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PE Week Wire — Friday, August 13

Friday Feedback

Floridians are hunkered down, the U.S. trade deficit just hit a record high and my home office is gorging on humidity. In other words, it’s time for some Friday Feedback. No real theme today, just a random sampling.

First up is Monday’s discussion of The Carlyle Group qua Manchurian Global Corp. The majority of you continue to believe that I’m a Carlyle shill. Regular respondent Nari writes: “Puhleese! Carlyle is just as much an innocent VC firm as I am a Nobel-Prize candidate (Editors note: a cursory check indicates that Nari is not being considered for a Nobel Prize).With a large portion of their investments in defense companies, a revolving door that can make your head spin and loads of powerful ex-politicos on their payroll, it’s hard to imagine that they have such a setup for purely benevolent reasons.” Diane adds: “Are you kidding me? Do you really believe an entity like Manchurian Global doesn’t exist? I’ve been in finance for over 20 years and some of the things I’ve seen I wish I never had. As for the Carlyle/Halliburton connection, do you not read or do research? My teenagers know better.” Then there is Steve: “I think you, perhaps of behalf of Carlyle Group, are a l! ittle paranoid… I didn’t think of Carlyle once [while watching the film].” As a personal aside to Carlyle, it seems that my most recent check got lost in the mail. Please cut a new one. Thanks.

Much more reader agreement when it comes to Google: Megan writes: “Who is going to pay $135 for shares of a company whose technology could soon be made obsolete by Microsoft or some unknown startup? I know that every company technically faces that problem, but Google seems more susceptible than most.” I agree Megan. The MIT Technology Review had a great cover story on that possibility back in February. Ryan adds: “Google has always been in the right place at the right time, but its luck may have run out with its IPO. Could you imagine a worse time in the past year-and-a-half to go public as a tech company than right now?” No Ryan, I can’t.

Finally, a number of you like to discuss politics via email with me, which can be great fun. That said, please do not add my email address to any more anti-Bush or anti-Kerry mailing lists (it seems that there are no pro-Bush or pro-Kerry mailing lists). I can find it on my own, when some free time presents itself. Have a great weekend.


The DirecTV Group Inc. (NYSE: DTV) has reached a revised agreement to sell its 80.5% stake in satellite company PanAmSat Corp. (Nasdaq: SPOT) to Kohlberg Kravis Roberts & Co., The Carlyle Group and Providence Equity Partners. The deal originally was priced at $2.8 billion, but negotiations were reopened last week after one of PanAmSat’s communications satellites suffered an unexpected propulsion system failure. DirecTV now will receive $2.6 billion for its holdings, although the reduction does not affect the $23.50 per common share purchase price to be paid to other PanAmSat shareholders.


MetroPCS Communications Inc., a Dallas-based telecom company, has withdrawn its proposed IPO. The company originally filed for a $250 million offering in March, but later upped the prospective ante to over $600 million. In its withdrawal filing, the company cites “accounting issues relating to the previously disclosed financial statements of the Registrant and its wholly-owned subsidiary MetroPCS Inc.” The company has received private equity funding from significant shareholders like Accel Partners, Battery Ventures, Clarity Partners, General Motors Pension Fund, INVESCO, Los Angeles County Employee Retirement System (LACERS), MC Venture Partners, Mitsui & Co. and Technology Ventures Associates.


Thayer Capital Partners and Thayer chairman Frederic Malek have settled administrative and cease-and-desist proceedings initiated by the Securities and Exchange Commission, although they did not admit or deny any wrongdoing. The Washington, D.C.-based private equity firm has agreed to pay a total of $250,000 – including a $150,000 civil penalty – in relation to charges that it privately made a $374,500 million payment to former Connecticut State Senate majority leader William DiBella, at the urging of former Connecticut Treasurer Paul Silvester. Silvester, who since has been jailed on various fraud counts, had previously committed to invest Connecticut money into a new Thayer fund, but subsequently lost an election. Neither he, Thayer nor Malek disclosed the DiBella payment – officially a “consulting” arrangement – to Connecticut pension fund officials. In rela! ted news, the SEC has filed a separate civil injunctive action against DiBella and his consulting firm North Cove Ventures.


