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Term Sheet — Friday, September 26

Random Ramblings

What on earth was Versant Ventures thinking?

In July 2013, the healthcare-focused venture capital firm announced that it had hired Jim Mazzo as an operating partner. In the accompanying press release, Versant noted how Mazzo also would be installed as CEO of portfolio company AcuFocus, and that previously was CEO of a company that was sold to Abbott Labs in 2009 for $2.8 billion. Not mentioned was how the Securities and Exchange Commission had charged Mazzo with insider trading related to that big sale, and that some others involved in the case already had been indicted in federal court.

Which brings us to this week, when Mazzo also was on the short end of a 41-count federal indictment. If Versant didn’t see this coming, then it had wrapped a few towels around its eyes and stuck its head in a bucket of mud. Or else, for whatever reason, it just doesn’t care.

The underlying case is that Mazzo allegedly discussed his company’s sale negotiations with friend and neighbor Doug DeCinces, who is best known as a Major League Baseball player in the 1970’s and 1980’s. DeCinces then allegedly used the nonpublic information to buy 90,000 shares in Mazzo’s company, called Advanced Medical Optics, which later announced the Abbott acquisition at a massive premium. Not only did DeCinces book around a $1.3 million profit on the trades, but he also told at least three of his friends, including former Baltimore Orioles teammate Eddie Murray.

Murray settled with the SEC, and has not yet been brought up on criminal charges. DeCinces and his friends also settled with the SEC, but are scheduled to go on trial for the criminal charges next February. That date may get moved back, now that Mazzo has been added to the defendants table.

Mazzo’s attorneys said that their client plans a “vigorous” defense, but calls to Versant Ventures were not returned. Also no response from AcuFocus, which has raised more than $85 million in VC funding from such firms as Versant, The Carlyle Group and Medtronic. For more (including a copy of the indictment), please go here.

 Counter-culture: A growing number of venture capital firms have been raising so-called “opportunities funds,” which are designed to make larger bets either in existing portfolio companies or select growth equity plays. But one of the practice’s originators, August Capital, is going in the other direction.

Back in 2000, August took advantage of an opportunity to participate in a $2 billion buyout for hard-drive maker Seagate. The only problem was that its commitment took up around one-third of its fund. So August decided to begin raising $250 million side vehicles to handle strategic opportunities, and has done so for each of its last three fundraises (no fees are charged on the side-funds until capital is called).

But when August returns to market later this year to raise its sixth fund, there will be no sidecar. Two basic explanations, according to sources familiar with the situation: (1) Having multiple funds can create conflict among LPs. (2) For some of August’s smaller LPs and fund-of-funds, the extra commitment ties up capital that otherwise could be committed elsewhere, even though it might not be used (for example, the most recent sidecar wasn’t tapped). 

No word yet on how much August is seeking to raise for its next fund, except that it will be smaller than the last one (i.e., smaller than the last core fund plus overage fund). The firm declined comment, natch.

• Ipso facto: A Democratic state senator in New Jersey is proposing a new pay-to-play law that would prevent the state pension from awarding investment contracts to firms whose executives have contributed to national political parties. If such legislation is required, wouldn’t that mean that such contributions are legal under current law? Someone should tell the state’s AFL-CIO and the small handful of reporters who keep regurgitating their careless accusations of impropriety.

• Law of threes: Today’s big financial markets story is that “bond king” Bill Gross has left Pimco in order to join Janus. There’s all sorts of speculation this morning that the move wasn’t entirely voluntary, but here’s an angle I was considering:

CalPERS, the nation;s largest public pension fund, recently pulled out of hedge funds, arguing that it was too large to properly play the asset class. Harvard, the nation’s largest endowment, reported below-market returns, with one source arguing to me that it is too large to match returns of its smaller rivals. And now the head of the largest bond fund is out, after that fund has struggled with both performance and customer retention — in order to basically make the exact same investments on a smaller scale (and Janus stock is up around 40% on the news, with traders apparently expecting major capital inflows). So my basic question: In today’s financial markets, can you be too big to succeed?

 Have a great weekend… 

THE BIG DEAL

 Intel Corp. (Nasdaq: INTC) has agreed to pay upwards of $1.5 billion for a 20% stake in Chinese chipmakers Spreadtrum Communications and RDA Microelectronics, via a deal with Chinese government-affiliated private equity firm Tsinghua Unigroup. Read more

VENTURE CAPITAL DEALS

• E la Carte, a Redwood City, Calif.-based maker of customer-facing tablets for restaurants (a.k.a. Prestro), has raised $35 million in new VC funding. New investors include Intel Capital, Romulus Capital, TriplePoint Capital and Sam Altman, while return backers were Y Combinator, SV Angel and Drew Houston. www.elacarte.com

• CommonFloor, an India-focused real estate portal, has raised $30 million in VC funding from existing shareholder Tiger Global. www.commonfloor.com

