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Term Sheet — Friday, February 20

February 20, 2015, 3:07 PM UTC

Death of a VC Giant

For decades, Austin Ventures was more than just the largest and most powerful venture capital firm in Texas. It was one of the largest and most powerful venture capital firms in the world.

But now it's a zombie, slowing decaying into little more than a memory.

Austin Ventures has formally decided to stop being... well, a venture capital firm. Instead, some of its general partners will head out to raise a mid-market buyout fund, while another plans to launch his own early-stage "pledge fund," which will include another general partner as an investor. Neither group is expected to use the "Austin Ventures" name. Both sides will continue to manage out an existing portfolio of around 50 companies.

For the uninitiated, Austin Ventures was formed in the late 1970s and raised a total of 10 flagship funds. During most of that time, the firm focused on Series A and Series B rounds, with a particular emphasis on local tech startups. Its most recent fund was a $900 million vehicle that closed in late 2008, which included a $300 million "opportunity pool" for growth equity and/or buyout transactions.

But when Austin Ventures went out to raise its eleventh fund, it didn't find many takers. Returns were mediocre, with some LPs believing that the later-stage deals were stronger than the earlier-stage ones. It also didn't help that two of the firm's growth equity investors -- Phil Siegel and David Lack -- left to launch their own firm (Tritium Partners). Moreover, Siegel had been a key-man on AV's tenth fund, meaning that he had some leverage in taking his track record with him.

So AV decided it would raise two separate funds: One focused on early-stage, and one focused on mid-market buyouts (given that the lead growth equity guys were now gone). But LPs still didn't bite. So the next plan was to raise the split funds one at a time. Again, no dice.

At this point, a decision was made to actually divide the firm. Three partners -- Chris Pacitti, John Thornton and Tom Ball -- would launch a new effort named Outfit Ventures, and set out to raise $150 million for early-stage deals. Shortly before holding a first close on around $75 million, the partnership fell apart (I don't know all the internal specifics).

Pacitti then unveiled his apparent backup plan, a pledge fund that would focus on Series B and Series C rounds for promising companies that have not yet achieved typical Series B or Series C round growth metrics (typically with revenue of between $5m-$15m). Thornton agreed to be involved (at least as an investor), but Ball is considered unlikely to participate.

The other side of Austin Ventures, led by Joe Aragona, already has begun talking with LPs about its mid-market buyout fund. It's still technically possible that it will stick with the Austin Ventures name, but those close to the situation consider it to be highly unlikely.

As for what all this means for Austin's entrepreneurial ecosystem, probably not too much. Not anymore. AV has been slowing down its early-stage deal activity for several years -- and doesn't even have any dry powder left in Fund X for new deals. Plus, Pacitti will still be in market.

For venture capital, however, AV should stand as a stark reminder that even the largest firms can fall. And fall quickly. Remember, AV's last fund was a whopping $900 million. And it never was able to raise another one.

Update: Last fall we reported that DJ Patil, a former Greylock Partners "data scientist n residence," was one of the finalists for the U.S. Chief Technology Officer job that ultimately went to Google's Megan Smith. At the time, Patil was head of product at RelateIQ.

Now it seems that Mr. Patil is headed to Washington after all, having recently been named the first-ever U.S. Chief Data Scientist (reporting to Smith). My former colleague Jessi Hempel has more here.

Delayed gratification: Yes, I know we were supposed to do a feedback column today. Apologies. Will get to it Monday (hopefully).

Have a great weekend... 


 Bayer AG (DB: BAYN) is in talks to sell its diabetes devices business to Panasonic Healthcare Holdings, a portfolio company of KKR, according to Bloomberg. The deal could be worth upwards of $2.3 billion, although Reuters reports that the deal is not “imminent.” Read more.


Livefyre, a San Francisco-based real-time content marketing and engagement platform, has raised $47 million in new VC funding. Backers include Adobe, Cue Ball, Greycroft Partners, Hillsven Capital, Salesforce Ventures and U.S. Venture Partners.  The company previously raised around $35 million. Read more.

Instructure, a Kansas City–based provider of a SaaS-based learning management system, has raised $40 million in Series E funding. Insight Venture Partners with Bessemer Venture Partners co-led the round, and were joined by EPIC Ventures.

Synack, a Redwood City, Calif.-based system for crowdsourcing and managing security testing, has raised $25 million in Series A funding co-led by GGV Capital and Icon Ventures.

Urban Airship, a Portland, Or-based provider of mobile apps for raising brand awareness, has raised $21 million in new Series D funding. It previously held a $25 million first close on the round in 2013. Investors include August Capital, Foundry Group, Franklin Park Associates, QuestMark Partners, True Ventures and Verizon Ventures.