Cigital Inc., a Dulles, Va.-based provider of software security solutions, has raised $1 million in second-round venture funding. Mid-Atlantic Venture Funds led the deal, and was joined by Blue Water Capital and the Washington Dinner Club LLC. Cigital previously raised a $4 million first-round of funding in August 2002.


Evolutions Benefits Inc., an Avon, Conn.-based provider of a benefits debit card named Benny, has raised $6.5 million in new Series B funding. The company previously announced a $12 million first close, bringing the round total to $18.5 million. Conning Capital Partners and Pfizer Inc. signed on as new investors. Existing backers include Sprout Group, Credit Suisse First Boston and company founder and CEO Robert Patricelli.


ACI Capital Co. and American Securities Capital Partners have agreed to acquire certain business assets of Phillips Health LLC from Phillips International Inc., in partnership with Phillip Health’s management team. No financial terms of the transaction were disclosed. Phillips Health is a Potomac, Md.-based provider of health education newsletters, nutritional supplements and other related health merchandise.


Bayer AG (NYSE: BAY) is in exclusive talks to sell its blood products group to the investment team of Cerbeus Partners and Precision Pharma, according to the Wall Street Journal. The deal could be valued at approximately $614 million, with Cerbeus/Precision now favored over fellow bidders Bain Capital and Carlyle Group. Morgan Stanley is advising Bayer on the deal


Archipelago Holdings LLC, a Chicago-based electronic exchange operator, has begun trading on the Archipelago Exchange under ticker symbol AX. The company priced 11 million common shares at $11.50 per share (below its $13.25-$15.25 offering range), for a total IPO take of approximately $126.5 million. The company received a $125 million private equity investment from General Atlantic Partners last December, and lists General Atlantic and Goldman Sachs as its largest shareholders.


Medex Holding Corp., a Carlsbad, Calif.-based provider of critical care medical products, has filed to raise $345 million via an IPO of common stock on the NYSE under proposed ticker symbol MDX. The company lists One Equity Partners as its majority shareholder, with an 83.2% ownership stake related to a 2003 buyout.


Build-A-Bear Workshop Inc., a St. Louis-based provider of “make your own stuffed animal” retail experiences, has filed to raise $125 million via an IPO of common stock. No proposed exchange or ticker symbol information was disclosed. The company has raised over $20 million in VC funding, with significant shareholders including Kansas City Equity Partners, Catterton Partners and Walnut Capital Partners.


Fox Hollow Technologies Inc., a Redwood City, Calif.-based medical device company focused on peripheral artery disease, has filed to raise $67.5 million via an IPO of common stock on the Nasdaq under proposed ticker symbol FOXH. The company has raised approximately $50 million in total VC funding, and lists De ovo Ventures and New Enterprise Associates as significant shareholders.


Stereotaxis Inc., a St. Louis-based provider of cardiology instrument control systems, has begun trading on the Nasdaq under ticker symbol STXS. The company priced 5.5 million shares at $8 per share (below its initial $14-$16 range), for a total IPO take of approximately $44 million. The company had received VC backing from firms like Sanderling Ventures, Alafi Capital Co., EGS Healthcare, Gateway Ventures, Advent International, CID Equity Partners and Ampersand Ventures.


The Active Network Inc., a La Jolla, Calif.-based provider of application and marketing services for the active lifestyle industry, has withdrawn its proposed $46 million IPO. The company cited “unfavorable market conditions” in its withdrawal filing with the SEC. The company has raised over $50 million in VC funding since its 1999 inception, with significant shareholders including Canaan Partners, ABS Ventures, TicketMaster Online-CitySearch Inc., Austin Ventures, Charles River Ventures, North Bridge Venture Partners and Enterprise Partners.


MatchNet Inc., a Beverly Hills, Calif.-based provider of online personal advertisements, has withdrawn its proposed $100 million IPO. The company originally filed the offering last week, and cited “recent and current market conditions” in its withdrawal filing with the SEC. The company has not received any significant private equity backing, and lists Tiger Technology Management and Capital Research and Management Co. among its principal shareholders.


Avid Technology Inc. (Nasdaq: AVID) has agreed to acquire Midiman Inc. (a.k.a. M-Audio), an Irwindale, Calif.-based provider of digital audio and MIDI solutions for electronic musicians and audio professionals. The deal includes approximately $80 million in cash, two million shares of Avid common stock valued at around $94 million and assume all of Midiman’s stock options. Midiman received VC funding in 2003 from Summit Partners.


