Relander Case Gives Accel a Black Eye –

Kaj-Erik Relander, a partner in the London office of Accel Partners, is expected to be charged with illegally monitoring the phone calls of hundreds of people in violation of Finnish privacy laws, according to an announcement in January by a Helsinki district prosecutor.

The details of the charges were expected to be made public this month when Relander is formally arraigned in the Helsinki district court.

The allegations are a terrible embarrassment for a well-regarded venture capital firm whose managing partner, Jim Breyer, presently serves as chairman of the National Venture Capital Association. Breyer did not initially reply to phone messages nor emails about the matter.

Relander faces up to three years in jail if convicted.

The charges stem from Relander’s time as CEO of Sonera, a Finnish telecom company now known as TeliaSonera. Relander and five others are accused of breaking Finnish law when they allegedly monitored communications of Sonera employees in 2000 and 2001 in an effort to stop leaks to the press over a company dispute. In late 2002, Relander was detained by Finland’s National Bureau of Investigation for several days while being questioned in the case. During that time, Accel voiced support for its partner, who denied any wrongdoing. Now that charges are expected to be filed and Relander faces a possible prison sentence, it is unclear if Accel will continue to stand by Relander.

The venture firm has the same option of “virtually every fund out there to remove a partner if it makes sense to do it,” says attorney Michael Littenberg, a partner with Schulte Rogh & Zabel.

Littenberg, who is not involved in the Relander case, adds that there’s no guarantee that Accel will go that route. “Even if there’s a right, it wouldn’t be an automatic removal event. You have to look at every one of these cases individually.”

Relander joined Accel in late 2001, the same year the firm closed a $509 million European fund. Accel Europe last July took part in a $22 million Series B investment in Icera Semiconductor of Bristol, England.

– Matthew Sheahan

Spectrum Alters Fund V Target

Spectrum Equity Investors has reduced the target capitalization for its fifth fund, following consultation with prospective limited partners.

The firm had sent out offering books with a $2 billion cover price, and indicated that it would accept upwards of $2.5 billion. Investors, however, reacted poorly to the proposal, and convinced Spectrum that a $1.5 billion fund size would be more appropriate.

There was some speculation that Spectrum’s hand was forced by the defection of several large LPs, but a source close to the firm denies such cause-and-effect. “Every firm is going to have some LP turnover from fund to fund, but that isn’t the reason for going from $2 billion to $1.5 billion,” the source says. “Limited partners said they’d be more comfortable investing at $1.5 billion because they felt it was a better fit with Spectrum’s strategy, and that was a feeling that was honored.”

The firm’s strategy has been to invest in expansion capital and leveraged buyout opportunities throughout the domestic media and communications sectors, with some attention also given to IT and business services companies. It insists on enterprise values of over $100 million, and almost all of its deals are done in the United States – Spectrum has offices in Boston, Menlo Park, Calif., and New York – although it has done a handful of deals in Western Europe and Canada.

Spectrum raised more than $680 million in 1999 and nearly $2 billion just one year later. Some LPs now suggest that current tastes have shifted toward further specification. In particular, they say that they’d prefer a VC-only communications fund or LBO-only investment fund, as opposed to Spectrum.

“I’m glad that they don’t do real early-stage stuff, but I’d prefer to have diversification throughout my entire portfolio, instead of within a single fund,” says a pension system manager familiar with Spectrum.

A source close to Spectrum insists that while the firm’s size has grown since its 1994 inception, its ratio of expansion-to-buyout deals has remained relatively consistent. Moreover, he suggests that firms like Providence – which closed on $4.25 billion in September – were aided by a pre-marketing effort that Spectrum did not make, due to its lack of an in-house marketing or investor relations partner. That vacancy is expected to be filled before any future fund-raising efforts, were they to occur.

Neither Spectrum nor its placement agent Lazard commented on the fund-raising process, due to SEC marketing restrictions. The fund is expected to hold multiple closes, although no timing details were available as of press-time.

