Global Startup Blog : Startup Lawyer & Attorney : Reed Smith Law Firm : Corporate Law, Venture Capital

A few quick headlines on a Thursday afternoon:

• Just a few days after VMWare completed its acquisition of Zimbra, the Silicon Valley technology darling announced its intention to acquire certain assets from EMC.  The deal focuses on software products and expertise from EMC's Ionix IT management business in an all-cash transaction valued at up to $200 million.   Ben Verghese, Chief Management Architect, Virtualization and Cloud Platforms Business Unit, gave a bit of insight into the transaction on his executive blog.  VMWare is certainly keeping my former colleague and current Sr. VP and General Counsel Dawn Smith busy these days.

• Deutsche Telekom didn't rule out spinning out T-Mobile USA and taking it public later this year, though the global telecom giant did rule out trying to gain market share buy acquiring one of its competitors in a "multi-billion-euro" deal anytime in the next two years, according to a BusinessWeek article today.  An IPO of that magnitude could certainly serve as a nice shot of adrenaline for the still-stalled US IPO market.

• SecondMarket closed another round of funding.  Li Ka Shing Foundation and Hutchison Wampoa Ltd. each invested $7.5 million, joining an investor base that includes FirstMark Capital, New Enterprise Associates and Silicon Valley Bank.  The raise was for expansion into the Asian markets.  SecondMarket certainly seems focused on scaling its operations and really making the secondary trading market for traditionally illiquid securities part of everyday life in Silicon Valley and beyond.

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According to a recent survey of PE Hub's VentureXpert Database, Intel Capital invested in more U.S.-based companies than any other venture capital fund.  That may come as a surprise to many, particularly since Intel Capital the corporate investment of the technology giant, Intel, not a traditional venture capital firm.  Interestingly, number two on the list, JP Morgan, isn't a venture capital firm, either.  The traditional venture firms begin to appear at number three with NEA.  DFJ, Sequoia, KPCB, Bessemer, USVP, Goldman Sachs (the second investment bank on the list) and Venrock round out the list. 

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After a multi-week hiatus due to the holidays and, of course, the ever-present demands of deal making as the year comes to a close, Friday Five is back to highlight a few of the top stories from the week. 

• A group of hackers commandeered Twitter's DNS for about an hour on Thursday night, directing traffic to their own webpage.  According to the social media giant, its website and micro-blogging that plugged into Twitter's API were not affected.  This is the second time in less than six months that Twitter fell victim to a DNS attack, though it is the first time that a "Cyber Army" took credit for the fiasco.  What is a "Cyber Army" anyway?  Do they attend boot camp, wear uniforms and otherwise follow unquestioned orders from superiors?  I digress. 

• Earlier this week, the National Venture Capital Association released its yearly Venture View Survey.  The survey polled more than 325 venture capitalists across the country, and the results were as expected with the industry professionals remaining somewhat bullish about the short-term future.  63% expected the total dollars invested in 2010 to stay the same or increase.  50% predicted an increase in the number of companies receiving funding.  The survey pointed to clean technology and Internet as the industries best positioned for higher investment levels in 2010.  Asia will continue to be a growing focus for investment dollars.  74% predicted an improved IPO market.  And the overwhelming majority predicted that funds raised in 2010 will be smaller than previous funds and the overall number of funds would decline over the next five years.

• Regado Biosciences yesterday closed its Series D financing, raising $40 million from an investor syndicate led by LCF Rothschild Group that also included existing investors Domain Associates, Quaker Bioventures, Aurora Funds and Caxton Advantage Life Sciences Fund.  The New Jersey-based company is developing antithrombotic therapeutic aptamers with active control agents.  Regado's successful raise is a nice feel-good moment for emerging companies in light of the continued talk of general venture capital industry contraction.