Sqrrl, a Cambridge, Mass.-based provider of big data analytics for identifying and responding to cyber threats, has raised $7 million in Series B funding. Rally Ventures led the round, and was joined by return backers Atlas Venture and Matrix Partners. Read more.

SkyGiraffe, a Menlo Park, Caif.-based enterprise mobility startup, has raised $3 million in Series A funding. Trilogy Equity Partners led the round, and was joined by return backer 500 Startups.

Revmetrix, an Arlington, Va.-based provider of omnichannel customer intelligence for retailers, has raised $2.2 million in seed funding co-led by Genacast Ventures and .406 Ventures.

Triptease, a UK-based provider of digital tools that “create better experiences and relationships between hotels and guests,” has raised $2 million in seed funding from Episode 1 Ventures and Notion Capital.

Ledger, a French provider of smartcard security solutions for Bitcoin wallets and digital identities, has raised €1.3 million in seed funding. XAnge Capital led the round, and was joined by Hi-Media Group, Alain Tingaud Innovations and individual angels.


 Caraustar Industries Inc., a portfolio company of H.I.G. Middle Market, has acquired The Newark Group, a Cranford, N.J.-based manufacturer of recycled paperboard, linerboard, industrial tubes, cores and other converted products. No financial terms were disclosed.


 eASIC Corp., a Santa Clara, Calif.-based fabless maker of zero mask-charge ASIC chips, has filed for a $75 million IPO. It plans to trade on the Nasdaq under ticker symbol EASI, with Morgan Stanley and Deutsche Bank Securities serving as lead underwriters. The company reports a $1 million net loss on $67 million in revenue during 2014. Shareholders include Khosla Ventures (20.8% pre-IPO stake), Crescendo Ventures (15%), Seagate (14.6%), Kleiner Perkins Caufield & Byers (8.8%), Evergreen Partners (7.8%) and Advanced Equities (5.9%).

 Infraredx Inc., a Burlington, Mass.-based developer of medical devices for the diagnosis and management of coronary artery disease, has postponed its IPO plans, according to Renaissance Capital. The company had planned to sell 4 million shares at between $13 and $15 per share, with with RBC Capital Markets, Canaccord Genuity and BMO Capital Markets serving as lead underwriters. It reports a $24.5 million net loss on $3.68 million in revenue for the first nine months of 2014. Infraredx has raised more than $175 million in equity funding from backers like Sanderling Ventures, Nipro Corp. and Eastwood Capital.


 3i Group has sold its remaining 4.7% stake in Phibro Animal Health Corp. (Nasdaq: PAHC) for £36 million. 3i reports that its total return from its Phibro investment is 1.7x.

 Criteo (Nasdaq: CRTO), a Paris-based display advertising company, has acquired DataPop Inc., a Los Angeles-based startup that connects products in a retailer's catalog to actual user shopping intent. No financial terms were disclosed. DataPop had raised over $9 million in VC funding from firms like Accelerator Ventures, IA Ventures, MK Capital, Rincon Venture Partners and Momentum Venture Management.

 MegaPath, a Costa Mesa, Calif.-based portfolio company of Platinum Equity, has agreed to sell its managed services business to GTT Communications (NYSE: GTT). The deal is valued at $152.3 million, including $144.8 million in cash.

 New Media Investment Group (NYSE: NEWM) has agreed to purchase Stephens Media LLC, a group of eight daily newspapers and 65 weekly publications in seven states, from Stephens Capital Partners. The deal is valued at $102.5 million in cash.


 Ann Inc. (NYSE: ANN) has hired J.P. Morgan to advise on a possible sale, according to Bloomberg. The retailer has a current market cap of around $1.6 billion.

 Berkshire Hathaway has agreed to acquire French biker gear maker Devlet Louis Motorradvertriebs for just over €400 million, according to the FT. Read more.

 BuzzFeed has agreed to acquire GoPop, a San Francisco-based maker of an app that effectively animates photos. No financial terms were disclosed. Read more.


 Man Group PLC has agreed to acquire the investment management unit of London-based NewSmith for an undisclosed amount. Read more.

 PetroCap, an energy-focused merchant bank, has closed its second oil and gas investment fund with $350 million in capital commitments.


 Jon Bradford is stepping down as head of TechStars London, according to TechCrunch. No word yet on his future plans. Read more.

 Geoff Neville has joined British private equity firm Lyceum Capital as an operations and development partner. He previously was a senior VP and member of the UK executive board at Atos SE.

 Frederik Wijsenbeek has joined Morgan Stanley Private Equity as an executive director, working on a $1.5 billion mid-market fund. He previously was an investment partner with Global Family Partners.

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