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    PE Week Wire -- Thursday, April 20

Let Your People Go

Invesco Private Capital is a lot like Audrey Raines at the end of Monday’s episode of 24: Slowly being bled dry without knowing what will happen next. The only real difference, of course, is that while Audrey was felled by turncoat Robocop, IPC is looking at the misguided blade of father Invesco.

IPC is a $2.3 billion, client-backed group that features both a direct investment program and a fund-of-funds program. The direct effort has invested $1.3 billion in 300 private companies, while the fund-of-funds has committed $3.6 billion to 393 partnerships. Recently, however, the group has been hemorrhaging investment pros, including the imminent departure of managing partner Parag Saxena. In fact, IPC is expected to have lost around 60% of its investment staff by summer’s end.

Why so much tumult at historically-tranquil IPC? Because Invesco repeatedly denied the investment team's request that it be allowed to spin out into an independent entity. Sources say that negotiations had taken place intermittently for nearly three years, including a final plan that would have taken effect this August. Invesco, however, ultimately decided to keep the entire program in-house, thus prompting the departures.

“When you get to the point where you can no longer find common ground – and when you no longer seem to be working toward the same goal – it’s time to part ways,” says someone within that 60 percent. “The bureaucracy and corporate restrictions just got to be too much.”

An Invesco spokesman declined to comment on the situation.

It is certainly Invesco’s right to prevent a spinout. It views IPC as a valuable diversification avenue for its clients, and didn’t want to lose a substantial percentage of the profits. But Invesco should have let it go anyway, and taken an ownership percentage. Private equity groups are successful because of the investors, not because of the brand. If the team had concluded that they could not – or would not – continue to work under the corporate umbrella, then Invesco clients would soon see an end to superior returns. Cranky employees are bad for everyone’s business.

The obvious comparison here is AIG, which last year terminated some senior managers who wanted to spinout. Invesco certainly has handled its mess better from a PR perspective. Not only did it not march its employees out of the office, but it also seems to have everyone on the same page in terms of non-compete clauses (i.e., don’t expect any lawsuits, but do expect Saxena et. all to form a new group once the non-competes expire).

But net result is similar: Upset clients. In the case of AIG, limited partners pulled the plug on existing fund commitments. No such pullouts have occurred yet at Invesco, but clients are voicing concerns that: (A) Managers leaving and (B) No substantial new hires have yet been made. At least AIG almost immediately filled its empty seats. Invesco is apparently waiting to feel water before plugging the leak.

Had Invesco allowed the spinout, it could have maintained a piece of the action while also forming a smaller in-house effort. Not exactly what it would want, but a decent compromise. Instead, it has a giant in-house program without enough qualified managers, and eventually will have to watch its former team reconstitute itself without any financial ties to Invesco. Better PR/legal strategy than AIG, but still the same basic mistake.

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    Top Three

GAIN Capital Group Inc., a Bedminster, N.J.-based non-bank provider of foreign exchange trading and asset management services, has raised $40 million in Series D funding from VantagePoint Venture Partners. The deal gives VantagePoint a minority ownership position, with GAIN using the funds to repurchase outstanding stock from existing shareholders.

Debenhams PLC, a UK-based department store chain, says that its upcoming IPO will value the company at between £1.68 billion and £1.95 billion. It plans to sell 449 million shares at between 195 pence and 250 pence per share on the LSE, with 134.8 million shares coming from backers like CVC Capital Partners, Texas Pacific Group and Merrill Lynch Global Private Equity.

Peter Fenton has joined Benchmark Capital as a general partner. He previously was a partner with Accel Partners, where he was responsible for such recent successes as JBoss and Wily Technology.

    VC Deals

Sirtris Pharmaceuticals Inc., a Cambridge, Mass.-based developer of therapeutics that modulate an enzyme family called sirtuins, has raised $22 million in Series C funding. Bessemer Venture Partners led the deal, and was joined by Genzyme ventures, QVT Fund and Alexandria Real Estate Equity. Return backers included Polaris Venture Partners, Three Arch Partners, Skyline Ventures, Wellcome Trust, Novartis, Cargill Ventures, Cyad Group, Hunt Ventures and Red Abbey. Sirtris also received $15 million in venture debt financing from Hercules Technology Growth Capital, of which it will initially draw down $10 million.

Visible Path Inc., a Foster City, Calif.-based provider of relationship capital management solutions, has raised $17 million in Series B funding. Menlo Ventures led the deal, and was joined by Integral Capital Partners, Silicon Valley Bank and return backer Kleiner Perkins Caufield & Byers.

