Clayton, Dubilier & Rice this week sent out its annual letter to limited partners, and peHUB has gotten itself a copy. You can read it here. The first few pages lay out the private equity market's dire straights, and how CD&R can capitalize on the environment. Self-serving, to be sure, but standard for such letters. Then there also are a dfew newsworthy nuggets, including that partner Edward Liddy is expected to return once he's "completed his work" running AIG (a moving target to be sure). What did surprise, me however, was they way in which CD&R has been valuing its portfolio companies. All private equity firms are required to use mark-to-market for the Q4 period, and about half of them began doing so by Q3. CD&R was not among the early adopters
2 min read · 19 December 2008
Paul Graham recently suggested that venture capitalists could actually be a victim of the recession, because they will be decoupled from entrepreneurs who learn to live without. He wrote, in part: "The reason startups no longer depend so much on VCs is one that everyone in the startup business knows by now: it has gotten much cheaper to start a startup. There are four main reasons: Moore's law has made hardware cheap; open source has made software free; the web has made marketing and distribution free; and more powerful programming languages mean development teams can be smaller. These changes have pushed the cost of starting a startup down into the noise. In a lot of startups—probaby most startups funded by Y Combinator—the biggest expense is simply the founders' living expenses. We've had startups that were profitable on revenues of $3000 a month." My initial reaction is that Graham bought some Web 2.0 blinders, in that the above argument does not apply to large swathes of the startup community (particularly most life sciences and cleantech efforts). I’m also not sure I agree with a concurrent Graham argument that VCs will slow down their investment pace as drastically as they did in 2002. After all, that drop was dramatically lengthened because VCs had been so gregariously reckless in the preceding years. Say what you want about VCs in the 2003-2008 era, but no one can say they've been investing as much cash as they did between 1998 and 2001. But then I’m a bit conflicted, because the types of deals Graham is talking about are the very types of deals VCs may need
3 min read · 19 December 2008
* Credit Crunch: The board game. * Chris Cox: The buck stops everywhere else. * Morning Call: U.S. futures point lower, European shares fall in early trading, Nikkei slips after BOJ rate cut and Hong Kong falls on HSBC. * Battery Ventures has a holiday game of Snow Invaders for you to play. * Carl Icahn: Is North Dakota the new Delaware? * Carney's got photos of where Bernie Madoff's accountant is likely holed up.
1 min read · 19 December 2008
I have never used this space to write about the protracted battle between Huntsman Corp. and Hexion Specialty Chemicals. And it would seem that the opportunity has passed me by, given that both sides recently agreed to a termination of their $6.5 billion merger agreement, and to a $1 billion settlement of Huntsman’s litigation against Hexion owner Apollo Management. But I beg of your indulgence, because I’ve been left with a nagging question since the settlement was announced on Sunday night: Namely, who exactly is paying the various pieces of that $1 billion? To be sure, it isn’t all coming out of Leon Black’s pocket. Perhaps more importantly, some of the pockets involved seem to be getting picked. What follows is based on interviews with limited partners in some, or all, of Apollo’s past four funds. In addition, peHUB has obtained confidential correspondence that Apollo sent its investors on December 15. Apollo itself declined to comment.
4 min read · 18 December 2008
Buyouts Magazine is now accepting nominations for its 9th annual Deals Of The Year Awards, which honor the best majority-stake transactions, LBO firms and other industry participants. Yeah, we get the irony -- but tradition is tradition. Like we did last year, the awards will focus on exits, rather than new deals, in order to ensure that successful transactions are recognized. Awards will be announced at the Buyouts Awards Dinner, which is part of Buyouts East at New York's Grand Hyatt Hotel on March 26. For more information about award categories, nominee qualifications and how to submit nominees, please refer to this downloadable document. Good luck to all!
