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The sun is shining, economic growth is slowing and the Celtics caused me to spend much of last night yelling at my television set. In other words, it’s time for some Friday Feedback, plus a few more
Most emails this week concerned the Q1 VC figures, and reasons for both deal and disbursement declines from the previous quarter. Jens writes: “If you look at fund-raising data for 1998 onward, and take into account that most VCs have to disburse 60% of [that] money within four years in order to not have to return part of it, you will find an easy explanation for why 2004 disbursements were higher than this year’s. See it as the wave on the big ship. Unless there is no substantial upswing in fundraising this year, 2005 and 2006 will be lower than 2004. You were looking at the micro reasons, but the real reason is rather macro.”
Good point Jens, in that there were certainly some deals in late 2004 that smacked of VC firms just trying to quickly deploy large amounts of capital. By that theory, will the next major VC disbursement increase be in 2008-2009, considering how much fund capital was raised in late 2004, and how much is being raised right now (VantagePoint, Summit, Vesbridge, IDG Boston, IDS West Coast, Austin Ventures, Vanguard, Granite Ventures, etc.)?
Jon chimes in on the statistical influence (or lack thereof) of stealth deals: “Assume for a minute that there are a lot more stealth deals happening today than were happening a year ago. And also assume that there were more one year ago than one year before that. In the end, it doesn’t matter because it all comes out in the wash. Stealth companies, unless they fail quickly, eventually raise Series B or Series C rounds, and those get reported because they are larger and usually involve more investors. In other words, someone will spill the beans. Maybe stealth deals cause a reporting lag, but not an outright absence of reporting.
Asa, however, feels differently: “Why can’t you just admit that the data is flawed because it relies on voluntary reporting?”
A few AIG folks wrote in to say that Wednesday’s column on the firings at AIG Capital Partners was on the money, which is far better than if the opposite were true (for me, not for AIG). More importantly, the original info came via an anonymous reader tip, and I encourage you to keep them coming via the Top Secret button on the right-hand navigational bar. Also, a quick follow-up to yesterday’s news about restructuring at Pacific Corporate Group: Scott Vollmer has, indeed, left the partnership of PCG, and is no longer an employee. The two sides do, however, remain business associates, with Vollmer continuing to run the PCG-sponsored special situations fund-of-funds.
Finally, a few more Desperate Internship drive listings for first-year MBA candidates (with one exception, see below). Candidates should send CVs and cover letters to the Yahoo email addresses listed below, and not to me. Good luck to all…
Job: PE firm focused on direct secondaries
Job: Early-stage VC
Location: Albany/Boston (one spot in each)
Note: For pre-MBAs with some I-banking or consulting experience
Job: Middle market PE
Location: Saddle Brook. NJ
Job: Growth-oriented PE
Sun Capital Partners, a Boca Raton, Fla.-based leveraged buyout firm, has closed its fourth fund with $1.5 billion in limited partner commitments. www.suncappart.com
Pixelworks Inc. (Nasdaq: PXLW) has agreed to acquire Equator Technologies Inc., a Campbell, Calif.-based fabless semiconductor company focused on programmable digital video and audio encoding/decoding solutions. The deal is valued at $109 million in cash, and is expected to close later this quarter. Equator Technologies has raised over $150 million in total VC funding since its 1996 inception, from firms like Ironside Ventures, Globespan Capital Partners, Intel Capital, InveStar Capital, MMC Capital, Nomura, Polycom and i-Hatch Ventures. www.pixelworks.com www.equator.com
Receptor Biologix Inc., a South San Francisco-based drug company focused on cancer, inflammatory and autoimmune diseases, has raised $33.6 million in Series A funding. Backers include Skyline Ventures, Domain Associates, Essex Woodlands Health Ventures, MedImmune Ventures, Takeda Research Inv*stment and Northwest Technology Ventures. Receptor Biologix received a post-money valuation of just under $40 million, and had received $40,000 of seed funding in 2003 from the
Resolution Health Inc., a San Jose, Calif.-based healthcare data analytics company, has raised an undisclosed amount of Series B funding from Trident Capital. www.resolutionhealth.com
Pacific Equity Partners has agreed to acquire the Worldwide Restaurant Concepts Inc. (NYSE: SZ), operator of hundreds of Sizzer and KFC restaurants, based primarily in
