PE Week Wire: Wed., July 11, 2007

For some time now European venture capital has been the “ginger step child” of the private equity industry – everyone knows it’s there but no one really pays it any mind.

But with10 European countries including Lithuania, Ireland, Belgium and Switzerland producing more science and technology graduates per head of population than the US and Russian and Polish coders beating US-based ones in competitions on sites like topcoder, the next generation web-based businesses is likely to end in rather than .com.

Overall the European venture capital funding scene has improved immensely over the last five years, despite recent data from Library house showing some contraction in Q2’07. According to a recent European Venture Capital report released by Ernst & Young, IT had the most significant upturn in investments of any industry in the first quarter of this year totalling €505.2 million, an increase of over €30 million, in capital investment. Library House also conducted some interesting research which breaks down venture capital investment into geographic clusters which analyses the US market beyond the national level. In this view, California and Boston are way out ahead but the UK is third in terms of the amount of venture capital investment. Five years ago it would have been virtually impossible to consider building a global technol! ogy business outside the US. But times are changing. Against measures such as broadband penetration, percentage of online advertising spends and mobile phone adoption – the US is no longer the world’s most important market.

Living in Europe, I’m sick to death of hearing about Skype so much so that I actually banned its mention in my magazine for a while. But this is my blog and I’ll break a ban if I want to. Skype is such a good example of a business looking East before West. Asia makes up a major part of Skype’s user base and developing countries such as Poland, Brazil and Turkey are significant as well. In the future, understanding different cultures is going to be much more important to nascent businesses. And on this metric Europeans will always come out ahead of US competitors out of reasons of necessity. According to the 2006 Global Venture Capital Survey sponsored by Deloitte & Touche in cooperation with the National Venture Capital Association, 54% of US venture capit! alists are not investing outside the US and 73% of those are not planning to. Of the 46% who do invest globally, they invest so little in global deals that it makes up less than 5% of their capital.

“No European market is big enough to sustain a single-market player, so no ambitious European technology business thinks in either single geography or language. Where Netflix could create a major business by thinking about the US market alone; that was not an option for [UK-based] Lovefilm. If you start your business in Tel Aviv, Stockholm or Tallin you can bet you’re thinking from day one about how to take your business to a global market,” said Saul Klein, advisor to Skype, creator of Lovefilm and a venture partner with Index Ventures.

So will everyone please stop bemoaning the fact that London is not Silicon Valley, strap on your stiff upper lips and get on with it. And Klein is willing to help. In the same way that YCombinator is running start up schools in Boston and San Francisco and Techstar its summer program in Boulder. Klein of Index and Reshma Sohoni from 3i and a clutch of European venture capital’s heaviest hitters including: The Accelerator Group, Accel Partners, Highland Capital, Wellington Partners, Advent Ventures, Atlas Ventures and Baulderton Capital are accepting entries to seed camp. To participate in Seedcamp, entrepreneurs have until August 5 to submit an application through the Seedcamp website ( The top 20 teams will then be selected and invited to London for “a week of intensive m! entoring and networking” with industry experts in fields like HR, law, marketing and product development. At the end of that week scheduled for September 3rd through the 7th the top five teams will be announced and they’ll receive €50,000 in funding and an additional three months of mentorship. This camp is groundbreaking in Europe as it is one of the first times that the industry has reached out to entrepreneurs in this way. And with a meaty prize of €50,000 it is definitely worth a mention to Wire readers.

***To help accelerate entrepreneurship and business growth in Ireland and across Europe, IBM launched the IBM Innovation Center in Dublin today. IBM also introduced a range of new sales and marketing resources for start-ups, to help generate new business deals and expand into new geographies. This is its fifth center of this kind with the others located in Denmark, Finland, Norway and Switzerland

*** Data released today by Library House, a UK research house specializing in early-stage European tech companies, has shown the amount of venture capital invested in Europe contracted during the second quarter of 2007. In Q2 2007, under €1.4bn of venture capital was invested in Europe down slightly from Q1 and substantially down from the €1.7bn invested in the second quarter of 2006.

***Today’s blog is by Amanda Palmer, editor of the European Venture Capital Journal Tomorrow we’ll hear from the San Francisco-based team at (US) VCJ.

I get the feeling they may NOT think that Europe will over take their market.

Top Three

Carlyle Group is to buy a 35% stake in Taiwanese lender Ta Chong Bank for T$21.5 billion ($657 million), the firm’s first invest in Taiwan’s banking sector. It had to fend off interest from Oaktree Capital and MBK Partners, and marks Carlyle’s seventh deal in the country.

Voltaire, an Israel-based company that develops interconnect solutions for grid computing, has filed for an IPO which could see it raise up to $123.9 million In the filing it said it will offer 5.8 million shares, while selling shareholders will offer about 1.9 million, at an expected price of between $12 and $14 per share. Backers include Baker Capital, Challenge Fund – Etgar, Concord Ventures, Divine interVentures, Pitango Venture Capital, QTV Capital, Tamir Fishman Ventures, Vertex Management.

