Term Sheet — Friday, August 15

August 15, 2014, 2:27 PM UTC

Random Ramblings

When a venture capital firm hasn’t raised a new fund in nine years, and the majority of that fund’s partners have since moved on to other things, it usually is safe to assume that things didn’t go very well. That was certainly true for Bay Partners, a Silicon Valley venture firm formed in 1980 before effectively collapsing in the mid-aughts. Until it quietly rose from the ashes into the top quartile.

Bay Partners was founded in 1976, and raised a total of eleven funds. Great performance in the early years through the mid-1990s, but it somehow managed to falter while the dotcom bubble was lifting up most everyone else. The firm raised a large tenth fund in 2000 (which later was cut back to $385 million – as part of a broader post-crash trend) and even eeked out $290 million for a successor fund in 2005. But partners soon began jumping ship or, in some cases, were pushed off by firm co-founder Neal Dempsey. A trio of younger partners were promoted, but in 2010 left en masse. At that point, the firm’s tenth fund was performing worse than any other fund that had cut its size, with an IRR of negative 11.2%. Dempsey was effectively all alone, but soon hired veteran VC Stu Phillips to help manage out the legacy portfolio. And most of Silicon Valley stopped paying any attention.

But here’s the thing: Bay Partners actually had a lot of future winners in that legacy portfolio. Examples include Dropcam (bought by Nest Labs for $555 million), Zenprise (bought by Citrix for $327 million), Buddy Media (bought by Salesforce for $745 million), Eloqua (went public, then bought by Oracle for $957 million), Oncomed (went public, current $530 million market cap) and Guidewire (went public, $3 billion market cap). Plus more than two dozen still-private companies like LendingCub, Apigee, Xactly and Mulesoft.

As a result, returns have improved dramatically for its last two funds. Dempsey says that Bay Partners X has a 7.14% net IRR through the end of Q1 (9.8% gross IRR) and Bay Partners XI has a 10.57% net IRR (12.92% gross). Both likely would be top-quartile for their vintages, at least based on the unreliable benchmarks upon which we are forced to rely.

“A lot of the investments that we made took forever to mature,” Dempsey says. “Guidewire is a good example. We did the deal in 2002 and it went public in 2012. Or Eloqua, which we did in 2000 and it went public in 2012. Our LPs were wondering what had happened to us, and suddenly there’s a bonanza.”

On the firm’s personnel turmoil, Dempsey says: “I’ll take total responsibility for taking my eye off the ball and not helping some of the junior guys succeed, which led to people not feeling good about themselves and their role here. I was too busy with other things and am not the world’s greatest administrator. I also let us get to big, and didn’t do a good job making us get smaller in a manageable way.”

The obvious question, of course, is if Dempsey and Phillips will try to raise a successor fund. Strong performance could help them succeed, although they haven’t done new deals for years and some of Bay’s major successes were sourced by long-gone partners. He says that it’s a possibility, and that the pair also has been approached by some LPs about taking over legacy portfolios of other zombie firms. Bay Partners also could merge with another smaller firm.

“We’re still focused on this portfolio but retirement’s not in the picture for me, period.”

 Counterculture: Private equity firms often talk about how their portfolio companies gain competitive advantage by not having to publicly disclose their financial performance. In fact, a lot of larger LBO deals (including Dell) now include “Rule 144a for life” bonds rather than traditional leveraged loans, just to make sure their data doesn’t end up in columns like this.

So imagine my surprise yesterday when viewing the website of EQT Partners, a Sweden-based private equity firm whose current portfolio includes 60 companies with total revenue of around €25 billion. The firm provides top-line financial information for the vast majority of its portfolio companies, including revenue and EBITDA. I’m told that such disclosure is a regular source of conversation among EQT partners, but that the principle of “more transparency being better than less” wins out. Interesting chink in the conventional wisdom armor…

 Bon voyage cap'n: Today is the last day at Fortune for Andy Serwer, who has been in charge here for the past eight years. Overall he’s been with Fortune for nearly three decades, as one of its best journalists and creator of the old Street Life column (which Term Sheet shamelessly apes).

There is a lot I could say about Andy, who has been a wonderful boss, mentor and advocate since I came aboard four years ago. But let me just retell a quick anecdote:

During my second week on the job, Andy took me out to dinner in New York (along with a couple of other senior Fortune folks). At one point he mentioned that the magazine had just lost exclusive rights to excerpts from an important upcoming memoir, in part because I had written several negative columns about the author in my prior job (Fortune also had just published a freelance piece by someone who had been similarly disparaging, so there was some critical mass at play).