The Carlyle Group is in talks to acquire the car parts division of South Korea-based LG Chem Ltd., according to Reuters. The deal could be valued north of $100 million. www.carlylegroup.com
Verifone Holdings Inc., a San Jose, Calif.-based provider of electronic payment transaction services at the point-of-sale, has reduced its proposed IPO price from $12 to $14 per share, to just $10 per share. It still plans to offer 15.4 million common shares in the offering, which is being lead managed by JP Morgan and Lehman Brothers. Verifone originally went public in 1990, but was acquired and taken private by Hewlett-Packard Co. in 1997. Four years later, Hewlett-Packard sold the company to Gores Technology Group. In 2002, GTCR Golder-Rauner led a recapitalization, and became Verifone’s majority shareholder. www.verifone.com
Hoku Scientific Inc., a Honolulu, Hawaii-based developer of fuel cell technologies, has filed to raise $57.5 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol HOKU, with Piper Jaffray serving as lead underwriter. Significant shareholders include Lava Ventures and the Hawaiian Electric Co. www.hokuscientific.com
Advanced Life Sciences Inc., a
Citi Trends Inc., a Savannah, Ga.-based retailer of urban fashion apparel, has set its proposed IPO terms to 3.85 million common shares being offered at between $12 and $14 per share. The company was acquired in 1999 by Hampshire Equity Partners. www.cititrends.com
IDX Systems Corp. (Nasdaq: IDXC) has agreed to acquire the assets of RealTimeImage Ltd. for approximately $15.5 million. RealTimeImage has offices in Tel Aviv and
Huron Capital Partners, a Detroit-based private equity firm focused on the lower middle-markets, has closed its second fund with $185 million in aggregate commitments. Limited partners include the Dow Employees’ Pension Plan, Cigna Inv*stment Management and the DuPont Pension Trust. Huron’s first fund was capped at $72 million in 2000. www.huroncapital.com
Jack Gill and Bob Ulrich will not be involved in the management of Vanguard Ventures‘ next fund, according to PE Insider. Both men are currently general partners with the firm. www.vanguardventures.com
Correction: Harry Kraemer has joined Madison Dearborn Partners as an executive advisor. His name was misspelled in yesterday’s edition.
THURSDAY, APRIL 28
A handful of items to share, before I buckle down and tackle PE Week print deadlines (i.e., do my real job):
*** Pacific Corporate Group this morning announced a major organizational restructuring, which sees its advisory business separated from its direct investing business. Monte Brem will run the first group, named PCG Asset Management, while PCG founder/CEO Chris Bower will run the second group, called PCG Capital Partners. Both units will report to the PCG board, comprised of remaining partners Bower, Brem, Stephen Moseley, Tara Blackburn, Tim Kelleher and Philip Posner.
The official reorg rationale is that client needs have evolved over time, and that PCG is trying to keep pace in a way that will provide increased focus and dedication. I guess that’s as good a reason as any, but the move doesn’t seem to address PCG’s main problem: massive personnel turnover. I know that Chris Bower thinks I overstate this issue, but PCG has watched at least three pros – Craig White, Eric Becker and Rick Fratus – resign since the beginning of 2005, and also got locked in an employment dispute with special situations fund-of-funds manager Scott Vollmer (who, you might notice, was not listed in the above partnership roster). Moreover, the primary contact for major PCG clients like
All in all, turmoil is bad for business, and PCG is likely competing to maintain its consultancy spot in
*** The Wall Street Journal is reporting this morning that Goldman Sachs and Morgan Stanley have approached some major buyout firms about the possibility of IPOs. Targets include Blackstone Group, Carlyle Group, KKR and Texas Pacific Group. We’ve heard this song before (and its less popular BDC cousin), but the possibility seems a bit more likely today. First, you’ve had the successful Ripplewood Holdings’ IPO in
A couple big questions left unanswered by the WSJ: (1) Carlyle Group just raised over $10 billion via 10-year private limited partnerships, and Blackstone is about to do the same. What happens to those agreements if either firm goes public? (2) The article claims that a big advantage would be that firms could spend more time doing deals, since they wouldn’t need to do fund-raising road-shows. OK, but how about all the extra reporting requirements associated with being a public entity? In fact, isn’t SarBox a major reason why big buyout firms say that it’s in certain public companies’ best interest to go private?
