Random Ramblings

A few thoughts as I wait for my invite to today’s Thomas H. Lee Partners annual meeting…

*** First up is the aforementioned meeting, which is taking place at the Four Seasons here in Boston. I was all set to write about what to expect, but Steve Syre beat me to the punch. His most salient point is one that this space has been hammering home for the past several weeks: TH Lee will have no problem raising its new fund. An LP I met with last night said that he doesn’t expect a marketing blitz at today’s meeting, but did say that some serious pre-marketing is already underway. For those already at the meeting and reading this via Blackberry, let’s play a game. Every time the word “Refco” is mentioned during a formal session, email me with a single asterisk in the subject heading. If it’s mentioned during informal conversation, email me with a pair of asterisks…

*** Perfect Commerce Inc. is a capital hog. I don’t really mean this in a bad way – yes, I know the term “hog” is derogatory – but it sure has raised a lot of money. The latest infusion is a $30 million round that closed on Tuesday, with new backer Apax Partners serving as the lead with $20 million. This brings the company's grand VC total up over $100 million, or nearly $140 million if you include VC contributions to companies that Perfect Commerce has acquired or merged with. For comparison, I can’t find any other private supplier relationship management (SRM) companies that have raised even $75 million (other privates in the space include Ketera with around $66m, SupplyWorks with around $50m, Frictionless Commerce with around $60m and Open Ratings with around $24m).

So yesterday I asked Perfect Commerce CEO Sandy Kemper why his company seems to require more cash than other private SRM companies. Is it simply to compete with public SRM companies like Ariba (which, incidentally, is trying to muscle into the on-demand space that Perfect Commerce apparently dominates)? Kemper’s answer was basically three-fold: First, he said that the typical SRM company focuses on a single product, whereas Perfect Commerce features an entire suite of procurement management solutions, including a supplier network with over 21 million SKUs of catalog content. Second, the company wants to continue rapid European growth (Kemper was preparing to board a flight to Paris during our conversation). Third, expect more acquisitions from a company that already has acquired more than its fare share (some of which were good, some of which were legal nightmares). For example, Kemper said that the reason Perfect Commerce won’t hit its $40 million 2005 revenue projection is because a couple of anticipated acquisitions have been delayed until early 2006.

It also is important to point out that some of Perfect Commerce’s early funding simply doesn’t count anymore, because the company raked lots of duckets in 2000 and 2001 at ridiculously inflated valuations ($250m post-money at one point). Almost all of those investments have now been diluted into fond memories, due to both basic post-bubble economics and the fact that most of Perfect Commerce’s acquisitions have been done as stock swaps. As such, expect two of the following three VCs to leave the Perfect Commerce board to make room for a pair of Apax directors: Yogen Dalal of Mayfield, Dan De Wolf of Dawntreader Ventures and David Brown of Oak Hill Venture Partners. Rex Golding of Mobius will stick around.

Finally, I spoke briefly with Roger Hurwitz of Apax, who is taking on of those board seats. He says that the company shouldn’t need additional private equity funding, unless some major acquisition opportunities come around. He also says that the company isn’t yet ready to begin talking IPO, but believes that proper execution will lead to strong ROI given the multiples currently being paid for such companies.

*** I vastly overstated the power of carbon nanotubes in yesterday’s column. A single carbon nanotube could not hold a locomotive, but a carbon nanotube cable to size of a human hair could. It was my mistake, not Seldon Labs’. All apologies…

*** Finally, CalPERS just approved a handful of new fund commitments, including one for the new Oaktree Capital Partners distressed debt fund (closed with $1.77 billion) and Newbridge Asia IV (already closed on nearly $1.33 billion of its $1.5 billion target). The most interesting commitment, however, is to the Carlyle/Riverstone Renewable Energy Infrastructure Fund, which is targeting $300 million. We’ve seen lots of clean-tech funds on the early-stage VC side, but I far fewer dedicated efforts focused on later-stage/buyout opportunities…