Jingle Networks Inc., a Menlo Park, Calif.-based operator of advertiser-supported directory assistance services, has raised $26 million in Series B funding. Liberty Associated Partners led the deal, and was joined by fellow return backers First Round Capital and IDG Ventures Boston. Comcast Interactive Capital also came aboard.

TradeCard Inc., a New York-based provider of supply chain automation solutions, has raised $14 million in new VC funding. Warburg Pincus led the deal with a $7 million investment. TradeCard has raised over $130 million in total VC funding since its 1997 inception.

Contigo Mobility Inc. has raised $7.35 million in Series A funding, according to a regulatory filing. Backers include Lightspeed Venture Partners, Gemini Israel Funds and Pitango Venture Capital. The company has offices in both Israel and Menlo Park, and focuses on turning WiFi into a managed mobile social network through seamless bandwidth sharing.

Cassatt Corp., a San Jose, Calif.-based provider of software and services for enterprise IT automation, has raised $15 million in fourth-round funding, according to a regulatory filing. Backers include New Enterprise Associates, Warburg Pincus, Hewlett-Packard and Quatris Fund.

Cine-Tal Systems Inc., an Indianapolis-based, provider of products for the professional video, motion picture and television broadcasting markets, has raised $2.7 million in Series A funding, according to a regulatory filing. Backers include Spring Mill Venture Fund (a Village Ventures affiliate fund) and UK-based Image Processing Techniques Ltd.

AdaptiveMobile Ltd., a Dublin, Ireland-based provider of mobile security and filtering solutions, has raised €4.6 million in first-round funding. Intel Capital led the deal with a 4 million commitment, and was joined by Enterprise Ireland.

Miartech, a Shanghai, China-based fables semiconductor company that supplies smart-energy components to appliance manufacturers, has raised $6 million in first-round funding. It was co-led by DFJ Dragon Fund, DFJ Element and Draper Fisher Jurvetson.

Limerick Neurosciences Inc. (f.k.a. Efflux Technology), a San Francisco-based drug startup, has raised around $5.5 million in Series A funding. Backers include Sevin Rosen Funds and Arch Venture Partners. The company is run by Wendye Robbins, a Stanford School of Medicine professor who founded NeurogesX in 1998.

BeneChill Inc., a San Diego-based developer of non-invasive cooling technology for the treatment of cerebral ischemia, has raised $7 million in Series B funding, according to a regulatory filing. Backers include MedVenture Associates and NGN Capital.

Embiotics, an Ottawa-based developer of embedded software for autonomic IT service management, has raised an undisclosed amount of seed funding from Tera Capital Corp.

Ascade AB, a Sweden-based provider of supply chain management systems for telecom carriers, has raised €2.1 million in new funding from existing backers CapMan and SEB Foretagsinvest.

    Buyout Deals

Champ Private Equity, the Australian affiliate of Castle Harlan, has acquired four distributors of branded specialty foods in Australia and New Zealand: Manassen Foods, Great Southern Foods, Hutchinson and King Oscar. They all will now operate under the Manassen umbrealla, with Champ holding a 51% stake. No financial terms were disclosed.

Federal Services Acquisition Corp. (OTC BB: FDSA) has agreed to acquire Advanced Technology Systems Inc., a McLean, Va.–based provider of systems integration, application development, IT infrastructure management and IT consulting to U.S. federal government agencies. The deal is valued at up to $124 million, including $84 million in cash, $1 million in stock and up to $39 million in additional milestone payments. Federal Services Acquisition is a blank check company formed last year by Edward Bersoff, founder and former CEO of BTG Inc., and CM Equity Partners co-founders Joel Jacks and Peter Schulte.

Tenaska Capital Management has agreed to buy a 50% interest in Caledonia Energy Partners, which is converting a depleted natural gas reservoir near Caledonia, Miss. Into a multi-cycle gas storage facility. No financial terms were disclosed.

Activa Capital has acquired a majority stake in Créal, a French manufacturer of aluminum windows, from company founder Claude Caprini and Sigefi Private Equity. No financial terms were disclosed.

The Riverside Co. has acquired Commonwealth Laminating & Coating, a Martinsville, Va.–based provider of window film for the automotive, residential and commercial markets. No financial terms were disclosed.

    PE-Backed IPOs

Basin Water Inc., a Rancho Cucamonga, Calif.-based provider of contaminated groundwater treatment systems, has set its proposed IPO terms to five million common shares being offered at between $8 and $10 per share. It plans to trade on the Nasdaq under ticker symbol BWTR, with Janney Montgomery Scott serving as lead underwriter. Cross Atlantic Capital Partners holds a 6.6% pre-IPO stake.