*** Interesting post by Sarah Lacy of Businessweek. She and I disagreed over the past few months about the intelligence of trying to price a VC-backed biotech IPO in 2005, given the lousy public market environment. She argued it was sheer lunacy, and that the number of postponed/withdrawn offerings and reduced-price offerings bore her out. I took the other side, arguing that biotech IPOs hadn’t underperformed the public markets as a whole (faint praise, to be sure), and that even a small IPO might be favorable to lowered private market valuations in the space.
I can happily say we were both right, although she was probably more right than me. The number of venture deal for life sciences companies was way down in Q1, which indicates (as Sarah said) that VCs are worried about potential exits, particularly for those big money, late-stage fundings. At the same time, I’d suggest that the drop also reflected life sciences companies holding out for valuation increases – as you saw certain IT companies do between 2001 and 2003 — or looking for other capital sources.
*** A few more internship listings will be coming tomorrow.
*** Finally, big dilemma tonight: Do I sit back and watch Game 3 of the Celtics vs. Pacers, or go to a big charity event that former President Clinton and lots of local PE bigwigs will attend? The irony is that the charity event will honor Bain Capital pro and Celtics co-owner Steve Pagliuca, so I guess he has already made his decision. Still pondering, although I was so incensed at Doc Rivers during Game 2, that I might have a heart attack if he also messes up Game 3. Charity events rarely lead even to palpitations, let alone full-blown infarctions. Hard call… Note: My main beef isn’t that Doc kept AJ on the bench in favor of exhausted David/Pierce/Walker, so much as his numbing decision to replace LaFrenz with Delonte West with around 3 minutes left, which meant
ChannelAdvisor Corp., a Morrisville, N.C.-based provider of channel management solutions, has raised $18 million in new VC funding. Advanced Technology Ventures led the deal, and was joined by return backers Kodiak Venture Partners, Blue Sky Ventures, eBay, Tri-state Inv*stment Group and Southern Capitol Ventures. Series A backer Genesis Partners did not participate. www.channeladvisor.com
KRG Capital Partners, a Denver-based buyout firm focused on the middle-markets, has secured approximately $552 million for its third fund, according to a regulatory filing. The firm is looking to raise upwards of $690 million, and is using Probitas Partners as its placement agent. www.krgcapital.com
Hicks Muse (
Actimis Pharmaceuticals Inc., a San Diego-based drug company recently spun out of Bayer HealthCare AG, has raised $6 million in Series A funding. Sanderling Ventures led the deal, and was joined by Mitsui & Co. www.actimis.com
BlueCar Partners, a Phoenix-based venture consulting firm, has committed $5 million to fund the operations and long-term expansion of the Amber Alert Web Portal, a next-generation Amber Alert system already deployed in five states. www.amberalert.com
Air Media Inc., a San Francisco-based provider of mobile entertainment applications, has raised approximately $3.32 million in Series A funding led by Sierra Ventures. www.airmedia.com
Allied Domecq PLC, a publicly-traded
Avnet Inc. (NYSE: AVT) has agreed to acquire San Diego-based semiconductor distributor Memec Group Holdings Ltd. from private equity firm majority shareholder Permira. The deal is valued at approximately $676 million, including the assumption of around $194 million in net d*bt. Memec is currently is registration for a $100 million IPO. www.avnet.com www.memec.com
ShopKo Stores Inc. (NYSE: SKO) and its directors are being sued in six punitive shareholder class action lawsuits, related its proposed $715 million (excluding $330 million in outstanding d*bt) acquisition by private equity firm Goldner Hawn Johnson & Morrison. Goldner Hawn also is named as a defendant in two of the suits.
SkinMedica Inc., a Carlsbad, Calif.-based drug company focused on dermatological conditions, has filed to raise $86.25 million via an IPO of common stock. It plans to trade on the Nasdaq under ticker symbol SKMD, with SG Cowen & Co. serving as lead book manager. SkinMedica has raised over $95 million in total VC funding since its 1999 inception, including a $15 million Series E round last month. Backers have included EuclidSR Partners, Apax Partners, Domain Associates, HealthCare Ventures, Montreux Equity Partners, Perseus-Soros BioPharmaceutical Fund and Split Rock Partners. www.skinmedica.com
International Coal Group Inc., an Ashland, Ky.-based coal producer, is planning to raise $250 million via an offering of common stock on the NYSE. Its shares currently are quoted on the Pink Sheets Electronic Quotation Service. The coal conglomerate recently agreed to acquire Anker Coal Group Inc. and CoalQuest Development LLC for a combined $275 million in stock ($173.25m for Anker, $101.75m for CoalQuest), and the assumption of $25 million in funded ind*btedness. That deal is expected to close later this quarter. W.L. Ross & Co. currently owns 9.2% of ICG, 43% of Anker and 51% of CoalQuest.