– Dan Primack

Prow Resigns from Mobius

Greg Prow has resigned as chief operating officer and managing director of Mobius Venture Capital, following several years of downsizing at the Palo Alto, Calif.-based firm. Prow said he felt that his job became largely irrelevant as a result of a $250 million fund cut and the loss of three partner-level professionals.

“We set up the organization to be much larger than it is, so it no longer really needed the level of service that a full-time, in-house administrative partner provides,” said Prow late last year from his Los Gatos, Calif. home. “My choices either were to switch over to the deal side, or find something somewhere else that would challenge me on the administrative side.”

Prow becomes the latest to leave, although he says that he holds no grudges. The decision was finalized in November, when he realized that the back-office infrastructure he had created was perfect for a $1 billion-plus fund, but not for the $300 million vehicle that Mobius is likely to begin raising from existing LPs later this year. He will not be replaced at Mobius, although controller Amy Castronovo will remain on board.

Prow hasn’t decided on his next step, although he already has had discussions about a handful of VC and non-VC opportunities. The most likely, and most entrepreneurial, possibility is the creation of an outsourced, back-office services provider for young private equity firms that have between $100 million and $200 million under management. “Firms of that size can’t afford to have someone in-house,” Prow explains. “But they really could use a one-stop shop for all of their administrative needs.”

Prow joined Mobius in early 2000, after serving as a tax partner with PricewaterhouseCoopers. The venture firm was then known as Softbank Capital Partners, and was on a meteoric rise fueled by its focus on backing Internet startups.

Most notable among its achievements was the firm’s ability in 2000 to raise $1.5 billion in one month for its sixth fund. As part of its growth, the firm added three managing directors, in addition to Prow, and dropped the Softbank moniker, even though the firm had been operating independently-save for an LP relationship-of the Japanese investment giant since 1996.

– Dan Primack

Austin in Late-Stage JV

Austin Ventures (AV) was playing defense at the beginning of the year, after a financial publication incorrectly reported that the firm planned to raise an $800 million fund dedicated to late-stage investing.

John Thornton, a managing director with AV, denied the report almost in its entirety, but declined to comment further, at the request of the firm’s attorneys.

Sources close to the firm, however, say that the mistaken report originated after AV recently entered into a pair of joint ventures with later-stage investment groups. The first is a deal with Texas Growth Fund (TGF), an Austin-based firm that makes equity and subordinated debt investments for small-to-middle-market companies doing business in Texas.

TGF has raised three funds since its 1992 inception, but almost all of its limited partners have been Texas-based public institutions, which has caused TGF to suffer from the ongoing disclosure controversies that are occurring in the Lone Star State. When it came time to raise its fourth fund – with a target capitalization of $300 million – TGF wanted to diversify, at which point it began discussions with AV.

Under terms of the agreement, AV is introducing the TGF fund to all existing AV limited partners. What AV gets out of this deal is a bit unclear, although it certainly will gain greater access to later-stage deal flow and expertise.

AV also recently struck a similar deal with Escalate Capital, a new late-stage structured finance firm launched by Ross Cockrell, a former AV general partner; Tony Schell, former head of Comerica’s technology and life sciences lending office in Austin; and Jim Ellison, formerly of Silicon Valley Bank. Escalate currently is marketing a $200 million inaugural fund, and expects to hold a first close in the first quarter of 2005.

In addition to its joint ventures, AV continues to make certain late-stage investments out of its own funds. The firm dedicated one-third of its $830 million eighth fund (reduced from an initial $1.5 billion close) to late-stage investing.

AV also plans to maintain that allocation for a $500 million ninth fund that is slated to close later this quarter.

– Dan Primack

Prospecting for Bio Deals

Prospect Venture Partners closed its third fund in December, raising $500 million.

The Palo Alto, Calif.-based firm invests in medical technology and life science companies. Its previous fund – which was also a $500 million fund raised in 2001 – has invested in more than 25 life science companies, including Archemix, Gloucester Pharmaceuticals, Jazz Pharmaceuticals, Infinity Pharmaceuticals, Portola Pharmaceuticals, Rinat Neurosciences, Tercica, and medical device companies Opus Medical and Visiogen.

