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    PE Week Wire   ***   Thursday, October 6

Random Ramblings

As predicted in this space last week, VSP Capital has been hit with a countersuit by one of its former general partners. Also as predicted, the countersuit contains some allegations that will do nothing to help Joanna Rees-Gallanter or John Hamm regain their once-lofty reputations.

Ever since this saga began in May, readers have asked the following question: “You keep telling us that people have left and that LPs have disbanded funds, but you never tell us why it happened.” This is a valid criticism of both me and my colleague Constance Loizos (who originally broke the story, and who has written about the countersuit here) – particularly given that we’ve known the reason.

Our only excuse is that neither we – nor our editors – have felt comfortable reporting "the reason" without first having someone state it on the record (i.e., for attribution). It’s one thing to use background sources to discuss management fee disputes or fund-raising efforts, but this is quite another animal. Now that the countersuit has been filed in San Francisco Superior Court, however, it’s time to provide you, dear readers, with the explanation to which you’re entitled.

According to the countersuit filed yesterday by former VSP general partner Vince Vannelli, Joanna Rees-Gallanter and John Hamm were engaged in an intimate, extramarital affair. Vannelli alleges that the affair began before Hamm was brought into VSP last year, but that Rees-Gallanter did not disclose it (to either VSP GPs or LPs) when asking other VSP partners to admit Hamm into the partnership. Had Vannelli known, he says, he would not have voted to admit Hamm. In addition, Vannelli's suit argues that "several institutional investors had investment practices and policies prohibiting them from investing in venture capital funds that are managed by members having personal relationships, such as spouses or siblings."

Moreover, several sources have said that the denials continued after Hamm was hired. This is supported by an email I received from Rees-Gallanter back in May, denying that she and Hamm were anything more than “good friends.” Last week, I asked Rees-Gallanter three separate times to confirm or re-deny the affair and subsequent denials, particularly in light of the expected countersuit (ex-GP Matt Crisp likely will file his own countersuit shortly). She declined to respond, instead saying that “personal relationships are not relevant to the situation.” Hamm also declined to confirm or deny the affair or subsequent obfuscation.

Again, read Constance’s story for additional countersuit details, including Vannelli's take on the portfolio auction process. In short, however, the downfall of VSP began not with an alleged affair, but with an alleged failure to disclose it.

*** Yesterday I promised you some additional details on TA Associates and Madison Dearborn (and their LPs) investing $738 million for a minority stake in MetroPCS Communications Inc. So here goes: First, the company is based in Dallas, not Denver (thanks to the more than two dozen emailed corrections). Second, the deal values MetroPCS at $3 billion, and its equity at $2.2 billion. Therefore, the deal is for around one-third of the company. Finally, Series C shareholders like Battery Ventures, Accel Partners, Primus Venture Partners and One Liberty Partners received around a 10x return on their investment (for the shares sold via the tender), while Series D shareholders like M/C Venture Partners, Columbia Capital and Whitney & Co. nabbed around 3x.

*** Franklin Park/Tony Johnson column pushed off one more day, but is still definitely coming. For what it’s worth, Franklin Park sent out a press release yesterday formally announcing the hire.


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    Top Three

Serenex Inc., a Durham, N.C.-based drug discovery and development company focused on oncology, has raised $30 million in Series C funding. Ritchie Capital led the deal, and was joined by return backers Intersouth Partners, Lilly Ventures, Mediphase Venture Partners, Takeda Research Inv*stment and Seaflower Ventures. In other Serenex news, the company announced that it has in-licensed worldwide rights from Mucosal Therapeutics to commercialize SNX-1012, a drug for chemotherapy and radiation-induced oral mucositis.

US Renewables Group, a Los Angeles-based acquirer, developer and operator of renewable energy and clean fuel assets, has raised $80 million in first-round funding led by Rustic Canyon Partners. The deal represents a first close on a round designed to raise $250 million. USRG currently owns and operates two landfill methane facilities in California, and is building another facility in Texas. It also is negotiating to acquire an additional 100 MWs of biomass power and to acquire more than 300 million gallons per year of ethanol capacity.

PrimaCom AG of Germany has agreed to sell Dutch cable company Multikabel to Warburg Pincus for 515 million euros.

    VC Deals

SugarCRM Inc., a Cupertino, Calif.-based commercial open-source customer relationship management application provider, has raised $18.77 million in Series C funding, according to a regulatory filing. New Enterprise Associates was joined on the deal by return backers Walden International and Draper Fisher Jurvetson.

eASIC Corp., a San Jose, Calif.-based provider of programmable ASIC products, has raised $17 million in third-round funding. Crescendo Ventures led the deal, and was joined by Evergreen Venture Partners and return backers Kleiner Perkins Caufield & Byers (KPCB) and Vinod Khosla. It now has raised $29.5 million in total VC funding since its 1999 inception.