Abiomed Inc. (Nasdaq: ABMD) has agreed to acquire Impella CardioSystems AG, a Germany-based maker of micro blood pumps for use in interventional cardiology and heart surgery. The deal is valued at approximately $45 million, including $1.8 million in cash. Impella is a portfolio company of Accelerated Technologies Inc., a cardiovascular device accelerator backed by ABN Amro Capital, Giza Venture Capital and Oxford Bioscience Partners. Medica Venture Partners also is an Impella shareholder. www.impella.com
Skyline Ventures, a Palo Alto, Calif.-based firm focused on early-stage healthcare companies, has raised approximately $172 million for its fourth fund, according to a regulatory filing. The only limited partner listed in the California State Public Employees’ Retirement System (CalPERS). www.skylineventures.com
The Pennsylvania State Employees’ Retirement System (SERS) yesterday approved the following commitments: $110 million to Summit Partners Private Equity Fund VII (follow-on); $25 million to Summit Partners Venture Capital Fund II (follow-on); $25 million to JMI Equity Fund V; $25 million to OCM/GFI Power Opportunities Fund II; $25 million to Audax Private Equity Fund II (follow-on); and $35 million to Morgenthaler Partners VIII (follow-on).
European Capital Financial Services Ltd., an affiliate of Bethesda, Md.-based American Capital Strategies Ltd., has opened an office in
Austin Ventures is close to closing out its ninth fund at its $525 million target (all verbal commitments are in). The final close originally was slated for the end of Q1, but was postponed to accommodate certain LPs. Instead, the firm has been holdings rolling closes, and had around $416.5 million signed as of a recent regulatory filing. www.austinventures.com
Henry Kraemer, former chairman and CEO of Baxter International Inc. (NYSE: BAX), has joined Madison Dearborn Partners as an executive partner, according to The Chicago Tribune. www.madisondearborn.com
Jonathan Guerster, a onetime partner with Charles River Ventures, has resurfaced as president of OffshoreView, a Charlestown, Mass.-based corporate development consulting firm focused on offshore business process outsourcing. www.offshoreview.com
Kevin Shultz has joined Mosaic Capital as a managing director focused on mergers and acquisitions. www.mosaiccapital.com
Mark Hootnick has joined Greenhill & Co. Inc. (NYSE: GHL) as a managing director. He previously was a managing director with Miller Buckfire Young, where he focused on financial restructuring. www.greenhill-co.com
Joseph Marren has joined Sagent Advisors as a managing director. He previously served as a managing director with Citigroup, where he was global head of M&A business development. www.sagentadvisors.com
WEDNESDAY APRIL 27
AIG Capital Partners Loses Its Head
If you’ve been unable to reach people at AIG Capital Partners this week, there is a very good reason: The group is still in shock over Monday’s surprise firings of CEO Peter Yu and managing director Bill Jarosz.
AIG Capital Partners is one of many private equity-related groups within AIG, and is primarily focused on the emerging markets. Its initial fund — Global Emerging Markets (GEM) — was essentially a $1 billion-plus fund-of-funds that let third parties have access to a consortium of other, existing AIG emerging markets funds. More recently, the group closed on more than $800 million for GEM II, which permitted both direct and indirect deals within the emerging markets (AIG has other private equity groups focused on developed markets).
In general, AIG Capital Partners has been seen as something of an anomaly inside of AIG, in that it traditionally has operated as a quasi-independent organization. In fact, sources say that AIG Capital Partners had reached an agreement late last year whereby it would eventually spin out on its own, with AIG maintaining a limited partner position. Not only would this give Yu and company more freedom/flexibility, but it also would facilitate future fund-raising drives, since many prospective LPs steer clear of institution-sponsored funds. It’s important to note, however, that the spinout arrangement was approved by then-AIG chief Hank Greenberg, who was recently ousted after losing his battle with both the SEC and New York AG Elliot Spitzer. Moreover, the aforementioned quasi-independence was apparently a byproduct of Yu’s ability to cozy up to Greenberg (Yu is an old political hand, having once served as a major White House advisor on economic matters).
