| PE Week Wire -- Monday, September 19
I spent some long-distance minutes last week with Brian Connors and Clint Chao, co-founders of Formative Ventures. The official purpose was to discuss the closing of Formative's first institutional fund, but the more interesting part was a meandering tangent about what it means to be an emerging manager. Connors and Chao certainly feel their partnership fits the bill, given that they were sales and marketing executives whose initial foray into venture capital was a $5 million “friends and family” fund raised back in 2000. While raising their institutional fund, however, almost all institutions with so-called emerging manager programs passed, saying that Formative wasn't the right type of emerging manager.
"Except for Erica Bushner [managing director of GKM Newport Generation Funds], they were looking for people they already had a history with, like people who were spinning out of VC firms that they had already invested in," Connors explained.
All of this leaves me a bit perplexed, and continuing to wonder about the actual purpose of emerging manager programs. Maybe it was just to offset the bad PR associated with certain non-emerging managers who got hit hard by the bubble burst. Kind of reminiscent of those relatively inactive programs dedicated to backing clean-tech or green funds.
Anyway, here is a quartet of new VC funds. Judge for yourself if they deserve to be called emerging managers:
Panorama Capital: This is the name chosen by the VC team of JPMorgan Partners, which will begin raising its first independent fund next month. For those who don't remember, JPMorgan Partners announced earlier this year that it would spin out from its parent bank, with the VC team and later-stage/buyout team forming independent firms. Don't expect any significant changes for Panorama, which will continue backing early-stage and expansion-stage IT and life sciences companies.
No formal – or informal – word yet on the fund-raising target, although Shahan Soghikian suggested $400 million during an interview back in March. Books will be sent out next month by an independent placement agency, with a final close expected for the first half of 2006. The only hold-up right now seems to be a bit of red tape related to both J.P. Morgan Chase and JPMP, but it is almost all worked out.
In case you're wondering, the late-stage/buyout team's firm/fund is expected to launch sometime next year. It is coming a bit later because that team has a bit more dry powder remaining from the current JPMP fund.
Brooks/Levine Fund: Former Mayfield general partners Todd Brooks and Peter Levine are looking to raise $200 million for their first fund as an independent duo. If you're thinking: “Hey, is this the answer to a blind item from a few weeks ago?” the answer is yes. Constance Loizos has all the scoopy details at www.privateequityweek.com.
Sequoia Capital China : Asian Private Equity News (a sister pub to your beloved Wire) reported in August that Sequoia Capital had put two investors on the ground in China. Now, SiliconBeat.com is reporting that the venerable Valley firm has raised a $200 million China fund. It also has named one of the two vets (it's a name that makes a lot of sense, but the info comes from a blog comment so no confirmation is yet available).
This would be Sequoia's second stab at a regional fund – it previously raised an Israel-focused fund – and possibly could be considered as an “emerging manager” by certain LPs. After all, it's basically a new team, new focus, etc. Yeah, I don't buy it either, but don't be surprised to find emerging manager programs among the limited partners…
Formative Ventures: The Palo Alto, Calif.-based firm raised $77.5 million for its first institutional fund, which will continue to back early-stage IT companies in areas like communications, wireless and Internet solutions. Most notable fund-raising nugget is that around 90% of Formative's capital came from endowments and foundations, which is virtually unheard of for a first-time effort. Harvard served as the anchor, while other LPs include The University of Virginia Investment Management Co. and the University of Pittsburgh. Fund-of-funds GKM Newport Generation Funds also participated.
Connors and Chao said that they considered taking $100 million, but ultimately concluded that the extra $22.5 million would require a third general partner. It's not that they're unfriendly or play poorly with others, so much as it is that they know the current partnership works, and are still a bit skittish about messing with the formula. Companies backed by Formative's friends and family fund include Marketocracy Inc., IP Infusion Inc., Zyray Wireless Inc. (acquired by Broadcom), InnoCOMM Wireless (acquired by National Semiconductor) and defunct Fast-Chip Inc.