CenterStone Software Inc., a Hopkinton, Mass.-based provider of integrated workplace management solutions, has raised $5.5 million in Series D funding. Egan-Managed Capital led the deal, and was joined by fellow return backers Trans-National Group, Velocity Equity Partners and the Massachusetts Technology Development Corp. CenterStone has raised a total of $15.4 million in total VC funding.

Redline Communications, a Markham, Ontario-based provider of broadband wireless equipment, has raised US$15 million in fourth-round funding. GF Private Equity Group led the deal, and was joined by return backers Matrix Partners and US Venture Partners. The company has raised $57 million in total VC funding since its 1999 inception.

NewCross Technologies .Inc., a San Mateo, Calif.-based provider of hosted IP telephony services for service providers, has raised $5.2 million in Series B funding. Columbia Ventures led the deal, and was joined by fellow return backers Consor Capital and Sterling Payot Capital.

Evolve Corp. PLC, a UK-based provider of cash management products and services to retailers, has raised Gbp250,000 in venture funding from the South East Growth Fund. Evolve is majority-held by company management, while Global Payment Technologies Inc. (Nasdaq: GPTX) holds a 12.5% stake.

The Corporate Marketplace Inc., a North Kingston, R.I.-based procurement hub, has raised an undisclosed amount of private funding from Ascent Venture Partners.

    Buyout Deals

Golden Gate Capital has acquired Symon Communications Inc., a Plano, Texas–based provider of software and hardware for real-time data display and enterprise communications. No financial terms were disclosed. Symon raised $7.5 million in VC funding from Summit Partners in 1997.

Siemens Power Generation has acquired Wheelabrator Air Pollution Control Inc. from Acquilex Corp., a Norcross, Ga.-based company majority-owned by First Reserve Corp. No financial terms were disclosed. Wheelabrator is a Pittsburgh, Pa.-based supplier of air pollution reduction products and solutions for the coal-fired power and industrial markets. It has year-to-date sales of $116.4 million.

RoundTable Healthcare Partners has agreed to acquire a 65% stake in Bioniche Pharma Group Ltd. from Bioniche Life Sciences Inc. (TSX: BNC) and Bioniche Life Sciences shareholder ICC Private Equity. No financial terms were disclosed for the deal, which is expected to close in November. Pharma Group, has agreed terms for the sale of its stake to RoundTable Healthcare Partners. Bioniche Pharma Group is a Galway, Ireland-based business unit of Bioniche Life Sciences that manufactures and markets sterile injectable pharmaceutical products.

    PE-Backed IPOs

Acorda Therapeutics Inc., a Hawthorne, N.Y.-based biotech company focused on spinal cord injuries, has filed to raise $86.25 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol ACOR, with Banc of America Securities serving as lead underwriter. This is the second IPO attempt for Acorda, which filed for a $75 million offering in September 2003, but withdrew it in early 2004. The company has raised around $140 million in total VC funding since its 1995 inception, from firms like MPM Capital, Elan Corp., Forward Ventures, Easton Hunt Ventures, Crosds Atlantic Partners, TVM and MDS Health Ventures.

    PE-Backed M&A

Metastorm Inc., a Columbia, Md.-based provider of business process management software, has merged with CommerceQuest Inc., a Tampa, Fla.–based provider of scalable integration and business process management solutions. The combined company will operate under the Metastorm name. No financial terms of the merger were disclosed. Metastorm has raised around $65 million in VC funding since its 1996 inception, from firms like 3i Group, Ironside Ventures, Sandler Capital Management, UBS Capital, Axiom Venture Partners and Allianz Private Equity. CommerceQuest raised $27.4 million of funding in 1999 from Internet Capital Group and SCP Private Equity Partners, at a post-money valuation of approximately $90 million.

Oxford Semiconductor Ltd. of Milpitas, Calif. has acquired TransDimension Inc., an Irvine, Calif.-based provider of USB connectivity solutions for embedded applications. No financial terms were disclosed.TransDimension has raised over $30 million in VC funding from firms like GKM Ventures, Alcatel Ventures, Shelter Capital Partners, Rolling Oaks Capital, iSherpa Capital and VantagePoint Venture Partners.

    Firm & Fund News

Calvert Street Capital Partners has closed its third fund with $225 million in capital commitments. The Baltimore-based firm will use the fund to make control-oriented deals for lower middle-market manufacturing and services companies located inside the United States. Probitas Partners served as Calvert’s fund placement agent.

    Human Resources

David Ramsey has joined Kleinwort Capital Ltd. as an inv*stment manager. He previously was an associate director with KPMG Private Equity Group. Kleinwort Capital is a UK-based private equity firm focused on the lower middle-markets.

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October 6, 2005

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