Post-Greenberg management disliked the spinout idea, and particularly disliked Yu and Jarosz’s protestations. The chasm apparently became so vast that both men were handed pink slips on Monday, and then were escorted out the door by building security, without even being allowed to retrieve personal items from their desks. Limited partners were informed of the terminations yesterday via a short memo, which said that existing AIG staffer David Yeung would move into the Capital Partners group to replace Yu (Yeung is currently based in Hong Kong, but will soon relocate to New York). AIG declined to comment on the firings, except to say that neither Yu nor Jarosz still worked at AIG, that Yeung was now in charge and that AIG maintains a strong interest in the emerging markets.
The dust hasn’t quite settled on this matter, but there already are some serious questions worth asking, including whether or not Yu and Jarosz will sue AIG for wrongful termination. Most important, however, is how limited partners will react to the news. Both Yu and Jarosz were key-men on GEM II (although I don’t know the exact structure, such as if Yu is a super key-man). As such, there could be the LPs that pull their essentially-unfunded commitments. After all, LPs always say that they invest in fund managers, not in funds.
Making this possibility more likely is the atrocious way in which AIG has handled the situation. General business practice here would have been to have reached an amicable settlement with both Yu and Jarosz (i.e., buy them off), after which each man would officially leave for “personal reasons,” and assure nervous LPs that the fund is in good hands. Instead, AIG basically marched the two guys out of the building (in view of many), which cannot engender much future cooperation from either of them. AIG also didn’t seek LP permission prior to the decision.
I’ve asked this before – and I’m sure I’ll ask it again – but how can such a large institution have such a boneheaded HR strategy? So, so short-sighted…
Whenu.com Inc., a New York-based provider of software-based contextual online advertising, has raised $20 million in Series A funding from ABS Capital Partners. www.whenu.com
Juniper Networks Inc. (Nasdaq: JNPR) has agreed to acquire two companies: Peribit Networks Inc., a Santa Clara, Calif.-based provider of wide area network (WAN) optimization technology, and Redline Networks Inc., a Campbell, Calif.-based developer of application front end (AFE) technology. The Peribit deal is valued at approximately $337 million in cash, stock and assumed stock options, while the Redline deal is valued at approximately $132 million in cash and assumed stock options. Peribit has raised over $40 million in VC funding since its 2001 inception, including a $10 million Series D round in late 2003 at a post-money valuation of around $100 million. Participating VCs included Accel Partners, Foundation Capital, Mayfield and WK Associates. Redline has raised nearly $25 million since its 2000 inception, from firms like Advanced Technology Ventures, Charles River Ventures, Eschelon Ventures and OS Ventures. www.junipernetworks.com www.peribit.com www.redlinenetworks.com
NanoString Technologies Inc., a Seattle-based nanotech company focused on single-molecule identification and digital quantification, has raised $3.8 million in second-round funding. Return backers included Draper Fisher Jurvetson and OVP Venture Partners. NanoString has raised $8.1 million in total VC funding. www.nanostring.com
Bridgestream Inc., a San Francisco-based provider of business roles automation software, has raised $5 million in additional Series A funding, bringing the round total to $8.5 million. Hummer Winblad Venture Partners and Outlook Ventures participated. www.bridgestream.com
Gentris Corp., a Morrisville, N.C.-based provider of pharma-genomic services and diagnostic product solutions, has raised $5 million in private funding from Mitsui & Co. www.gentris.com
Mobitrac Inc., a Chicago-based supplier of transportation execution systems, has raised $8.3 million in new VC funding. BReturn ackers include U.S. Venture Partners, Frazier Technology Ventures, Arch Development Partners, Illinois Ventures, Illinois Finance Authority and Mentor Management. www.mobitrac.com
Polychromix Inc., a Wilmington, Mass.-based developer of modular optical subsystem solutions for optical networking and molecular spectroscopy, has raised $3 million in venture capital funding from Lighthouse Capital Partners. The company has raised more than $18 million in total funding, with existing shareholders including Siemens Venture Capital, Seed Capital Partners and Vanguard Ventures. www.polychromix.com
Brabeion Software, a McLean, Va.-based provider of IT security risk and compliance management software, has raised $5 million in Series A funding. TD Capital Ventures and Longworth Venture Partners co-led the deal. www.brabeion.com
Ikaria Inc., a Seattle-based biotech company focused on metabolic engineering, has raised $10 million in VC funding. Backers include Arch Venture Partners, Ventures and Venrock Associates.
