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PE Week Wire: Tues., July 17, 2007

After Thomson Financial and the National Venture Capital Association released fund-raising stats yesterday, most media outlets focused on the number of funds raised or the total dollar amount pulled in (68 funds raised $7.1 billion). But the big takeaway from the fund-raising announcement is the growth of expansion stage and late stage funds that were raised during the last three months.

Although 39 early stage funds (led by such stalwarts as Draper Fisher Jurvetson and Emergence Capital Partners) raised about $2 billion during the quarter, 10 expansion focused funds raised $2.8 billion in the second quarter of 2007, shattering the previous record from the first quarter of 2000 when three funds raised $1 billion. Among the funds active in Q2 ’07 were Insight Venture Partners VI (which raised more than $900 million); Institutional Venture Partners XII ($600 million); and Sequoia Capital China Growth Fund (about $430 million).

In addition, 10 balanced stage funds and seven later stage funds, including the third largest fund of the quarter (North Bridge Growth Equity I at $545 million), accounted for more than $2.4 billion during the quarter.

When we ran these numbers ourselves last week in advance of the Thomson/NVCA report, I half expected the VC industry to sound an alarm and say that maybe Sevin Rosen Funds was right: VC is dead. After all, when I tell people what I do for a living, I’m often asked, “What is venture capital?” and “How does VC differ from other investments?” I always point to startups, or early stage deals, as the cornerstone for what makes a deal a part of VC. That definition has its shortcomings, especially now that more and more venture firms are getting a taste of opportunities with established companies. And they are finding these companies proven traction in the marketplace are quite palatable. I can’t deny the upside any more than Institutional Venture Partners and all the rest that are jettisoning early stage.

*** Dan is once again out, but fear not. He’s not on vacation (though I wonder if he truly took a break the last two weeks). Dan is in Washington, D.C., speaking and moderating as part of the Mid-Atlantic Venture Association’s Vanguard series. Say, “Hey” to him if you’re there.

Of course, if he were here to blog, he’d likely dispense an opinion or two about Yipes, the San Francisco-based provider of managed network solutions. See news below. The company burned through money in the late ‘90s, reorganized under Chapter 11, raised a few hundred million more dollars (in which many returning backers joined) and finally got bought last week for $300 million by Reliance Communications, which has the second largest number of mobile phone subscribers in India.

*** Today’s blog was by Alastair Goldfisher, managing editor of Private Equity Week and Venture Capital Journal in San Francisco. He had help from the staff, as well. You can reach us all at pehub.lndo.site

Top Three

Reliance Communications Ltd., a Mumbai, India-based provider of mobile phone services, announced Monday that it would buy San Francisco-based Yipes Holdings Inc., a provider of Ethernet management services, for $300 million. Yipes was founded in the late 1990s as Yipes Communications and raised more than $270 million from JPMorgan Partners, New Enterprise Associates, Norwest Venture Partners, the Sprout Group and other investors. The company filed for Chapter 11 bankruptcy in 2002 and was re-launched as Yipes Enterprise Services. It has since raised more than $100 million in funding from Crosslink Capital and many returning investors, including Norwest, among others. www.relianceinfo.com ! www.yipes.com

VC blogger Christine Herron has left Omidyar Network, where she was an investment director. Herron tells PE Week Wire via an email that she has taken an “interim role with First Round Capital—‘venture advisor’—while working on independent projects/projects with other investors.” Herron writes a popular tech blog called Christine.net.

Dow Jones, which owns The Wall Street Journal, has tentatively agreed to the $5 billion acquisition offer by Rupert Murdoch’s News Corp. The deal still must win the approval of the Bancrofts, the controlling family that owns a majority of Dow Jones’ voting stock.

VC Deals

Certeon Inc., a Burlington, Mass.-based provider of communications components for enterprises, has raised $15 million in a Series B funding. RRE Ventures led the round and was joined by Sigma Partners, Globespan Capital, Dow Employees’ Pension Plan and Union Carbide Employees’ Pension Plan. RRE Ventures General Partner Richard McGinn, former chairman and CEO of Lucent Technologies, has joined the Certeon board.www.certeon.com

InGrid, a Berwyn, Pa.-based provider of wireless security systems, raised $13.5 million in third-round funding, bringing to $30 million the total amount raised to date. The round was led by the Armstrong Group and Associated Partners. Existing investors CenterPoint Ventures, Novak Biddle Venture Partners, Pennsylvania Early Stage Partners and ZG Ventures also participated. As part of the deal, Armstrong Group CEO Kirby Campbell has been appointed to the company board. www.ingridhome.com