1 min read · 18 December 2008
* A requiem for private equity. * Obama names Chris Cox's incoming replacement. * Henry Markopolos is this month's Peter Schiff. * Morning Call: Wall Street futures mixed, with Oracle and FedEx numbers expected, FTSE is flat at mid-day, Nikkei and Hong Kong keep rising. * Mike Arrington says TechCrunch will no longer honor PR embargoes it agrees to, unless it is guaranteed exclusivity. Shameless ploy to get more exclusives for TechCrunch. If you agree to something, have some integrity and stick by your word. That stands even if you don't like the overall system. It's not that hard to just say "no thanks." As for Arrington's complaint that the first reporter (i.e., an embargo-breaker) gets top billing on news ranking sites like TechMeme, he is right that TechMeme has little journalistic conscience(although Gabe says he's trying to fix that). But Arrington ignores that the broken system often benefits his well-branded site. For example, TechCrunch sometimes gets higher TechMeme billing for a story peHUB broke, than does peHUB (even if TechCrunch gave us credit in its own story). In other words, this all is a bit like the queen complaining her cake isn't spongy enough.
2 min read · 18 December 2008
Zonare Medical Systems Inc., a Mountain View, Calif.-based developer of ultrasound systems for diagnostic imaging, has withdrawn registration for an $86.25 million IPO. It had planned to trade on the Nasdaq under ticker symbol ZONE, with Citi and Piper Jaffray serving as co-lead underwriters. The company has raised around $171 million in total VC funding since 1999, from firms like Frazier Healthcare Ventures (25.2%), 3i Group (18.4%), Earlybird Venture Capital (13.9%), Draper Fisher Jurvetson (13.2%), Mosaix Ventures (9.9%) and CB Healthcare Ventures (7.1%). Zonare is the fourth VC-backed company to withdraw an IPO filing this week, following Aegerion Pharmaceuticals, Epocrates and TransMedics. That leaves just 26 such companies in registration for IPOs. Go here for the full list of remaining VC-backed IPO candidates here. Buyout-backed IPO candidates also are listed.
1 min read · 17 December 2008
HRJ Capital, the fund-of-funds manager formed in 1999 by a pair of ex-NFL stars, has hit its two-minute warning. The San Francisco-based firm is unable to pay back a $68.9 million warehouse loan it received from Silicon Valley Bank, and is now negotiating a settlement that could include SVB taking over management of HRJ's funds (with some HRJ pros likely joining SVB). If that were to happen, SVB would use the management fees to slowly pay off the debt. Also worth noting that "negotiating" is a very soft word for what's going on, given that SVB basically holds all the cards here.
4 min read · 16 December 2008
TransMedics pulled its IPO registration yesterday, making it the third VC-backed candidate to bail so far this week (following Epocrates and Aegerion Pharmaceuticals). Overall, 39 VC-backed companies have pulled IPO registrations in 2008, including 11 this quarter. That leaves just 27 such companies in active registration, with none expected to price by year-end. The buyout-backed pipeline isn’t much stronger, with just 39 companies in registration to price on U.S. exchanges. That includes Talecris Biotherapeutics, which has agreed to be acquired. Here’s a downloadable spreadsheet of the VC-backed and buyout-backed companies still in registration.
1 min read · 16 December 2008
* We're from the Fed, but unfortunately don't have the authority to lend Lehman any emergency funds. What's that? It's just gone Chapter 11? Ok, then now we can lend it $138 billion. * Robert Chew: How I got screwed by Bernie Madoff. * Morning Call: U.S. futures mixed ahead of Goldman and the Fed, FTSE rises on drugs, other European stocks also up at mid-day, Nikkei down and Hong Kong up. * Owen thinks that Facebook's new valuation is between $1.3 billion and $2.3 billion. This sounds like a major drop from the $15 billion pricetag Microsoft put on its investment last year, until you remember that Microsoft gave that figure as part of a larger strategic arrangement -- rather than as a pure venture capital investment. In other words, it was a bogus valuation to begin with. * Profitable until deemed illegal: Atwood on online auction site Swoopo. * National Geographic: The real price of gold.
1 min read · 16 December 2008