PayCycle Inc., a Palo Alto, Calif.-based provider of online self-service payroll solutions for small businesses, has raised $8.5 million in Series D funding. DCM-Doll Capital Management led the deal, and was joined by return backers August Capital, Conning Capital Partners, Total Technology Ventures and Irwin Ventures. New CEO Jim Heeger also participated. The company has raised nearly $30 million in total VC funding since its 1999 inception. www.paycycle.com
Defywire Inc., a Herndon, Va.-based provider of wireless middleware and mobile applications, has raised $3.6 million in Series B funding. Intersouth Partners led the deal, and was joined by fellow return backers Anthem Capital Management, The Washington Dinner Club, Paul Opalack (Noblestar chairman) and Jill Stelfox (Defywire chairwoman and CEO). In other Defywire news, the company filed a $5 million lawsuit against webMethods Inc. (Nasdaq: WEBM), alleging breach of contract, fraud and violation of the Virginia Uniform Trade Secrets Act. www.defywire.com
Freeman Spogli & Co. has agreed to acquire Santa Ana, Calif.-based Bright Now Dental Inc. for $340 million from Gryphon Inv*stors, according to multiple press reports. The deal is expected to close next month.
Allied Capital Corp. has sponsored a $39.8 million recapitalization of Service Champ Inc., a Chalfont, Pa.-based wholesale distributor of parts and equipment to the quick lube industry. www.servicechamp.com
Crown Media Holdings Inc. (Nasdaq: CRWN) has completed the sale of its international business to Providence Equity Partners, 3i Group and
Exel PLC has sold its Cory Environmental recycling and waste management unit to Montagu Private Equity. The involves an immediate cash payment of Gbp200 million, plus another Gbp5 million of deferred contingent compensation. www.exel.com
Website Pros Inc., a Jacksonville, Fla.-based, has filed to raise $70 million via an IPO of common stock. It plans to list on the Nasdaq under ticker symbol WSPI, with Friedman Billings Ramsey serving as lead book manager. The company has raised over $80 million in VC funding since its 1999 inception, with significant shareholders including Insight Venture Partners, Norwest Venture Partners and Crosspoint Venture Partners. www.websitepros.com
China Techfaith Wireless Communication Technology Ltd., a
Quest Software Inc. (Nasdaq: QSFT) has agreed to acquire Imceda Inc., a Burlington, Mass.-based provider of database administration and development products for SQL Server databases. The deal is valued at $61 million, or which 80% will be paid in cash, with the remainder coming in the form of Quest Software common stock. Imceda has raised $9 million in VC funding from Insight Venture Partners. www.imceda.com www.questsoftware.com
NetQoS Inc., an Austin, Texas-based provider of enterprise network performance analysis products and services, has acquired RedPoint Network Systems Inc., an Irving, Texas-based polling software company. No financial terms were disclosed. NetQoS is a portfolio company of Liberty Partners. www.netqos.com www.redpt.com
Aegis Group PLC has acquired Watertown, Mass.-based tech consultancy Molecular Inc. for up to $31.5 million. Molecular raised $20 million in 2000 from CMGI @Ventures. www.molecular.com
3i Group has closed two regional
Stewart Gross has joined Lightyear Capital as a managing director and inv*stment committee member. He spent the past 17 years with Warburg Pincus, most recently as a managing director and member of the executive management group. www.lycap.com
Peter Wilson has joined Warburg Pincus as a London-based managing director focused on later-stage private equity and LBOs in
Rick Fratus has resigned as an associate with Pacific Corporate Group, PE Week has learned. www.pcgfunds.com
Bain & Co. has named Tom Holland as the head of its
David Jones Jr., chairman and founder of Chrysalis Ventures, has been named chairman of Humana Inc. (NYSE: HUM), where he has served as vice chairman since 1996. Jones’ father co-founded the company in 1961, and retired as chairman yesterday. www.humana.com www.chrysalisventures.com
TUESDAY, APRIL 26
VC Data Takes A Dive
Q1 venture capital disbursement figures were released this morning by the MoneyTree Three of PricewaterhouseCoopers, the National Venture Capital Association and Thomson Venture Economics (publisher of the PE Week Wire). The basic story is that VC activity was down from the preceding quarter, with just 674 U.S.-based companies raising approximately $4.63 billion. That represents a 14% deal volume and 15% inv*stment volume decrease from the $5.44 billion raised by 776 U.S.-based companies in Q4 2004. The number of deals was a bit higher than during the first quarter of 2004 (674 vs. 665), while disbursement volume was significantly lower ($4.63 billion vs. $5.03 billion).