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Vivox Inc., an embedded communications service provider, has raised $6 million in Series A funding co-led by GrandBanks Capital and Canaan Partners. The company was founded by Vonage co-founder Jeff Pulver, and for the past two years as provided the platform behind VoIP service FreeWorld Dialup. www.vivox.com
Paetec Corp., a Fairport, N.Y.-based communications services provider, has withdrawn its proposed IPO due to “unfavorable market conditions.” It has planned to price approximately 11.54 million common shares at between $12 and $14 per share, with Morgan Stanley and Merrill Lynch serving as lead underwriters. Significant shareholders include Madison Dearborn Partners, The Blackstone Group and Kline Hawkes & Co. www.paetec.com
Chip Meakem has joined Kodiak Venture Partners as a general partner, where he will focus on such industry sectors as digital media and Internet advertising. He previously was a managing director with DFJ Gotham. www.kodiakvp.com
Axerra Networks Inc., a provider of circuit emulation and service emulation solutions over packet access networks, has raised $16.25 million in Series C funding. Carmel Ventures led the deal, and was joined by return backers TLcom Capital Partners, HarbourVest Partners and the Zisapel brothers. The company has offices in both Tel Aviv, Israel and Boca Raton, Florida. www.axerra.com
PrimeRevenue Inc., an Atlanta-based provider of supply chain finance solutions, has raised $10 million in Series B funding from RRE Ventures and return backer Battery Ventures. James Robinson III, a general partner with RRE Ventures and former CEO of American Express, will join the PrimeRevenue board of directors. www.primerevenue.com
Ruckus Wireless Inc. (f.k.a. video54), a Mountain View, Calif.-based developer of multimedia 801.11 wireless systems, has raised $9 million in Series C funding. Sutter Hill Ventures and Inv*stor Growth Capital co-led the deal, and were joined by return backers Sequoia Capital and WK Technology Fund. The company has now raised over $14 million in total VC funding since its June 2004 inception. www.ruckuswireless.com
Alert Logic Inc., a Houston-based provider of enterprise network security solutions, has raised $2.3 million in Series A funding. DFJ Mercury and OCA Ventures co-led the deal, and were joined by Access Venture Partners. www.alertlogic.com
Fortiva Inc., a Toronto-based provider of email archiving solutions, has raised Cdn$8 million in Series A funding. Participants included Cargill Ventures, Ventures West and Mclean Watson Capital. www.fortiva.com
Bally Total Fitness (NYSE: BFT) has agreed to sell its Crunch Fitness division for $45 million in cash to health-club entrepreneur Marc Tascher and the private equity group of Angelo, Gordon & Co. The deal is expected to close by year-end. www.ballyfitness.com
Macquarie Bank and Orica Ltd. are in talks to acquire Norway-based commercial explosives maker Dyno Nobel, according to multiple press reports. The main selling party in Industri Kapital, which teamed with Nordic Mezzanine to acquire Dyno Nobel in 2000. It retained Citigroup earlier this year to advise on strategic options. www.dynonobel.com
Gresham Private Equity has sponsored a Gbp31 million growth capital package for Jackson Lloyd, a UK-based provider of maintenance services to local authorities and housing associations. Lloyds TSB Acquisition Finance provided a debt package to support the transaction. www.gresham.vc
ABN Amro Capital has acquired two Australian transpt companies – McColl's Transport and Scott's Refrigerated Freightways – for approximately Au$180 million from their founding families. www.capital.abnamro.com
Linn Energy LLC, a Pittsburgh, Pa.-based natural gas company, has set its proposed IPO terms to 8.7 million units being offered at between $19 and $21 per unit. It plans to trade on the Nasdaq under ticker symbol LINE, with RBC Capital Markets and Lehman Brothers serving as lead underwriters. Quantum Energy Partners is a significant shareholder.
Interhyp Ag, a Germany-based online mortgage brokerage, said that its public flotation could begin later this month. Earlybird VC and 3i Group are significant shareholders. www.interhyp.de
CareMedic Systems Inc. of St. Petersburg, Fla. has agreed to acquire Third Millennium Healthcare Systems Inc. of Atlanta for an undisclosed amount. CareMedic provides of revenue management, regulatory compliance solutions and billing office services to hospitals and ancillary healthcare facilities. It has raised around $25 million in VC funding from Oak Inv*stment Partners, CB Health Ventures, Wellmark and Pappajohn Capital Resources. Third Millennium provides revenue cycle solutions, and has raised over $10 million in VC funding from Morgenthaler Ventures. www.caremedic.com www.tmhsi.com
Avaya Inc. (NYSE:AV) has acquired Nimcat Networks , an Ottawa-based developer of embedded, P2P IP communications applications software, for approximately Cdn$46 million in cash. Nimcat has raised VC funding from Innovatech Grand Montreal, Siemens Venture Capital and Skypoint Capital. www.avaya.com www.nimcatnetworks.com
| PIPE DEALS (NEW CATEGORY)
Startech Environmental Corp. (OTC BB: STHK) has received up to $20 million in PIPE funding from Cornell Capital Partners. The commitment is in the form of a standby equity distribution agreement to be drawn down incrementally over a 24-month period at Startech's sole discretion. www.startech.net www.cornellcapital.com
China Vision SME has secured $20 million in capital commitments for its inaugural private equity fund, which is targeted at $100 million. Limited partners include MiddleLand Capital (advised by Pillsbury Winthrop), Empower Investment Ltd. of Hong Kong and Charter Asset Management International Ltd.
D.A. Davidson & Co. has acquired Capital Run LLC, a Seattle-based boutique I-bank focused on raising institutional private equity and debt, and on executing middle-market M&A transactions. No financial terms were disclosed. www.davidsoncompanies.com
Michael Cardito has agreed to join Harvest Partners, after having spent the past four years with Nautic Partners. www.harvpart.com
John Connors, a partner with Ignition Partners and former CFO of Microsoft Corp., has joined the board of Certus Software Inc., an Ignition portfolio company focused on financial compliance and governance software. www.certus.com
Marcos Gonzalez has agreed to joined Darby Overseas Inv*stments Ltd. as a senior vice president in its corporate private equity group. He will focus on the Mexican activities of the Darby-BBVA Latin American Private Equity Fund, which is centered mainly on Mexico , Brazil and the US Hispanic market. He most recently served as director of product strategy and development for Health Net Inc. www.franklintempleton.com
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