Galen Partners and AIG Healthcare Partners has sold JDS Pharmaceuticals, a specialty pharmaceutical company, to Noven Pharmaceuticals for approximately $125 million cash at closing plus the assumption of approximately $10 million in net liabilities.

VC Deals

6N Silicon Inc, an Ontario, Canada-based developer of solar grade silicon purification technology, has raised C$6 million in its first round of financing from Ventures West and Yaletown Venture Partners.

MooBella, a Taunton, Massachuets-based ice cream maker, has secured $25 million from W. Health, a venture fund run by Inventages Venture Capital Investment. Inventages partner Erich Sieber has been appointed to the board of MooBella.

VirtualLogix, a Sunnyvale, California-based technology company, raised $16 million in Series B financing. This funding includes participation from new investors, Esprit Capital Partners, who led the round, and Intel Capital. Current investors, Atlas Venture and Index Ventures also contributed to the Series B funding.

SoloPower, a Granite Bay, California-based solar power specialist, has raised an undisclosed amount in venture funding from Norwegian firm Convexa Capital according to VentureWire. Returning investors included Crosslink Capital, Firsthand Capital Management Inc. and individual investors.

GlassHouse Technologies, a Massachusetts-based IT consultancy, has raised $7.5 million in a Series E round according to a report by VentureWire. Montagu Newhall Associates led the round, with investment also coming from Globespan Capital Partners, Grandbanks Capital, Kodiak Venture Partners, Paladin Capital Group and Sigma Partners.

Ning, an online networking site, has raised $44 million in a Series C round led by Legg Mason, with a number of other unnamed investors participating, as well as company founder, Marc Andreessen.

Tikvah Therapeutics, an Atlanta-based company specializing in drug treatments for CNS disorders, has raised $10 million of bridge financing from undisclosed investors according to VentureWire (vw).

Light Sciences Oncology, a Washington -based developer of a light-activated treatment for cancer tumors, has raised $30 million in a Series B round. Investors include Lehman Brothers, Deephaven Capital Management, the Malaysian Life Sciences Capital Fund, and Burrill & Co., provided the $15 million for this tranche following Fidelity Investments’ $15 million in May, reports vw.

NeoMend, a biotech company based in Irvine, California, has raised $6 million in a Series C round from an undisclosed VC, reports vw. Existing investors Prospect Venture Partners and Sanderling Ventures returned.

Presidio Reinsurance Group, a San Francisco-based provider of medical reinsurance products, has obtained a $50 million equity commitment from FTVentures.

Pangea3, a legal outsourcing firm with offices in New York, Silicon Valley and Mumbai, India, has secured $7 million in Series C funding from by Sequoia Capital India. Sumir Chadha, managing director of Sequoia Capital India, will join Pangea3’s board of directors.

Appriss, Louisville, Kentucky-based provider of Software-as-a-Service (SaaS) solutions to local, state, and Federal criminal justice and law enforcement agencies, has raised an undisclosed amount from Bain Capital Ventures and JMI Equity.

PayScale, an online salary and benefits comparison site based in Seattle, has netted $8.8 million as part of a Series C funding round. Corporate Executive Board led the round alongside new investor Allen & Company and returning VCs Trinity Ventures, Madrona Venture Group, Fluke Venture Partners and Buerk Dale Victor.

Serus, a Mountain View, California-based software developer, has raised $8 million in a Series C round. The new round was led by OVP Venture Partners and included investments from all of Serus’ Series B participants, including Diamondhead Ventures, Zap Ventures, Prabhu Goel, Naren Gupta and BB Patel.

Noise Free, a provider of enhanced voice-based communication solutions based in San Jose, California, has received $1.4 million in seed funding from Bay area-based ISB Ventures.

Cerion Energy, a New York-based developer of fuel additives, has secured $1.2 million from Braemar Energy Ventures and Excell Partners.

Saab Ventures, the VC arm of Swedish car maker Saab, has acquired a 60% stake in PerformIT Systems, a Swedish developer of software for the emergency services.

Buyout Deals

Chinese hotel chain Hanting Hotels has raised $85 million from CDH Venture Partners, IDG-Accel China Growth Fund, Chenwei Ventures, Northlight Venture Capital and PinPoint Capital according to local reports.

Rutland Partners, the UK private equity partnership, has acquired Attends Healthcare Holdings from 3i for €93.5 million. Attends is the trading name of the European operations formerly known as PaperPak was acquired by 3i in 2002.

SDI Media Group, a subtitling and language dubbing service, is being acquired by Elevation Partners from Warburg Pincus. Financial details are undisclosed. The new $1.9 billion, New York and San Francisco-based private equity firm is made up of five partners: Fred Anderson, former CFO of Apple Computer; Bret Pearlman, former senior managing director of The Blackstone Group; Marc Bodnick, a founding principal of Silver Lake Partners; Roger McNamee, co-founder of Silverlake Partners and Bono, lead singer and co-founder of the rock band U2.

