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    PE Week Wire -- Wednesday, May 11

A Tale of Two Firms

Two months ago, San Francisco-based Venture Strategy Partners closed its third fund with $185 million, and re-branded itself with the snappier moniker of VSP Capital. At around the same time, IDG Ventures Boston was rumored to be taking a bit too long in closing the first-ever IDG-affiliate fund to include outside institutions. My, how fortunes have changed.

According to PE Week’s Constance Loizos, VSP Capital has lost two of its five general partners, and at least one LP in the new fund is considering a sale of its position on the secondary market. The first defection was Tony Conrad, who actually left last November, just after VSP had held an initial fund close. He since has moved on to found a stealth-mode RSS startup, and declined to comment on his reasons for leaving VSP. In late March, sources say that general partner Vince Vannelli submitted his resignation, after being with the firm since 2002. Vannelli tells PE Week that, as of today, he still is working with VSP, but declined to confirm or deny the resignation report.

All of this must be unsettling to limited partners who just bought into the firm, particularly since the new fund has only called down a small amount of capital to back three, stealth-mode plays (an instant-messaging enhancement startup, a marketing services company and a next-generation search company). That isn’t to say that VSP can’t, or won’t, rebound, but it would be a tough road ahead. The complete story can be found at

IDG Ventures Boston, on the other hand, is popping champagne corks this week. The firm closed out its oversubscribed fund with $180 million, despite a cover price of just $150 million. Participating limited partners include Princeton University, AlpInv*st Partners, Flag Capital Management, GIC, Grove Street Advisors and HighVista Strategies. IDG also participated, but does not have a majority position.

What makes this fund-raising so impressive is that the entire process basically went according to a plan that IDG Boston’s Michael Greeley and Chip Hazard laid out to me during a lunch meeting nearly three years ago (I believe I had my favored steak and tomato salad w/ blue cheese). They would first build up the office’s portfolio and reputation through a $100 million commitment from IDG, add some staff and then would hopefully solicit outside capital in 2004 or 2005. So far IDG Ventures Boston has ten portfolio companies without a single write-off (two more will be added from the original IDG-sponsored fund before deploying new fund capital), it hired Jeff Bussgang as a general partner in early 2003 (it is in the market for a fourth GP) and has become the first IDG-affiliated VC group to raise outside capital (IDG West Coast is currently in fund-raising mode). Mission accomplished.

Unrelated #1: Great piece on PR firm retention vis-ŕ-vis startups and VCs by Sarah Lacy of Businessweek.

Unrelated #2: Apologies if you’ve sent me an email and I haven’t responded this week. I’ve been stuck in meetings, and simply have virtual stacks of unopened messages. If you left me a voice mail, the situation is even worse. I’ll get back to you early next week…



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    Top Three


Warner Music Group Corp., a New York-based recording company, priced 32.6 million common shares at $17 per share, for a total IPO take of approximately $554.2 million. It originally had filed to raise upwards of $750 million, with an offering price range of $22-$24 per share. Warner Music was sold last year by Time Warner Inc. (NYSE: TWX) in a $2.6 billion buyout that included Thomas H. Lee Partners, Bain Capital, Providence Equity Partners and Edgar Bronfman's Music Capital Partners.

IDG Ventures Boston has closed its second fund with $180 million in limited partner commitments. It is the group’s first fund to not be backed solely by International Data Group.

TriQuint Semiconductor Inc. (Nasdaq: TQNT) has sold its optoelectronics operations in Pennsylvania and Matamaros, Mexico to CyOptics Inc., a Lehigh, Pa.–based supplier of high-speed optical chips and components for broadband communications solutions. The deal was valued at approximately $23.5 million, comprised of cash, equity and seller financing. In related news, CyOptics has raised $24 million in a Series F funding round that included $16.5 million of equity and $7.5 million of d*bt. Equity participants included JVP (Jerusalem Venture Partners), Sprout Group, TowerBrook Capital Partners and Eurofund.

    VC Deals

Cellerant Therapeutics Inc., a Palo Alto, Calif.-based developer of blood-forming stem cell-based therapies for cancer, genetic blood disorders and autoimmune diseases, has raised $16 million in Series B funding. Novel Bioventures led the deal, and was joined by George Rathmann, CX Venture Group and return backers Allen & Co. and MPM Capital.

Black Hat Systems Inc., a Tewksbury, Mass.-based communications services deployment, management and transport solutions, has raised approximately $8 million in Series A funding, according to a regulatory filing. Participants included North Bridge Venture Partners and Fidelity Ventures.

Ping Identity Corp., a Denver-based provider of federated identity solutions, has raised $7.5 million in Series B funding. Draper Fisher Jurvetson led the deal, and was joined by return backers General Catalyst Partners and Fidelity Ventures.

Oryxe Energy International, an Irvine, Calif.-based developer of additive technologies that reduce toxic emissions from fossil fuels, has received an equity inv*stment from DSM Venturing, the corporate VC unit of Dutch chemicals company DSM.