• Russian investment firm Digital Sky Technologies is leading a group that is buying a $180 million stake in Zynga, a social gaming company that produces popular online games such as Mafia Wars.  The deal comes off the heels of DST's $200 million investment in Facebook.  DST is certainly making a major bet on the social media space with those two deals.

• The Wall Street Journal's Venture Capital Dispatch contains an interesting blog post titled "Exit Conundrum: Wait For An IPO Rebound Or Sell To An Acquirer?"  that focuses on Acclarent's $785 million sale to Johnson & Johnson.  Until the IPO markets come roaring back, which may be quite some time, it seems likely that many companies will opt to go the safer route chosen by Acclarent.

That is all for now.  We won't have the same radio silence over the next few weeks that we did in late November.  Enjoy your weekend!

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In a continued run of positive news for the emerging company, venture capital industry over the last few weeks, Norwest Venture Partners just announced that it closed a $1.2 billion fund  to invest globally in private companies across a number of industry sectors.  Norwest's new fund is particularly impressive considering that the entire venture capital community only raised $1.7 billion in new or follow-on funds in the third quarter of 2009, according to the National Venture Capital Association and Thomson Reuters.  The Q3 results marked the second consecutive quarterly decline in terms of the total number of venture funds raising capital and aggregate dollars raised by those funds.

We obviously don't want to get ahead of ourselves with optimism.  A few lucrative exits and a massive raise by a Silicon Valley stalwart doesn't necessarily mean that the industry is poised for a turnaround.  It is certainly the case that the two are not related, as Norwest has likely been working on this raise for months.  Yet, the timing couldn't be better, in my opinion, because it feels like momentum is beginning to swell.  The emerging company, venture capital industry is very circular in nature. Increased exit opportunities enable funds to raise additional capital from existing and new limited partners.  As those cash coffers grow, more and more private companies receive funding, which will help the newly funded companies grow into attractive exit candidates.  Wash, rinse, repeat.

Are we in the midst of a turnaround?  We'll all know soon enough.

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With the recent data on the economy showing little improvement since the enactment of the $787 billion American Recovery and Reinvestment Act of 2009, there has been talk in the Obama administration and in Congress about whether another stimulus program is needed. Our Policy & Infrastructure Practice has been monitoring these discussions and the key questions that would need to be addressed before any new stimulus-based legislation is introduced--or, more appropriately, enacted into law.  Chris Rissetto, who is a partner in our Washington DC office, offered some interesting insights into the matter.

Why am I blogging on this matter?  Simply put, I have multiple clients who are closely following these developments, since the increased odds for non-dilutive financing can have a major impact on the development of their respective technologies and corporate growth.  So, this is a topic that should be somewhere on the radar screen, at the very minimum, of companies of all sizes and across all industry verticals. 

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Many technology companies incorrectly believe that the American Recovery and Reinvestment Act of 2009 is focused on the commercialization of clean technology at the exclusion of all other industry verticals.  Nothing could be further from the truth.  To date, there have been multiple Funding Opportunity Announcements that have applied to technology companies at various stages of their corporate lifecycle across a wide range of industry verticals.  And I guarantee that when the 2010 Appropriations Bill becomes final, there will be more than a few earmarks for companies who fall outside that category.

One such example of a non-clean tech vertical eligible for stimulus money is broadband. 

Last week, the Commerce and Agriculture Departments released a joint Notice of Funding Availability (NOFA) announcing the application criteria and general policies that will apply to awarding the first $4 billion of the total $7.2 billion in federal broadband stimulus funds.  Rolling applications to access that $4 billion slug of stimulus money begin today!

The remaining funds, not dedicated to this award cycle or program administrative matters, will be made available under subsequent NOFAs. As both agencies learn from the application process, the terms of subsequent NOFAs are subject to change.

Read more about this excellent broadband funding opportunity in our Reed Smith client alert.  Our Advertising Technology & Media practice also blogged on this topic.  Anyone interested in reading about issues intersecting digital advertising, new media, ecommerce and the law should check out their blog.

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