Dilip Mehta has joined Radius Ventures as a venture partner. Dr. Mehta previously served as senior vice president of U.S. clinical research at Pfizer Central Research.


Chua Kee Lock, a managing director with venture capital firm Walden International, has joined the board of directors at Pacific Internet Ltd. (Nasdaq: PCNTF).


Rurik “Rik” Vandevenne has joined the Raleigh, N.C. office of River Cities Capital Funds as an associate. He most recently received his MBA from the Fuqua School of Business at Duke University.


Carlos Ferrer, a principal with private equity firm Ferrer Freeman & Co., has retired from the board of directors at Amerigroup Corp. (NYSE: AGP).


Flagship Ventures of Cambridge, Mass. is in the midst of raising a new VC fund with a $200 million target capitalization.


Exponent, a London-based middle-market buyout firm launched last fall by a quartet of former 3i Group investors, has closed its inaugural fund with GBP 400 million, according to The Financial Times. The firm’s principals are Richard Campin, Tom Sweet-Escott, Chris Graham and Hugh Richards. Helix Partners placed the fund.


Thursday, August 12

Gators and Googles

When Google Inc. first filed for its $3 billion-plus IPO in April, the business punditry responded with a euphoric yawp. Not only would Google executives be able to afford gold-plated foosball tables, but the positive ripples would lift technology ships everywhere. Not another bubble, they argued, but a sustainable increase in tech company values that had been artificially devalued by Chicken Little investors. The primary proponents of such sophistry were journalists, whose tech revival talk may just have been code for: “Gee, I hope IDG decides to re-launch a print version of The Industry Standard, so I can make a six-figure salary again.” Since then, however, underwriters have expressed concern about Google’s unorthodox IPO distribution strategy, and the Nasdaq finished trading yesterday at its lowest level of the year (which confirms that we’ve turned the corner, or at least a corner).

One of the tech boats Google was supposed to lift was Claria Corp., which also had filed for an IPO in April. If Claria doesn’t sound familiar to you, perhaps you are better acquainted with its founding moniker: The Gator Corporation. That’s right, Claria is the adware company responsible for nasty little adware programs like Gator eWallet, DashBar and Weatherscope. If you’ve ever downloaded Kazaa in order to violate some copyrights, then you know what I’m talking about (“hey, when did I download GAIN publishing?”). For those who buy their music at the mall, adware like Gator basically is the same as the dreaded spyware, which is a regular source of consternation to PC users. Claria, in its S-1 filing, disputed the spyware claim by arguing that spyware downloads without the informed consent of computer users, and thus is separate from user-approved software like Gator. It is worth noting, however, that the same S-1 acknowledges that spyware does not have a formal definition.

But we digress. The point is that Claria yesterday withdrew its IPO offering, citing the ever-popular “market conditions.” I’m sure this disappoints VC backers like U.S. Venture Partners, but it has brought a petty grin to my coffee-addled mouth (I believe that Claria has flipped Google’s “don’t be evil” motto). More importantly, it should help put to rest the fallacy that Google will boost the tech market at-large. Perhaps you could argue that companies like Claria should have waited to see if Google could actually hit its $135 per share mark, but even the most conservative estimates put the search giant’s take at $2 billion. That’s a lot of foosballs, but it has done nothing for Claria.

Finally, one additional note about the Google. The company’s IPO ends registration at 5pm today, and then we should begin to see if retail investors actually want to participate in this thing. I’ve begun to think of the Google IPO process like a Pearl Jam concert, back when the band tried sidestepping Ticketmaster. The idea was that fans should be able to buy tickets directly, and not through intermediaries like ticker brokers (who grabbed huge blocks of tickets through Ticketmaster, and then sold them to the public at jacked-up prices). Fans loved this, and bought the tickets in droves. Imagine, however, if Pearl Jam had inflated the ticket prices themselves, and charged $135 per ticket. Then tell them that the band will only play its hits during a three-song encore (kind of like Google says not to expect a short-term stock price boost).

Sure, you’ve eliminated the middle-man, but the net result for the paying public is negligible. I fear the same thing will happen with Google, but we’ll have to wait to see. 