The big question, of course, is why did disbursement activity drop, particularly when anecdotal evidence suggests that VCs are as busy as ever? The following are some popular explanations, including two that I don’t think hold much weight.
IPO market scaring life science-focused VCs:
The most noticeable drop in Q1 data is in the life sciences space (as broadly defined), where there were 31% fewer dollars disbursed than in Q4 2004. For example, life sciences disbursements accounted for 31.33% of all VC disbursements in Q4 2004, but just 25% in Q1 2005. This margin thins a bit when compared to all of 2004 (29% vs. 25%), but is still significant.
The data drop was prompted by a relative lack of massive, late-stage pharma deals. This, in turn, was likely caused by increasing concern over the current public exit environment in general, and for pharma in particular. Not too long ago, VCs felt it was best to buy into a clinical-stage company, because it could quickly be flipped via an IPO. No longer. Instead, many VCs seem to feel it’s better to get in a bit earlier, thereby giving themselves time to let the public markets loosen up (unrelated: All PE folks — not just life sciences ones — should be pretty worried about the IPO market — take a look at what happened to Accuride).
U.S.-based VCs doing more deals in Europe and Asia
The MoneyTree data only reflects deals for U.S.-based companies, which means that they do not include the apparent boost in activity overseas by U.S.-based VCs (not to mention in Canada). I don’t have statistics to back this up (as Q1 European/Asian figures not yet available), but it is almost certainly one reason why domestic data is dropping while domestic VCs seem so overwhelmed.
Q1 is usually slower than Q4
Generally true. Seven of the last nine first quarters have had lower disbursement totals than have their Q4 predecessors. The only exceptions were Q1 1999 and Q1 2000. Big part of the rationale here is that VCs feel more legal and accounting pressure to finish up deals before moving to a new calendar, while the Q1-Q2 wait isn’t as important.
VCs have been busier, but busier fund-raising
Nope. Sure there’s been a lot of fund work in Q1, but not nearly as much as in Q4 2004.
VCs are doing more deals, but keeping them in stealth mode (i.e., not reporting them)
This is the trendiest
excuse explanation, and it’s been trumpeted by some of the nation’s most successful, early-stage VCs. The last time we heard this was, conveniently, in Q3 2004, when data also was down. Of course, we didn’t here it when numbers increased in Q4 2004, which makes one want to ask Moritz, et. all if stealth deals took a quarter off.
The reality is that while there has been an actual increase in stealth deals, it isn’t enough to really move the data needle much one way or another. First of all, these deals are typically for very young companies, which means that they are for small dollar amounts. As such, it would take an enormous increase in deal completion to affect multi-billion figures. Moreover, many “stealth” deals are actually reported to MoneyTree by their VCs, but with the condition that they remain confidential (i.e., included for aggregate data purposes, but no further info publicly disclosed).
MoneyTree reports 16 such deals for Q1. This is, admittedly, not a great showing, and is down a bit from the norm. On the other hand, lots of so-called stealth deals actually are included, by name, in the quarterly data. The BusinessWeek Dealflow blog, for example last week “uncovered” six stealth deals, but half of them are included, by name, in the MoneyTree data (BA Systems, FilmLoop and Spatial Photonics). Again, the numbers may be a bit artificially low, but not nearly so much as to explain a 15% decrease.
The Q1 VC disbursement press release is available at www.nvca.com
Accuride Corp., an Evansville, Ind.-based maker of trailer and heavy-duty truck wheels, priced 11 million common shares at $9 per shar