Healthline, a San Francisco-based provider of intelligent health information services, has raised $21 million in Series B financing led by GE/NBC Universal’s Peacock Equity Fund, a joint venture between GE Commercial Finance’s Media, Communications & Entertainment business and NBC Universal. The round also includes strategic financing from Aetna Ventures, Kaiser Permanente Ventures, U.S. News and World Report, and previous investors VantagePoint Venture Partners and Reed Elsevier Ventures. www.healthline.com

Ze-gen Inc., a Boston-based provider of gasification technology to convert municipal waste streams into synthetic natural gas and low emissions electrical energy, has raised $4.5 million in Series A funding. Flagship Ventures led the round, and was joined by VantagePoint Venture Partners. www.ze-gen.com

Novocell Inc., a San Diego-based stem cell engineering company, has raised $25 million in Series C funding. Johnson & Johnson Development Corp. led the deal, and was joined by return backers Sanderling Ventures, Asset Management Co.and Pacific Horizon Ventures. Novocell has now raised around $74 million in total VC funding since its 1999 inception. www.novocell.com

WebLayers Inc., a Cambridge, Mass.-based provider of automated SOA governance software, has raised $7 million in Series C funding. Ascent Venture Partners led the deal, and was joined by return backers Cedar Fund and Veritas Venture Partners. www.weblayers.com

Arkeia Software, a Carlsbad, Calif.-based provider of data protection software, has raised $3 million in a Series B equity funding round from SPEF Ventures (Banque Populaire) and Credit Agricole private equity. www.arkeia.com

GlycoVaxyn, a Swiss developer of innovative conjugated vaccines, has raised a $9.3 million in a Series A financing. Existing investors Sofinnova Partners and Index Ventures both significantly increased their equal investment in GlycoVaxyn, after having seeded the company in July 2006. Also, GlycoVaxyn has appointed industry veteran Michel Greco as chairman of the board. www.glycovaxyn.com

Israel-based Valens Semiconductor Ltd., a chip developer for audio and video in a home networking equipment, raised a $7 million Series A round of fund. Genesis Partners led the round and was joined by Magma Venture Partners also participated in the round. Dr. Eyal Kishon of Genesis Partners and Eitan Dekel of Magma Venture Partners will join the company’s board. www.valens-semi.com

Metalysis, a U.K.-based provider of metal extraction services, has raised about $27 million in a third round of funding from Environmental Technologies Fund (ETF), 3i, QinetiQ, Seven Spires, Chord Capital and Cambridge Capital Group. www.metalysis.com

Buyout Deals

MassMutual and Jefferies Group have agreed to provide struggling subprime mortgage lender NovaStar Financial with $150 million in new equity, according to MarketWatch. MassMutual and Jefferies will each gain a seat on the board. The firms’ investment in NovaStar includes a $48.8 million infusion in return for 2.1 million convertible preferred securities of the Kansas City-based nonprime mortgage lender. www.novastarmortgage.com

An investment group backed by The Carlyle Group has pulled out of the bidding to buy Queen Seaport Development Inc., the bankrupt operator of the famous Queen Mary cruise liner. TheDeal.com reported that O&S Holdings LLC will enter an Aug. 14 auction and bid $41 million in an offer to takeover the Queen Mary’s lease with the city of Long Beach, Calif., and the surrounding 40 acres of waterfront property. The lease runs until 2061. The city had been in talks with the Carlyle-backed group, known as Save the Queen, to sell the lease for about $49 million.

Kohlberg Kravis Roberts & Co. has canceled plans to raise $1.4 billion of loans for Dutch retailer Maxeda BV. The failed deal is another sign that debt investors are wary over the bond market. It’s estimated that 20 or more financing deals have been postponed or restructured in the past three weeks and KKR has been involved in at least three of them. In addition to Maxeda, Dollar General and US Foodservice have also changed or canceled bond sales to finance their KKR buyouts.

Lindsay Goldberg & Co. has invested $283 million to acquire a “significant” minority stake in Brightstar Corp., a Miami, Fla.-based wireless distributor and provider of supply chain solutions. Cicerone Capital advised Brightstar on the deal, while Lindsay Goldberg was advised by Morgan Stanley and Gabriel Advisors. www.brightstarcorp.com

Marfin Investment Group, owned by the Greek Marfin Popular Bank, has agreed to pay Euro550m (US$758m) for a 30% stake in Vivartia, Greece’s largest dairy and bakery. The deal was disclosed after the Athens Stock Exchange authorities suspended trading in both companies’ shares pending clarification of bid speculation. Marfin, which recently raised a Euro5.1bn (US$6.9bn) fund, is to buy the stake from Vivartia’s co-founders Dimitris Daskalopoulos and Spyridon Theodoropoulos.