Idetic Inc., a Berkeley, Calif.-based developer of a live television network for mobile phones, has raised $15 million in Series B funding. RedPoint Ventures and Menlo Ventures co-led the deal, and were joined by return backer Gefinor Ventures. As part of the transaction, Jeff Brody of Redpoint Ventures and John Jarve of Menlo Ventures joined the Idetic board of directors.


Fenway Partners has agreed to acquire bicycle helmet marketer Bell Sports Corp. from an investor group that includes GarMark Partners, Wachovia Investors and Chartwell Investors. The transaction is valued at $240 million. Upon completion, Fenway will merge Bell Sports with football helmet maker Riddell Sports Group Inc., which Fenway bought out in June 2003. CIBC World Markets advised Bell Sports and its selling shareholders on the acquisition, while Fenway was advised by Goldman Sachs.


Claria Corp., a Redwood City, Calif.-based provider of direct online marketing solutions like Gator, has withdrawn its proposed $150 million IPO offering. The company cited “current marketing conditions” in a withdrawal filing with the SEC. It has raised over $58 million in VC funding from firms like U.S. Venture Partners, Greylock, Crosslink Capital, Garage Technology Ventures, Rosewood Stone Group, Investor AB and Technology Crossover Ventures.


Diagnostic Hybrids Inc., an Athens, Ohio-based provider of cell cultures, has raised $10 million in private equity funding. Summit Partners led the deal, and was joined by Kenson Ventures.


Intelleflex Corp., a San Jose, Calif.-based provider of radio frequency identification (RFID) products, has raised $11.3 million in Series A funding. The deal was co-led by Alloy Ventures, Selby Ventures and Woodside Fund.


FleetCor Technologies Inc., a Norcross, Ga.-based provider of fleet card processing solutions for the business fleet industry, has raised $4 million in new VC funding from Advantage Capital Partners.


Ardais Corp., a Lexington, Mass.-based provider of human bio-specimens for biomedical research and development, has raised $4 million in new VC funding. Return backers included Advanced Technology Ventures, Advent Health Care and Life Sciences, BioVentures Investors, EGS Healthcare Capital Partners, Federated Kaufmann Fund, Lancet Capital, Pequot Private Equity Fund and Silicon Valley Bancshares. The company has raised over $63 million in total VC funding since its 1997 inception.


Delta Capital Management, manager of the U.S. Russia Investment Fund, has agreed to sell its equity stake in Moscow-based DeltaBank to GE Consumer Finance. No financial terms have been disclosed, but published reports put the price tag at between $110 million and $130 million. DeltaBank was founded in 2000 by the U.S. Russia Investment Fund, and is an issuer of Via credit cards in Russia.


Henderson Private Capital has acquired publications Boat International, Captain’s Log, Sailing Today and Coast. The new publications will collectively be named Boat International Publishing Ltd., and will seek additional acquisitions. No financial terms were disclosed. The deal comes one day after CurtCo Media Labs LLC, a portfolio company of Weston Presidio and TD Capital Communications Partners, acquired the assets of ShowBoats International, a Ft. Lauderdale, Fla.-based lifestyle magazine catering to luxury yacht owners.


Stereotaxis Inc., a St. Louis-based provider of cardiology instrument control systems, has reduced its IPO offering price range from $14-$16 to $8-$10 per common share, and also has reduced its total number of offered shares from 6.5 million to 5 million. It still hopes to trade on the Nasdaq under proposed ticker symbol STXS. Significant Stereotaxis shareholders include Sanderling Ventures, Alafi Capital Co., EGS Healthcare, Gateway Ventures, Advent International, CID Equity Partners and Ampersand Ventures.


U.S. Shipping Partners LP, an Edison, N.J.-based provider of long-haul marine transportation services, has filed to raise approximately $149.5 million via an IPO of common units (representing limited partner interests) on the NYSE under proposed ticker symbol USS. The company plans to sell 6.2 million common units, with holders entitled to receive distributions of available cash of $0.45 per unit per quarter, or $1.80 per unit annually, before any distributions are paid on the company’s subordinated units. U.S. Shipping was formed in 2002 by Sterling Investment Partners, following its $198 million acquisition of six Jones Act tankers from Amerada Hess Corp.