    PE Exits

Sunesis Pharmaceuticals Inc., a South San Francisco-based oncology drug company, filed to sell around 9.42 million common shares via a secondary offering. Nearly 2.2 million of the shares will come from Sunesis, while the remainder will come from shareholders like Abingworth Management, Alta Partners, Baker biotech Fund, Credit Suisse, Domain Associates and Warburg Pincus. Sunesis stock closed at $6.50 per share on Tuesday.

Novell Inc. (Nasdaq: NOVL) has acquired e-Security Inc., a Vienna, Va.–based provider of security information management and compliance monitoring solutions. The deal was valued at $72 million. E-Security has raised around $40 million in VC funding since its 1999 inception, from firms like FT Ventures, Advanced Technology Ventures, Fidelity Ventures, Updata Partners and Knickerbocker LLC.

International Power PLC (NYSE: IPR) has agreed to pay $1.4 billion in cash to acquire the Coleto Creek Power Plant in Goliad County, Texas from Sempra Energy (NYSE: SRE) and Riverstone Holdings.

    PE-Backed M&A

Hansen Information Technologies, a Rancho Cordero, Calif.-based provider of government transaction solutions, has acquired Spear Technologies Inc., a San Francisco-based provider of asset management solutions for the public transit and rail markets. No financial terms were disclosed for the deal, which was financed by existing Hansen backers like Golden Gate Capital. Spear’s website listed both Abbot Group and Marquette Venture Partners as shareholders.

CVI Laser LLC, an Albuquerque, N.M.-based optical components manufacturer, has acquired Quality Laser Optics Ltd., an Isle of Man-based manufacturer of precision optics. No financial terms were disclosed. CVI Laser is a portfolio company of Norwest Equity Partners.

Axia Health Management, a Tempe, Ariz.–based provider of preventative healthcare, has acquired ePHIT, a Salt Lake City-based online prevention and wellness company. No financial terms were disclosed for the deal, which closed on March 31. Axia was formed in November 2004 by Genstar Capital, Nautic Partners and company management.

Lectus Therapeutics Ltd., a UK-based drug company focused on ion channel modulators, has acquired the assets of NeuroServe Ltd., a UK-based electrophysiology company that tests compounds on ion channels for drug and biotech clients. No financial terms were disclosed. Lectus has raised over $15 million in VC funding from firms like Quester Capital Management, Sofinnova Partners, Takeda Research and Astellas Venture Partners.

Solarflare Communications Inc. and Level 5 Networks Inc. have agreed to merge into a single fables semiconductor company focused on providing Ethernet products. The combined company will be called Solarflare Communications, with an Irvine, Calif. headquarters and development centers in both Sunnyvale, Calif. and Cambridge, UK. No financial terms were disclosed, except that the company raised new funding from existing shareholders like Oak Investment Partners. Foundation Capital, Accel Partners, Amadeus Capital Partners, Anthem Venture Partners, IDG Ventures Europe and Miramar Venture Partners. The combined company has a current cash balance of $50 million.

    PIPE Deals

Dynavax Technologies Corp. (Nasdaq: DVAX) has received a $50 million capital commitment from Symphony Capital Partners and its co-investors. Under terms of the agreement, Symphony will form Symphony Dynamo, which will be capped with an initial $20 million and an additional $30 million within one year to fund Dynavax’s identified development programs in cancer and hepatitis therapeutics.

    Firm & Fund News

GTCR Golder Rauner is looking to raise $2.25 billion for its ninth private equity fund, according to a regulatory filing. Lazard Freres is serving as placement agent.

Chrysalis Ventures of Louisville, Ky. is looking to raise $200 million for its third fund, according to a regulatory filing. Source Capital Group is serving as placement agent.

Energy Investors Funds has been awarded contracts by Pacific Gas & Electric Co. to build two power centers in Fresno County, California. No financial terms were disclosed.

    Human Resources

Russell Read has been named chief investment officer for the California Public Employees’ Retirement System. He is the former deputy CIO for Deutsche Asset Management and Scudder Investments. He succeeds Mark Anson, who left CalPERS in January to become CEO of Hermes.

GE Commercial Finance named Tom Quindlen as president and CEO. He previously served as commercial leader for GE Capital Solutions and president and CEO of GE Franchise Finance. It also named Jim Kelly as general manager of North America.

Dennis Longstreet has joined RoundTable Healthcare Partners as a senior advisor. He is a former company group chairman at Johnson & Johnson and also served as chairman of medical device trade association AdvaMed.

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April 20, 2006

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