Arcot Systems Inc., a Sunnyvale, Calif.-based provider of online authentication and identity management solutions, has raised $11 million in Series A Prime funding. New backers Adobe Ventures and Invesco Private Capital were joined by existing shareholders Accel Partners, Goldman Sachs, Onset Ventures, Raza Ventures, Skandinaviska Enskilda Banken and Wachovia Strategic Ventures. The company has raised over $67 million in total VC funding since its 1997 inception.

OmniPerception Ltd., a UK-based computer vision and biometrics company, has received an undisclosed amount of VC funding from Pentech Ventures and Iris Capital.

    Buyout Deals

Advent International has acquired Making Memories, a Centerville, Utah-based supplier of craft products to retailers and distributors. The selling party is Salt Lake City-based Peterson Partners, with company management retaining an equity position. No deal terms were disclosed. This is the final deal out of Advent International’s fourth fund, as the Boston-based firm recently closed on 2.5 billion euros for its fifth fund.

Point Lookout Capital Partners has acquired a majority interest in Combined Systems Inc., a Jamestown, Pa.-based developer of “less lethal” munitions for the defense and law enforcement industries. Carlyle Mezzanine Partners provided mezzanine financing for the deal, and also made a minority equity infusion. No pricing details were disclosed.

GTCR Golder-Rauner has sold Ft. Washington, Pa.-based Genpass Inc. to U.S. Bank, a subsidiary of U.S. Bancorp (NYSE: USB). Genpass was formed in July 2000 by GTCR and company management to acquire the ATM business of Affiliated Computer Services Inc. It is currently the second-largest ATM processor in the U.S. No financial terms were disclosed on the sale to U.S. Bank, which saw Citigroup Global Markets serve as financial advisor to Genpass.

Fortress Capital Group is in advanced talks to acquire Northbrook, Ill.-based newspaper publisher Liberty Group Publishing Inc. from Leonard Green & Partners, according to The Wall Street Journal. The deal would be valued at $530 million.

The Carlyle Group and Eurazeo are considering a sale of French tile and brick maker Terreal, according to Les Echos.

Carlyle Japan Partners has agreed to sell Japanese medical device company Colin Medical Technology Co. to Omron Corp. for an undisclosed amount.

    PE-Backed IPOs

New Skies Satellites Holdings Ltd. (NYSE: NSE), a Bermuda-based communications satellite operator, closed its first day of trading up slightly at $16.58 per share. The company had priced its IPO at $16.50 per share, and traded as high as $16.97 per share during yesterday’s session. It was acquired late last year by The Blackstone Group, which did not sell any shares during the IPO.

CryoCor Inc., a San Diego-based maker of a catheter system for cardiac arrhythmias, has set its proposed IPO terms to 2.85 million common shares being offered at between $10 and $14 per share. The offering will be led by W.R. Hambrecht, which will use its Open IPO distribution method. CryoCor has raised $46.5 million in total VC funding since being spun out of CryoGen in 2000, including a $27.5 million Series D round in 2003. Significant shareholders include MPM Capital, Healthcare Equity Partners, OrbiMed Advisors and William Blair Capital Partners.

Suzlon Energy Ltd., an India-based wind power company, is planning to raise upwards of 10 billion rupes ($230 million) via an IPO. Citigroup Venture Capital and ChrysCapital are significant shareholders in Suzlon.

    PE-Backed M&A

Novell Inc. (NYSE: NVL) has acquired Immunix Inc., a Portland, Ore.-based provider of host-based application security solutions for Linux. No financial terms were disclosed. Immunix raised $5.3 million in Series A funding in 2003 from ArrowPath Venture Capital and Garage Technology Ventures.

Metavante Corp., a Milwaukee-based financial technology subsidiary of Marshall & Ilsley Corp. (NYSE: MI), has agreed to acquire Med-i-Bank Inc., a Waltham, Mass.-based provider of electronic payment services for employee benefit and consumer-directed health care accounts. The deal is valued at $145 million, including $138 million worth of M&I common stock. Med-i-Bank is a portfolio company of Wind Point Partners.

Epipeline Inc., a Herndon, Va.-based provider of federal contracting research and business intelligence, has acquired B2Gsource Inc., an Austin, Texas–based provider of state and local government contracting opportunities. No financial terms were disclosed. Epipeline is backed by Crossbow Ventures.

National Healthcare Staffing LLC has acquired TVL Healthcare, an Atlanta-based division of United Emergency Services Inc. The deal was financed with equity capital from the Goldman Sachs Urban Inv*stment Group, which made an initial investment in National Healthcare last month.

    Firm & Fund News

Golub Capital has closed its fourth mezzanine fund with $800 million in limited partner commitments.

J.H. Whitney & Co., a Stamford, Conn.-based private equity firm, has received approximately $550 million in limited partner commitments for its sixth fund, according to a regulatory filing. The firm is looking to raise upwards of $750 million, compared to a fifth fund total of $1.1 billion.

PCG Asset Management, a recently-formed unit of Pacific Corporate Group, has established a European office in Geneva, Switzerland. It will be run by managing director Michael Russell, who has relocated from PCG’s base in La Jolla, Calif.

    Human Resources

Ko-Yung Tung, former vice president and general counsel of The World Bank, has joined Morrison & Foerster LLP as senior counsel resident in New York.


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May 11, 2005


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