Carol Olsen has been named executive vice president of Portola Pharmaceuticals Inc., a San Francisco-based biotech firm focused on cardiovascular therapies. She most recently served as a venture partner with Apax Partners, and now will be responsible for Portola’s corporate development, strategy, finance and product commercialization.

Josh Fidler, a co-founder and general partner of Boulder Ventures, has joined the board of directors at Home Properties Inc. (NYSE: HME).

Riaz Bandali has been appointed to the board of directors at Genetronics Biomedical Corp. (AMEX: GEB), a San Diego-based biomedical company specializing in electroporation therapy. Bandali currently serves as senior vice president of business development and operations at MDS Sciex, and previously was a vice president and venture partner with MDS Capital.


Brown Brothers Harriman & Co. is raising its third private equity fund-of-funds with a $100 million target capitalization. According to an SEC filing, the firm already has raised approximately $27.4 million for the new effort. Its previous fund-of-funds was capitalized with $50 million in 2000.


Wednesday, August 11


Game On


Yesterday’s carefully planned day of BDC research was disrupted by: (a) A phone meeting I forgot, which subsequently turned into a lunch meeting in the far western suburbs of Boston and (b) An gentle reminder that Venture Capital Journal was still waiting for its lead story for next issue’s News Analysis section which I had said I’d write before leaving for Hawaii. So let’s wait a bit on Apollo and KKR talk, and instead turn to Gametime.

About one month ago, we launched the Stock Picking Contest. It was a two-part contest, in which only ten people would be selected to play Part II (which is where prizes can be won). All interested participants were asked to guess the combined DJIA and Nasdaq values as of market close August 4. Most of you went way too high (given the market downturn over the past month), but a remarkable number of folks hit the mark within five or ten points. Next Monday, these people (listed below) will each be sent a list of 25 public stock portfolios from which to choose. The player whose portfolio gains the most aggregate value (on a percentage basis) will win the contest. We’ll return to the combined market value system for a tiebreaker, in case multiple folks choose the same portfolio. The players are:

· Matthew Sennett, Guggenheim Aviation Partners

· Joe Massoud, The Compass Group International LLC

· Kirk Foulkner, Portiva Corp.

· Sam Schwerin, Millennium Technology Ventures

· Barrett Bencivenga, Sagamore Partners

· Mike Kozlowski, Comcast

· Aaron Tregaskis, New Zealand Venture Investment Fund

· John Kim, Bank of America Securities

· Primoz Artac

· Mark Griswold


College Sports Television, a New York-based provider of college sports broadcasting and information via cable television and the Internet, has raised $37 million in Series C funding. JPMorgan Partners led the deal with a $25 million commitment, and was joined by fellow new investor the New York City Investment Fund, plus return backers Constellation Ventures, Allen & Co. and The Coca-Cola Co. The company now has raised around $80 million in total VC funding.


Archipelago Holdings LLC, a Chicago-based electronic stock exchange operator, has changed the terms of its proposed IPO offering. The company now plans to offer 11 million common shares at between $13.25 and $15.25 per share, after originally planning to price approximately 8.7 million shares at $15 per share. In an amended SEC filing, Archipelago also revealed that it plans to list its common stock on the Pacific Exchange Inc., for trading on the Archipelago Exchange, under ticker symbol AX. The company received a $125 million private equity investment from General Atlantic Partners last December, and lists General Atlantic and Goldman Sachs as its largest shareholders.


EsophyX Inc., a Redmond, Wash.-based developer of an endoscopic device for the treatment of acid reflux disease, has raised $12 million in Series B funding. Foundation Medical Partners led the deal, and was joined by return backers MPM Capital and Advanced Technology Ventures. The company previously raised a $5 million Series A deal in June 2003 at a post-money valuation of approximately $8.7 million.


Digital Evolutions Inc., a Santa Monica, Calif.-based provider of web services security and management software, has raised $15 million in Series C funding. Investors included Redpoint Ventures, Mellon Ventures, Paladin Caital Group and Palisades Ventures. The company now has raised approximately $30 million in total VC funding since its 1998 founding.