Polish Enterprise Fund, the private equity fund managed by Enterprise Investors (EI), has agreed to sell its 94% stake in Polish private health care provider, Medycyna Rodzinna, to Central Eastern European fund Mid Europa Partners. The sale is expected to yield gross proceeds of PLN 59.2m (US$21.8m) and a 2x investment multiple. The transaction is expected to close after the Polish anti-monopoly office grants its approval.

PE-Backed IPOs

Genpact Ltd. (f.k.a. Gecis Global), a global business process outsourcing company, has set its proposed IPO terms to about 35.29 million common shares at between $16 and $18 per share. It would be valued at over $3.7 billion, if it were to price at the high end of its range. Genpact plans to trade on the NYSE under ticker symbol G, with Morgan Stanley, Citi and JPMorgan serving as co-lead underwriters. General Atlantic and Oak Hill Capital Partners acquired a 62.63% stake in Gepact from General Electric in 2005, for approximately $500 million (including $375 million in equity). www.genpact.com

Sucampo Pharmaceuticals Inc., a Bethesda, Md.-based drug developer, today set the terms of its IPO of 3.75 million Class A common shares at an estimated price of $14 to $16 per share. The company plans to list on the Nasdaq under the symbol SCMP. Cowen & Co., CIBC World Markets and Leerink Swann & Co. are serving as underwriters. The company raised $25 million in venture funding from such firm as Diamond Capital, Fujisawa Research Institute of America, Intel Capital and Mizuho Capital Co. www.sucampo.com

PE-Backed M&A

Britain’s Takeover Panel on Monday set a deadline of Thursday for Warner Music Group Corp. and Jim Fifield to announce separately whether they plan to make an offer for EMI Group Plc. Fifield is the former CEO of EMI. Last week, EMI agreed to a $4.9 billion bid from Terra Firma, spurning Warner’s ongoing attempts to reach a deal to acquire EMI. www.emigroup.com www.wmg.com

ReAble Therapeutics (f.k.a. Encore Medical), an Austin, Texas-based orthopedic medical device company controlled by The Blackstone Group, has agreed to acquire DJO Inc. (NYSE: DJO), a San Diego-based provider of products and services that promote musculoskeletal and vascular health. The total deal is valued at about $1.6 billion, including the assumption of debt, with DJO stockholders to receive $50.25 per share. Wachovia Securities is serving as financial advisor to DJO, while Credit Suisse is doing the same for ReAble. www.encoremed.com www.djortho.com

PE Exits

SunGard has agreed to acquire VeriCenter Inc., a Houston, Texas-based provider of managed services, application hosting and IT infrastructure outsourcing. No financial terms were disclosed. SunGard was acquired in 2005 by seven private equity firms, while VeriCenter has raised about $24 million in VC funding from BMC Software, Broadband Venture Partners, Intel Capital and Pharos Capital Group. www.sungard.com www.vericenter.com

Firms & Funds

Technology Crossover Ventures, of Palo Alto, Calif., is planning to raise between $2 billion and $2.5 billion for its seventh fund, according to VentureWire. The firm raised $1.4 billion for Fund VI in 2005. www.tcv.com

Galen Partners, a Stamford, Conn.-based health care investor, announced that Siemens Venture Capital GmbH has invested in its fifth fund, Galen Partners V. The fund, which closed last month, has now raised $250 million in partner commitments. Fund V will focus on investments in health care information technology/outsourcing, medical devices and specialty pharmaceutical companies. www.galen.com

Apjohn Ventures, a Kalamazoo, Mich.-based investor in biotech companies, s raising $50 million for its second fund, according to VentureWire. In April, the firm brought on board Barclay A. “Buck” Phillips, a former managing director of health care investor Vector Fund Management. www.apjohngroup.com

Boston-based Dace Ventures has raised $75 million from limited partners for its inaugural fund, according to VentureWire. The firm, created by former CMGI President David Andonian, split the commitments into two funds—Dace Ventures I ($25 million) and Dace Parallel Fund I ($50 million). The firm did not name LPs, but Tudor Ventures invested $50 million. Dace Ventures invests in early stage software developers and wireless communications.

Human Resources

Former U.S. Trust CEO Peter Scaturro has joined Goldman Sachs Group Inc. as global head of its private wealth management business, according to Reuters, which cited an internal memo. Scaturro, who is 47, left New York-based private wealth manager U.S. Trust before it was acquired by Bank of America Corp. from Charles Schwab Corp. in a deal that closed earlier this month. www2.goldmansachs.com

Ian Carver has joined DLA Piper in the firm’s Boston office as a regional manager of their Venture Pipeline Group. Before joining DLA Piper, Carver spent the past eight years as a director at PricewaterhouseCoopers. www.dlapiper.com