Hadera, Israel-based Alliance Tire Company has been acquired by Warburg Pincus and Yogesh Mahansaria, the former CEO of Balkrishna Tyres in a $150 million transaction.

GMT Communications Partners, a UK-based private equity house, has added a ninth media company to its portfolio. The firm acquired Melita Cable, the leading telephone, broadband and television provider in Malta from Nasdaq listed Liberty Global and the Gasan group of companies for €170 million. GMT is backing the existing management team led by Philip Micallef to build on a strong local position. This acquisition makes GMT one of the most active European private equity investors in communications. The company’s other media investments are: the Netherland’s Casema, Ireland’s CMI, Germany’s PEPcom, Hungary’s Invitel, the Czech Republic’s Karneval, the UK’s Internet Network Services and Romania’s Mobifon.

WMG Capital, the private equity investing arm of Waterstone Group Holdings, acquired johnsson Group, a consulting and temp staffing firm focused on finance and accounting services. The seller is Altran Technologies. Terms were not disclosed.

The Riverside Company, a US-based private equity firm focused on the smaller end of the middle market, closed its third European fund. Riverside Europe Fund III at €315 million, exceeding the fund’s targeted amount of €250 million.

Beringea, the London-based manager of the ProVen VCTs, is leading a £2.2m investment in Harmony Media Group, a provider of digital film publishing for Vodafone, T-mobile, Trinity Mirror, Disney Mobile, IPC media, O2 and EMAP.

PE-Backed IPOs

Dolan Media, a Minnesota-based provider of professional services to the legal, financial and real estate sectors, is to IPO 10.5 million shares with an indicative price range of $13.50 to $15.50 per share. ABS Capital Partners, and Cherry Tree Investments have backed the firm since 1997, ABRY Partners, getting involved in 2004.

PE Exits

Motorola is to buy New Jersey-based software developer Leapstone Systems Inc., representing an exit for Accel Partners, Goldman Sachs Ventures, Mayfield Fund, New Enterprise Associates, Oak Investment Partners, Redwood Venture Partners, and Soros Fund Management.

Mountain Warehouse, a UK-based discount retailer of outdoor clothing and equipment, has been sold by NBGI Private Equity, in a £15m tertiary buy-out deal. The management team is acquiring a majority stake in the business as part of the deal that is backed by Kcaj, the investment arm of Arev UK. This disposal is the fifth for NBGIPE’s first fund and represents a return of six times the original cost of the investment generating an IRR of over 50%.

Denver-based Axiom Equity Partners is buying Colorado Strijpe Wright and Tisdall Leasing, two local companies that perform road maintenance. The deal is valued at less than $100 million.

Firms & Funds

Galen Partners, the US private equity firm that specializes in healthcare investing, has closed its fifth fund, Galen Partners V, on $250 million. The fund will continue in the footsteps of it predecessors, investing in healthcare information technology/outsourcing, medical devices and specialty pharmaceutical companies.

Investors in the Crescendo 4, one of the two Crescendo Ventures funds that imploded during popping of the tech bubble, received a letter from the firm two weeks ago informing them of the opportunity to sell their stakes to two unidentified secondary houses. The two seek to buy $35 million of LP interests in the 2000-vintage fund at 15% below NAV. It is thought that the two may also provide capital for new investments, according to reports from the Private Equity Insider.

The bank Sal. Oppenheim and CAM Private Equity, the €2.7 billion, Cologne-headquartered private equity house, are substantially intensifying their ongoing cooperation. Sal Oppenheim has increased its holding of CAM to become a majority shareholder.

Investcorp Private Equity, a London Stock Exchange listed private equity houses will announce full year results at the end of the month. But in terms of highlights, the group has made more that $2.8 billion in new acquisitions for which it employed over 4800 million of equity. The group acquired four companies in the last calendar year: Icopal, a roofing company; Greatwide, an American transport company, Armacell, a technical insulation producer and Moody International a mine inspection firm. Investcorp launched two funds this year. Investcorp Private Equity 2007 Fund has reached first close on $620 million. The Gulf Growth Capital Fund sized at approximately $1 billion is still in the process of fund raising and will invest in the GCC and MENA regions.

Human Resources

ACP Capital Limited, the Jersey, UK-based merchant bank focused on small and medium sized enterprises in Europe, has appointed Lyndon Miles as head of finance. He will be responsible for the origination of non-investment grade debt opportunities. Miles, 43, has 10 years of UK and continental European debt market experience, most recently at Investec where he was responsible for establishing and managing Investec’s specialised lending division within its capital markets business.

Canaan Partners, a California-headquartered $2.4 billion VC, has named Alok Mittal as a managing director. Mittal joined Canaan in March 2006 to launch the firm’s Indian office in New Delhi. He invests in innovative digital media, wireless, software and services companies.

Headwaters MB, a mid-market investment banking firms in the US Rocky Mountain West, hired Chris Battel as a managing director. Battel was most recently the co-founder and president of Legacy Securities, a boutique investment banking firm.