $3 million in Series A funding from Hummer Winblad Venture Partners and Allegis Capital. The deal had closed back in June. www.activegrid.com
Terra Firma Capital Partners has agreed to acquire German highway service station operator Autobahn Tank & Rast Holding AG for approximately Euro 1.1 billion, according to Reuters. The selling parties would be Apax Partners, Allianz Capital Partners and Lufthansa. www.tank.rast.de Thomas H. Lee Partners and Texas Pacific Group are considering a buyout of title insurer Fidelity National Financial, according to The New York Times. If the firms opt to acquire the entire company, it likely would cost $9 billion, including $3 billion in equity from each firm, plus additional equity and debt financing from Bank of American Wachovia, Deutsche Bank and Bear Stearns. The report also suggests that the firms might instead try to acquire just one business unit of Fidelity National. www.fnf.com Henderson Private Capital has acquired Homann Feinkost, a Germany-based provider of chilled and convenience food products, from Gilde Investment Management. No financial terms were disclosed. Gilde had sponsored a management buyout of Homann Feinkost from Unilever in 1999. www.hendersonprivatecapital.com CapMan and 3i Group have agreed to sell their ownership in Finnish flooring manufacturer Karelia Corp. to Hartwell Capital Oy AB and members of the Hartwell family. The deal still requires approval of the Estonian Competition Authority. Once completed, Hartwell-affiliated interests will hold a 64% stake in Karelia. Trimaran Capital Partners has agreed to sponsor a recapitalization of New York area retailer Fortunoff. No financial terms were disclosed, although a report in Monday's New York Post put the price in excess of $250 million. The deal will allow both the Fortunoff and Mayrock families to continue their leadership roles within Fortunoff. www.fortunoff.com Monsanto Co. (NYSE: MON) has formed American Seeds Inc., a new holding company that will support regional seed businesses with capital, genetics and technology investments. The company also announced that ASI has made its first deal, by acquiring Kentland, Ind.-based seed company Channel Bio Corp. for approximately $120 million in cash. www.monsanto.com
Motorola Inc. (NYSE: MOT) has agreed to acquire MeshNetworks Inc., a Maitland, Fla.-based provider of mobile mesh networking and position location technologies. No financial terms were disclosed for the deal, which is expected to close within the next 45 days. MeshNetworks has raised over $51 million in VC funding since its 2000 inception, from investors like 3Com Ventures, Apax Partners, BancBoston Ventures, ITT Industries Inc., Redpoint Ventures, Motorola Ventures and Redwood Venture Partners. www.meshnetworks.com
David Dennis has been hired as a managing director with Pacific Venture Group, an Encino, Calif.-based venture capital firm focused on the healthcare industry. Dennis most recently served as CFO of troubled hospital company Tenet Healthcare Corp. (NYSE: THC). Before that, he was managing director and co-head of the healthcare investment banking group at Donaldson, Lufkin & Jenrette Securities Corp. www.pacven.com Simon Faure has joined PPM Ventures, the private equity arm of Prudential PLC, as associate director of private equity partnerships. He previously worked with Insight Investment, where he was responsible for fund-of-funds investments in the U.S. and in Western Europe. Before that, he was with AIG Global Investment (Europe) Ltd. www.ppmventures.com Todd Lenson has been named a partner with law firm Stroock & Stroock & Lavan LLP. He works out of New York, and focuses on corporate transactional matters, including private equity and VC financings. www.stroock.com ************************* Correction: Latham International's website is www.pacificpools.com
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November 17, 2004 
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