Breach Security Inc., a Carlsbad, Calif.-based provider of application security products for large corporations and government agencies, has raised $7.5 million in Series A funding. Enterprise Partners Venture Capital led the deal, and was joined by Pitango Venture Capital, Evergreen Partners and Ascend Technology Ventures.


Vision Chain Inc., a Washington, D.C.-based provider of data management software, has raised $3 million in first-round VC funding from Novak Biddle Venture Partners. The company has been in business since 1999.


CareGain Inc., an East Windsor, N.J.-based provider of healthcare software for health insurance carriers and self-insured employers, has raised $6.8 million in Series B funding. Investors included Milestone Venture Partners, Inflection Point Ventures, Mid-Atlantic Venture Funds, NewLight Associates, NJTC Venture Fund and Select Venture Capital.


Clairvoyante Inc., a Sebastopol, Calif.-based licensor of pixel architectures and algorithms that enhance liquid crystal display performance, has raised an undisclosed amount of Series B funding. American River Ventures led the deal, and was joined by Intel Capital, Rocket Ventures and Yasuda Capital. An SEC filing dated June 15 put the round at approximately $2.77 million, but it likely has grown since then.


NanoString Technologies Inc., a Seattle-based nanotech company focused on bar coding systems for single molecules, has raised $4.3 million in new VC funding. OVP Venture Partners and Draper Fisher Jurvetson co-led the deal.


Arlington Capital Partners has agreed to acquire eight radio stations, via three different transactions in Montana, Texas and California. Each station will be added to Arlington’s Cherry Creek Radio LLC platform, which currently operates 32 stations across 11 markets in the western United States. No financial terms of the latest acquisitions were available. Each deal is subject to FCC approval.


JMI Equity and Kennet Venture Partners have acquired a majority ownership stake in NetPro Computing Inc., a Phoenix-based provider of distributed services management software. The deal was transacted as a secondary share purchase from existing investors. No information was available on who was selling what, although SEC documents show that past NetPro investors included Grayhawk Venture Partners, Pinecreek Capital Partners, Diamond Venture Capital and the Cornerstone Fund. 


ECI Partners has acquired M&M Sports Ltd., a Leominster, UK-based online and mail order retailer of discounted branded sports and leisure goods. No financial terms were disclosed.


Tectura Corp., a Tempe, Ariz.-based provider of systems integration solutions, has agreed to merge with Aston Business Solutions, a Whitmore Lake, Ill.-based global business solutions provider. The combined company will specialize in Microsoft Business Solutions offerings, and will be backed by an investment consortium led by Pequot Ventures, which already served as Tectura’s primary investor.


St. Jude Medical Inc. (NYSE: STJ) has agreed to acquire Irvine Biomedical Inc., an Irvine, Calif.-based provider of electrophysiology catheters used to diagnose and treat cardiac rhythm disorders. The deal is valued at $47 million, and gives St. Jude the remaining 86% of Irvine Biomedical that it didn’t already own (St. Jude got a 14% stake thanks to its 2003 acquisition of Getz Brothers Co.). The acquisition is expected to close this quarter, and could include an additional $13 million in milestone incentive payments. The Deal reports that Irvine Biomedical investors include Apex Venture Capital, IBT Venture co. and Pacific Republic Securities. 


Heartland Payment Systems Inc., a Princeton, N.J.-based provider of bank card-based payment processing services to merchants, has filed to raise $75 million via an IPO of common stock on the Nasdaq under proposed ticker symbol HPAY. The company raised $40 million in VC funding in October 2001 from Greenhill Capital Partners and LLR Equity Partners, which hold pre-IPO ownership positions of 28.2% and 16.9%, respectively.

Placer Sierra Bancshares, a Sacramento, Calif.-based holding company for Placer Sierra Bank, will begin trading on the Nasdaq under ticker symbol PLSB. The company priced 5.73 million common shares at $20 per share (middle of its $19-$21 offering range), for a total IPO take of approximately $115 million. Placer Sierra lists Belvedere Capital Partners as a significant shareholder. 


Richard Meadows, a partner with CDP Capital Technology Ventures, has joined the board of directors at Merix Bioscience Inc., a Durham, N.C.-based developer of immunotherapy treatments for cancer. Merix is a CDP portfolio company.


Duke Street Capital Debt Management has closed its third collateralized debt fund (Dutchess III) with €450 million.  


Tuesday, August 10