The firm said that a majority of investors were returning limited partners.

Four managing directors lead the fund. They are Alex Barkas, Russell Hirsch, David Schnell and Jim Tananbaum.

– Alastair Goldfisher

HSBC Raises $700M in Asia

HONG KONG – HSBC Private Equity (Asia) has closed its fifth fund at $700 million. The new fund, HCBC Private Equity Fund 3 Ltd., is the largest raised by the group since it was formed in 1989.

The firm raised $555 million for fund IV in 1998. HSBC now has about $1.7 billion under management.

Marcus Thompson, chief investment officer at HSBC PE, told VCJ that one of the reasons the group was able to raise such a significant amount of capital was that the its parent company, HSBC, put up $350 million, or half, of the new fund. In the past, the bank has contributed only around 10% of the total of funds the group has raised from institutional and high net worth individuals.

Thompson says that the new fund will have a broader focus in North Asia (Hong Kong, South Korean and China) and Southeast Asia (Thailand, Malaysia and Singapore). HSBC PE does not invest in Japan.

More than $100 million of the new fund has already been invested.

Only one LP other than HSBC, Colorado Public Employees Retirements System, is publicly disclosed. But Thompson says that as with past funds, U.S. and European institutions are the leading participators in the fund. Middle Eastern and Asian LPs have also invested.

Some have noted that Asian private equity funds are growing in size, possibly indicating an inflation of investing in Asia. For example, Affinity Equity Partners, a Pan-Asia Pacific venture firm, recently completed raising its second buyout fund, AC Fund II, at $700 million.

“There has been a huge number of firms investing in Asia,” Thompson says. “I think we’re seeing more of a Darwinian trend, in which the larger funds are getting bigger and the smaller players are struggling to raise new funds.”

– Jerry Borrell

WI Harper Raising $100M

WI Harper, based in San Francisco and Taipei, Taiwan, late last year held a first close on its sixth fund of $100 million, according to Jonathan Wang, managing director of the firm. Including the firms’ first five funds, WI Harper manages more than $325 million.

LPs in the fund are institutions and corporate investors. They include IBM, Sybase, Silicon Valley Bank, Acer and EDB of Singapore, among others.

Wang says that the fund will be invested similar to existing funds the firm manages. About 75% will go towards IT investments and the remaining 25% to life sciences.

In terms of focus, about 30% of the fund will go to early stage investments, and the remaining 70% towards expansion capital. Wang says that like earlier funds, the firm intends to continue its geographic strategy with fund VI. About half of the $325 million is allocated to greater China and half will go to U.S.-based companies.

Wang-who previously managed life sciences at Walden International in San Francisco before joining WI Harper three years ago-has built up the life sciences practice group for the firm by adding investment pros in Taipei, Beijing and San Francisco, says Chairman Peter Liu.

“It’s the only transpacific-life sciences practice that I am aware of, ” says Wang. He adds that he expects to soon announce an expansion in greater China.

– Jerry Borrell

Updata Scores With New LPs

Updata Partners has closed on its third fund, raising $66 million more than it did for its previous fund, which closed in 2001.

The Reston, Va.-based firm-which focuses on growth-stage IT software and software services companies-closed on Updata Partners III with $154.5 million in commitments.

Most of the LPs in the fund are new. The new LPs include FLAG Capital Management, the University of California, the University of Pittsburgh and the Virginia Retirement System. Returning LPs include the California Public Employees’ Retirement System (via Grove Street Advisors).

The fund has an 80/20 carry structure and a management fee of just over 2 percent. Updata added Richard Erickson as a new venture partner for the fund. Erickson was president and CEO of IT outsourcing provider AlphaNet Solutions, an Updata portfolio company.

Updata Partners, which also has an office in Red Bank, N.J., is affiliated with IT M&A investment bank Updata Capital.

-Matthew Sheahan