• Taulia, a San Francisco-based platform for supplier financing, has raised $13 million in new Series D funding from BBVA Ventures and EDBI. This brings the round total to $40 million, including an earlier close. Investors in the first close included Klaus Hommels, DAG Ventures, Matrix Partners, TELUS Ventures and Trinity Ventures. www.taulia.com

• Freee, a Tokyo-based provider of automated online accounting software for small and mid-sized buisnesses., has raised $6 million in Series B -2 funding from Pavilion Capital and Recruit Strategic Partners. It previously raised an $8 million Series B-1 round from DCM and Infinity Ventures. www.freee.co.jp

• GetFeedback.com, a San Francisco-based customer feedback app, has raised $2.3 million in Series AA funding led by Salesforce Ventures. www.getfeedback.com

• Qzzr, a Lehigh, Wash.-based online quiz platform, has raised $2 million in seed funding. Kickstart Seed Fund led the round, and was joined by Pelion Venture Partners, Peterson Partners, RPM Ventures and individual angels. www.qzzr.co

• Zyga Technology Inc., a Minnetonka, Minn.-based developer of minimally-invasive solutions for “underserved areas in spine,” has raised $2 million in new VC funding. It also secured $8 million in venture debt from Silicon Valley Bank. www.zyga.com

• MemSQL, a San Francisco-based developer of database management software, has raised an undisclosed amount of funding from In-Q-Tel. The company previously raised around $45 million from firms like Accel Partners, Khosla Ventures, Data Collective and First Round Capital. www.memsql.com

PRIVATE EQUITY DEALS

 Bensussen, Deutsch & Associates, a Woodinville, Wash.–based provider of marketing and branded merchandise solutions to Fortune 1000 companies, has secured $75 million in financing commitments from American Capital Ltd. www.bdainc.com

• The Blackstone Group has made a “significant investment” into Xinrong Best Medical Instrument Co., a Chinese manufacturer of orthopedic implants for trauma, spine, and joint applications. www.blackstone.com

• Interim Healthcare Inc., a Sunrise, Fla.-based portfolio company of Halifax Group, has acquired Just Better Care, an Australian franchisor of in-home non-medical and medical care services. No financial terms were disclosed. www.interimhealthcare.com

IPOs

• Coherus BioSciences Inc., a Redwood City, Calif.-based biologics platform company focused on biosimilars, has filed for an $86.25 million IPO. It plans to trade on the Nasdaq under ticker symbol CHRS, with J.P. Morgan and Credit Suisse serving as lead underwriters. The company reports a $50.2 million net loss on $8.6 million in revenue for the first half of 2013. It has raised around $100 million in VC funding, from firms like Lilly Ventures (11.17% pre-IPO stake), KKR (9.67%), Sofinnova Ventures (8.28%), Venrock (7.65%), RA Capital Management, Rock Springs Capital, Fidelity Biosciences and Vivo Capital. www.coherus.com 

• Hubspot Inc., a Boston-based provider of a marketing and sales SaaS platform, has set its IPO terms to 5 million shares being offered at between $19 and $21 per share. It would have an initial market cap of approximately $607 million, were it to price in the middle of its range. The company plans to trade on the NYSE under ticker symbol HUBS, with Morgan Stanley, J.P. Morgan and UBS serving as lead underwriters. Hubspot reports a $17.7 million net loss on around $51 million in revenue for the first half of 2014, compared to a $16.43 million net loss on $35 million in revenue for the year-earlier period. Hubspot has raised around $100 million in VC funding, from firms like General Catalyst Partners (27.1% pre-IPO stake), Matrix Partners (17.1%), Sequoia Capital (10.3%), Scale Venture Partners (6.8%) and Charles River Ventures (5%). www.hubspot.com

• Peak Resorts, a Wildwood, Mo.-based ski resort operator, has withdrawn registration for an $85 million IPO. The company originally filed for the IPO in 2011, and blamed poor market conditions in that year for its withdrawal yesterday. www.peakresorts.com

EXITS

• Blackhawk Network (Nasdaq: HAWK) has agreed to acquire Parago Inc., a Lewisville, Texas–based provider of customer incentive and engagement solutions, for approximately $290 million. Sellers include TH Lee Putnam Ventures and Seaboard Ventures. www.parago.com

OTHER DEALS

• Banco Espírito Santo is in “early-stage” talks about selling off its investment banking arm, according to the WSJ. The Portuguese bank received a bailout just last month. Read more

• DirecTV (Nasdaq: DTV) shareholders yesterday approved the company’s pending $48.5 billion sale to AT&T (NYSE: T). Read more

FIRMS & FUNDS

 No firm or fund news this morning.

MOVING IN, UP, ON & OUT

 Robert Eckert, former chairman and CEO of Mattel Inc., has joined private equity firm FFL as an operating partner. www.fflpartners.com

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