I immediately tensed up – people had warned me that Fortune had a reputation for being friendly with powerful people, and that my style of journalism may not mesh. Was I about to be gently told to go easy on the guy and his ilk? Did I make a giant mistake taking the job?

Then Andy just laughed heartily and shrugged his shoulders. I learned in that moment that he supports his writers to the hilt, even when he may not personally agree with their conclusions or if they cause him heartburn. It’s what any journalist would want in an editor, and I believe it has served you, dear readers, well over the past four years. You’ll be missed Captain.

 Have a great weekend...


 Samsung Electronics Co. has agreed to acquire SmartThings, a Washington, D.C.–based consumer Internet-of-things startup focused on the connected home. No financial terms were disclosed, but TechCrunch last week broke news of the talks and said that the deal would be for around $200 million. SmartThings had raised $15.5 million in funding from Greylock Partners, Highland Capital Partners, First Round Capital, SV Angel, Lerer Ventures, Yuri Milner’s Start Fund, A-Grade Investments, CrunchFund, Slow Ventures, Box Group and angel investors. www.smartthings.com 


 Greenhouse Software, a San Francisco-based recruiting optimization platform, has raised $7.5 million in Series A funding. Social+Capital Partnership led the round, and was joined by Resolute Ventures and Felicis Ventures. www.greenhouse.io

 GoGoVan, a Hong Kong-based platform for connecting van drivers with on-demand delivery requests, has raised $6.5 million in Series A funding led by Centurion Private Equity. www.gogovan.com.hk


 GTCR has formed Cedar Gate Technologies LLC, a Darien, Conn.-based acquisition platform focused on the healthcare data and analytics space. It will be led by David Snow, former chairman and CEO of Medco. No financial terms were disclosed. www.gtcr.com

GIC has acquired an 18.5% equity stake in Abril Educacao SA, a listed Brazilian education company. No financial terms were disclosed. www.abrileducacao.com.br  


 Product Shipping Ltd., a Greek operator of a petroleum tanker fleet, has filed for a $100 million IPO. It plans to trade on the Nasdaq, with Morgan Stanley serving as lead underwriter. Shareholders include AMCI Capital and Maas Capital Investments.

 ProQR Therapeutics Inc., a Dutch developer of RNA-based therapeutics for the treatment of severe genetic disorders, has filed for a $75 million IPO. It plans to trade on the Nasdaq, with Leerink Partners and Deutsche Bank Securities serving as co-lead underwriters. Shareholders include Sofinnova Capital (17.18% pre-IPO stake), Fidelity (11.26%) and Gilde Healthcare (5.3%). www.proqr-tx.com


 AAC Capital has hired ABN Amro to find a buyer for Strix Investments Ltd., an Isle of Man-based maker of safety control devices for kettles and coffee makers, according to Reuters. The deal could be valued at around $500 million. Read more

 NRG Energy (NYSE: NRG) has acquired Goal Zero, a Bluffdale, Utah–based maker of portable solar-powered devices. No financial terms were disclosed. Goal Zero had raised VC funding from Mercato Partners, In-Q-Tel and Sorenson Capital. Read more.


 Ask.com, a unit of IAC/InterActiveCorp (Nasdaq: IACI) has acquired Ask.fm, a Q&A website that allows anonymous questioners. No financial terms were disclosed. www.ask.fm

 Coca-Cola (NYSE: KO) has acquired a 16.7% stake in energy-drink maker Monster Beverage (Nasdaq: MNST) for $2.15 billion. Coke also has the right to increase its stake to upwards of 25% over the next four years, but not higher unless it receives Monster’s approval. Read more.

 Phaidon Press, a London–based art book publisher owned by private equity executive Leon Black, has agreed to acquire online contemporary art dealer Artspace.com. No financial terms were disclosed. www.phaidon.com

 Sprinklr, a New York-based social relationship platform, has acquired TBG Digital, a London-based provider of Facebook advertising solutions, for an undisclosed amount. Sprinklr has raised raised over $60 million in VC funding from such firms as Battery Ventures, Intel Capital and Iconiq Capital. www.sprinklr.com


 No firm or fund news this morning...


 Tim Danford has joined Intel Capital as an investment director, according to his LinkedIn profile. He previously was a venture partner with Lightspeed Venture Partners and, before that, was a managing director with Storm Ventures. www.intelcapital.com  

 Mounir Guen, founder and CEO of private equity placement agent MVision, is relocating from London to Hong Kong. www.mvision.com

 Benjamin Hoch has joined Wilson Sonsini Goodrich & Rosati as a New York-based partner focused on bankruptcy and corporate restructuring. He previously was with Covington & Burling. www.wsgr.com

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