DealMarketDigest_Issue 53

DIGEST

53

SEE WHAT’S NEW AND NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 53

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Customers and angels - new sources of early stage capital?

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VC Continues to Target Internet and Healthcare

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Billions and Billions Ignored • Why The Media Shuns Family-run Businesses

Mega-deals of the Week: Interline and Kyobo Life Sovereign Wealth Funds Slow Pace of PE Investment • Preqin Study

• Preqin Study

Facebook’s Millionaire Tycoons Quote of the Week: Matchmaking GPs and LPs

June 01, 2012

CUSTOMERS AND ANGELS - NEW SOURCES OF EARLY STAGE CAPITAL? The media’s attention to crowdfunding has not diminished in recent weeks. GigaOm published three articles this week on the topic. One article is about the trend of raising capital from customers. Instead of raising money from venture capitalists or angel to build a product, entrepreneurs can reach out to customers before the product is actually produced. The idea is that customers pre-order products, products that don’t actually exist yet.

The funders or customers do not receive equity, rather the get the product or a gift. The capital is raised on platforms like Kickstarter, which we covered recently here on Dealmarket Digest, which originally marketed creative projects and recently added consumer-oriented projects.

Two other platforms were profiled this time ones for startup companies. It profiled Fundable, a US-based platform that offers equity and/or rewards to crowdfunders. And in a third article it profiled Seeders, an FSA authorized crowdfunding platform for businesses that are willing to trade equity for capital. It recently raised GBP1 million from DFJ Esprit, Luke Johnson’s Digital Prophets, and a number of angels.

Over in the UK, the Telegraph reported that Funding Circle, is currently lending more than GBP 1 million per week to small businesses, raising the money from private individuals who can lend a minimum of just GBP20. Since it was launched in 2010, Funding Circle has lent a total of £32m to 750 firms. And Crowdcube, which enables individuals to invest smaller amounts for a slice of equity, so far providing GBP 2.8 million in funding to 18 firms.

BILLIONS AND BILLIONS IGNORED An interesting article about the lack of media coverage of family-owned business, published

by CampdenFB, contrasts the business press attention to companies like Facebook with privately owned companies. The article caught our eye because family-run companies are of interest to PE investors as targets but also potential acquirers of portfolio firms.

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They also often have a family office for investing and preserving their wealth, and angel investing. The author points out that the business media practically ignores unlisted (and family-owned) companies, such as German-based Schwarz Group and Haniel that had respective revenues of EUR 64 billion and EUR 27.8 billion last year, or France’s Sonepar, whose turnover last year was EUR 15 billion, and USbased Tyson Foods with revenues of around EUR 23.89 billion. Each of these companies has much greater revenues that recently listed Facebook. The report suggests that many of these non-listed companies like the fact that the media doesn’t write about them. Many like being secretive and block journalists’ enquiries. But most don’t even have to be secretive because journalists don’t bother trying to find out information about them in the first place. It concludes that more transparency would bring about more attention.

The same publication also published its list of 100 top family businesses in Europe, an interesting read that shows the massive scale of some of the region’s family-owned businesses.

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MEGA-DEALS OF THE WEEK: INTERLINE AND KYOBO LIFE The deals of the week are Interline Brands, a USD 1.1 billion private equity transaction involving Goldman Sachs Capital and P2 Partners. The other transaction underway is the buyout of Kyobo Life in deals worth up to USD1.4 billion, as reported by Reuters. Daewoo International Corp and state-run Korea Asset Management Corp are offering about a one-third stake in the life insurance company in two separate sales. Many of the bidders are private equity consortia.

Interline said that the deal had full support of shareholders and that in addition to equity from funds managed by GS Capital Partners and P2 Capital Partners, it anticipated that certain members of management would invest a portion of proceeds from the transaction into the new entity. GS Capital Partners and P2 Capital Partners secured debt financing from Goldman Sachs and Bank of America.

SOVEREIGN WEALTH FUNDS SLOW PACE OF PE INVESTMENT

Image source: Preqin SWF Report

In past years Preqin predicted that more sovereign institutions would begin allocating to alternatives and Preqin was right. There has been an increase in the proportion of institutions investing in alternative assets between 2009 and 2011. In 2012, however, Preqin notes that there are indications that this process has slowed, with older institutions having already completed their return and newer institutions still in the early stages of considering their strategic allocations.

It reports that the overall levels of capital flowing into alternatives from sovereign wealth funds “remain extremely significant�. Preqin says that as new funds are launched and sovereign wealth fund plans are put into formation, it is clear that this group of investors will remain an important potential source of capital for investment managers worldwide. The above graphic shows that over half of sovereign wealth funds are known to invest in the private equity asset class. A further 11% gain exposure to private equity through direct investments.

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VC CONTINUES TO TARGET INTERNET AND HEALTHCARE This year, VCs are continuing to target companies operating in the internet sector. The segment has received both the highest number and the highest aggregate value of financings globally, according to Preqin’s latest research. The internet sector includes e-commerce and social networking platforms. It captured over a quarter of all deal volume.

Image source: Preqin VC Special Report

The next most popular segment healthcare sector, with just under a fifth of the number and aggregate value of deals. Early-stage medical technologies, medical devices and pharmaceuticals companies are part of this sector. Healthcare as a target is closely followed by the software industry, with 15% and 14% of the number and aggregate value of global financings, respectively.

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FACEBOOK’S MILLIONAIRE TYCOONS Just like PayPal, eBay, Apple and Google, the early employee-shareholders of Facebook became millionaires, many of whom are now entrepreneurs or angels. A NY Times article maps the trend.

We listed a few examples from the article here: • • • •

Matt Cohler employee No. 7 at Facebook, is now a partner at Benchmark Capital.

Adam D’Angelo, a former chief technology officer at Facebook, is a founder of Quora.

Ruchi Sanghvi was Facebook's first female engineer and helped start Cove.

David Morin founded Path, a photo-sharing application. Path is also bankrolled by one of Facebook’s venture backers, Greylock Partners.

• Aydin Senkut, a former Googler, began investing in his friends’ business endeavors. He kicked in what he described as about 10 percent of his net worth to a dozen start-ups. One of them, Aardvark, a social search engine, was bought by Google in 2010.

Hervé Lebret, Swiss b-school professor and author of Startup: the book mapped the network in the above diagram on his blog.

QUOTE OF THE WEEK: MATCHMAKING GPS AND LPS "Our ambition is to unite the fragmented, multi-trillion dollar global private equity fund community."

Image source: Palico

Who said it: Antoine Dréan, founder and CEO of Palico SAS and founder of Triago.

In Context: PE Hub profiles the launch of Palico, a new platform for matching PE funds, LPs, and secondary deals. Dréan is a Wharton B-school graduate and French private equity innovator. He founded placement agent Triago while at university and runs a hedge fund that agitates for shareholder value of listed private equity funds. He says the portal does not aim to put placement agents out of business. Palico is a flat-fee subscription based service, with rates differing by the business activity of the subscriber. The report says that membership is about 50% LP, 30% GP and 10% advisors, which means it is an LP-heavy database, so far.

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The Dealmarket Digest empowers members of Dealmarket by providing up-to-date and high-quality content. Each week our in-house editor sifts through scores of industry and academic sources to find the most noteworthy news items, scoping trends and currents events in the global private equity sector. The links to the sources are provided, as well as an editorialized abstract that discusses the significance of the articles selected. It is a free service that embodies the values of the Dealmarket platform delivers: Professional, Accessible, Transparent, Simple, Efficient, Effective, and Global.

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Editor: Valerie Thompson, Zurich

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