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VCs and entrepreneurs get real

Current market conditions have made doing business hard for the vast majority of companies in Europe and worldwide. But, as we noted in last week’s VentureCast newsletter, venture capital has no more to fear than other spheres of commercial activity and even has the potential to outperform.

Figures on deals and exits explain this better than words. Let’s take exits first, since the figures are in line with dampened expectations from most of the VC industry. According to VenturePedia, Library House’s proprietary database, exits in Europe fell from 45 in June to 33 in July and to just 12 in August. This tailing off over the summer is to be expected, but traditionally activity picks up dramatically in September. However,  VenturePedia shows just 14 exits from September 1 to the close of business on Friday - a paltry figure. Even more revealing about the appetite for venture exits is that the Library House database contains not a single IPO for the month to date, usually one of the busiest in the IPO calendar. This compares with a healthy 10 IPOs in June, including a huge flotation by German company PV Crystalox Solar, valuing it at more than $1bn.

In short, exits in general – and IPOs in particular – have fallen through the floor. At a time when lending between banks and from banks to companies has all but dried up, the appetite for risk also seems to have disappeared. The occasional trade sale or buyout appears to be the only real exit possibility.  

But what of dealflow? Here we see something altogether more surprising. It appears that VCs have been canny enough to hold enough cash to take advantage of the kind of depressed market conditions that currently prevail. According to VenturePedia, there were 118 deals in Europe this June, well down on the 138 deals in June last year. However, over the course of the summer, the picture was turned on its head. There were 132 deals in July - when market gyrations were at their giddiest - 95 in August and 120 so far this month. That compares with just 88 deals in July 2006, 76 last August and only 106 deals in the whole of September 2006. So dealflow, against many people’s expectations, has been remarkably buoyant over the last quarter.

It is always dangerous to read too much into raw numbers, but there is an unmistakeable pattern here: exits down, deals up. VCs would seem to be acting incredibly rationally in eschewing portfolio sales into anxious markets that are unwilling to pay premiums, while buying up assets from anxious entrepreneurs willing to accept discounts. Good Heavens, a rational market – whatever next?

The Week's Deals

Groupe CAIR, the France-based designer, manufacturer and distributor of medical devices and surgical equipment, has sold a minority stake in the company to 3i for €35m. Group CAIR, a family owned company founded in 1987, says that it has consistently achieved double digit growth since its creation and anticipates revenue of more than €50m in 2007. The company now intends to accelerate its international growth both organically and through acquisitions.

Cellerix, the Spain-based biopharmaceutical company developing and producing medicines based on the use of adult stem cells, has received €27.2m in series B funding from Life Sciences Partners, Ventech, Ysios Asset Management, Genetrix, Navarra Iniciativas Empresariales, Novartis Venture Fund, Roche, the company management and other undisclosed investors. Cellerix’s lead product, a treatment of complex perianal fistulas, has initiated a phase III trial and is expected by the company to reach the market by 2010. The funding will be used to complete the clinical development of this product, in addition to financing development of the company’s other pipeline products.

NemeriX, the Switzerland-based fabless semiconductor company, has raised $22m (€15.9m) in series C funding from Atila Venture Partners, Auriga Partners, Oak Investment Partners, PolyTechnos Venture-Partners and VI Partners. NemeriX specialises in ultra-low-power semiconductors and products for GPS and location-based services. It focuses on markets requiring high energy efficiency such as battery-powered wireless and handheld products.

AdvanDx, the US and Denmark-based provider of in vitro molecular diagnostic products designed to rapidly identify infectious pathogens, has raised $15m (€10.8m) in series C funding from Lønmodtagernes Dyrtidsfond, [[Scandinavian Life Science Venture]] and bioMérieux. AdvanDx says that in the US alone, 350,000 patients contract bloodstream infections each year, causing more than 90,000 unnecessary deaths. AdvanDx’s suite of molecular diagnostic products is designed to provide pathogen identification in hours instead of days. The funding is to be used to accelerate the commercialisation of the company’s product pipeline as well as to expand its research and development activities.

The Week's Exits

Prepay Technologies, the UK-based provider of prepaid card products and services, has been acquired by Accor Services for £50m (€71.4m). Prepay Technologies designs prepaid cards and manages payment authorisation platforms. British brands including Debenhams, Virgin Money, Ticketmaster, The Daily Mirror and Arcadia have chosen PrePay Technologies to operate their prepaid card programmes. Accor, which provides benefit schemes to help companies and organisations improve employee performance, says that the acquisition is part of a development strategy begun in 2006 to strengthen its leadership and expertise in each of its markets.

Band-X, the UK-based provider of outsourced voice services to the telecommunications industry, has been acquired by Invomo. Financial terms of the deal were not disclosed. Invomo, which is set to launch at the beginning of October, has been created through a combination of existing businesses serving the telecommunications industry. Invomo will be a public electronic communications network, licensed by Ofcom, that will supply a range of hosting services.

Sphera, the US and Israel-based provider of automation, provisioning, virtualisation and management software, has been acquired by SWsoft for an undisclosed amount. SWsoft is a provider of virtualisation and automation software designed to help consumers, businesses, and service providers optimise their use of technology. The acquisition is designed to accelerate the delivery of SWsoft’s software-as-a-service products.

People Moves

Wavetrend Technologies, the UK-based provider of active RFID products and services, has revealed that chief executive Chris Bishop recently left the company. Saleem Miyan, formerly vice president of worldwide sales, marketing and professional services at the company, has now taken over as chief executive.
 
ViroGates, the Denmark-based biotechnology company, has appointed Betina Macho as chief executive following the retirement of Ian Laquian, who had held the position since 2003. Mrs Macho takes over at a time when the company is focusing on commercialising its technology for monitoring patient disease progression in indications such as HIV and Tuberculosis.

Tribold, the UK-based provider of enterprise product management applications, has appointed John Rainger as chief executive. Mr Rainger joins from Openet Telecom, where oversaw ten times revenue growth since 2002, and secured major customer wins including BT, Orange, Verizon, Cingular and Telstra.

Most Accessed Companies

Passado, the UK-based pan-European social networking website, has attracted a lot of attention this week. Passado offers standard social networking features such as blogging, customisable profiles, photo hosting and the ability to embed videos from video-sharing websites. At the time of Passado’s most recent funding round in late 2006, it was stated that the site had more than five million registered users. According to website analysis company Alexa, Passado’s page view statistics have steadily declined since that time.

Frontier Silicon, the UK-based fabless semiconductor company, has also received a lot of attention recently. Frontier Silicon creates integrated system-on-chip products for digital radio, television and other consumer multimedia electronics components. The company recently partnered with Fraunhofer IIS to deliver the world's first DAB+ radios. Compared to DAB, DAB+ allows a greater number of radio channels to be broadcast within a set radio spectrum. Frontier Silicon says that Australia has officially committed to transmit DAB+ in 2009 and many other countries are expected to follow suit soon.