VentureBeat

TODAY’S HEADLINES

• Sonoma Ortho names Glen Coleman as CEO, preps launch of bone implant (VentureWire)
• TechniScan draws $13M for ultrasound CT scanners (release)
• OrbiMed plans $150M Asian life-science fund (VentureWire)
• Accelerated Tech pulls in $47M, aims for $125M in second med-tech fund (VentureWire)
• Amedisys buys out TLC Health Care for $395M (release)
• Intertek acquires microbe measurer CML Biotech (release)
• Medical-device maker Cianna Medical names Jill Anderson as CEO (release)

Sonoma Ortho names Glen Coleman as CEO, preps launch of bone implant – Santa Rosa, Calif.-based Sonoma Orthopedic Products, until recently a stealthy developer of implants for treating bone fractures, named a new CEO as it prepares for the launch of its first product, VentureWire reports.

The company hired Glen Coleman, former U.S. head of sales and marketing for Wright Medical Technology, as CEO last October in preparation for the anticipated FDA approval of its first bone implant. That product, which Sonoma calls Ensplint, is a flexible implant intended for the hollow space of a broken bone, where it is supposed to speed the healing of fractures.

Ensplint is installed via a minimally invasive procedure, and is intended first for use in wrist fractures, an indication for which the company hopes to soon receive approval. Sonoma will request FDA clearance to use Ensplint in collarbone fractures later this year.

For more details, check out this May 2007 piece from the North Bay Business Journal, which makes clear — as VentureWire didn’t — that the market for bone-fracture treatment is primarily associated with osteoporosis. According to VentureWire, Sonoma has so far raised $13 million in two funding rounds.

TechniScan draws $13M for ultrasound CT scanners – Salt Lake City’s TechniScan Medical Systems, a developer of ultrasound breast-imaging systems for cancer detection in conjunction with mammography, raised $13 million in a fifth funding round. Investors included the Esaote Group and return backers from TechniScan’s board and angel investors.

OrbiMed plans $150M Asian life-science fund – OrbiMed Advisors aims to close a $150 million fund that will target Asian life sciences and healthcare services, VentureWire reports. The fund, Caduceus Asia Partners, will invest in 10 to 15 companies, primarily in China and India.

Accelerated Tech pulls in $47M, aims for $125M in second med-tech fund – Accelerated Technologies Partners, a VC firm and accelerator in Hackensack, N.J., raised $46.5 million toward an expected $125 million second medical-device fund, VentureWire reports. The firm has a primary focus on heart-related applications, and plays an active role in getting startups it funds off the ground.

Every famous Silicon Valley venture capital firm is driven by a partner with a reputation of working relentlessly and tirelessly to win deals. At Kleiner Perkins, it is John Doerr. At Sequoia, it is Doug Leone. At New Enterprise Associates, it is Dick Kramlich.

Already having made serious money since launching NEA 29 years ago, Dick Kramlich, 72, is still moving at the rapid pace he always has. Now, Kramlich is moving to Shanghai for a year, to boost his firm’s profile there. The WSJ’s Rebecca Buckman writes about the move.

Kramlich is known for his big appetite for risk (see our coverage of some of the firm’s more gutsy bets, and how they’ve paid off). He first began investing in China in 2000, back when most Silicon Valley firms hadn’t really started to take China seriously. He was decisive in his firm’s decision to invest $300 million in Chinese companies, beginning with chip maker Semiconductor Manufacturing International Corp.

Kramlich told me a couple of years ago that NEA made money off of that investment, but SMIC which went public with great success, has since had a rocky ride, and is trading at $5 now, down from $17.50 when its shares first were offered (see our coverage of Kramlich’s investment in SMIC here). It’s not clear whether the firm has made money on SMIC, or on its other Chinese investments, a question not asked in the WSJ article. (We’ve asked too).

NEA has followed a more “opportunistic” strategy than its peers. It moved more rapidly to invest in later stage companies, when it became more lucrative to do so. That has created some confusion for entrepreneurs, because it creates the appearance it is no longer focused on rolling up its sleeves and helping entrepreneurs in their earliest stages — the classic role associated with Silicon Valley venture capitalists. Not long ago we wrote a piece about NEA had apparently abandoned early stage investing. NEA partner Kittu Kolluri responded to that piece, saying we’d misunderstood, and provided stats showing the firm is still investing in lots of early companies, even at the $1 million or less level.

Early on his career, Kramlich was the first person to have invested in Ethernet technology with Bob Metcalfe. Before joining NEA, Kramlich was one of the first venture capitalists in the valley, working with Arthur Rock at the firm Arthur Rock & Associates. Rock invested in Intel and Apple.

Kramlich said he considering raising an investment fund denominated in Chinese yuan to more easily take companies companies public on Chinese stock exchanges.

Alibaba has raised US$1.5 billion in the biggest ever initial public offering by a Chinese Internet company, the Wall Street Journal reports.

It’s the biggest offering in Hong Kong’s IPO history, and drew capital from more capital from Asian investors than from those in Europe and the U.S., according to the report. It continues a remarkable trend of growth in Chinese comapnies. A few days ago, the New York Times’ Floyd Norris pointed out that China now has eight companies among the 20 most highly valued ones in world stock markets, more than the United States’ seven. (Image here courtesy of the NYT, based on Bloomberg data).
In Alibaba’s IPO, U.S. investors will get handsomely rewarded. Yahoo owns a 39 percent stake in the company. Alibaba.com also raised about $104 million from investors including Granite Global Ventures, Fidelity Investments and others.

Large investment managers are pouring money into venture firms, but they are increasingly selective.

The latest firms to raise money are DAG Ventures, here in Silicon Valley, and Accel Partners and IDG, for their operations in China.

Large institutions that funnel money to venture firms are focused on earmarking funds for the trendy buyout industry. Buyout funds often raise billions of dollars. So large pension funds like CalPERS or General Motors find it more efficient to write a check for $100 million to one of these, when compared to writing a $5 million check to a VC fund — especially when it takes the same amount of work to research beforehand.

VC funds are also out of favor because they raised a lot of capital in recent years, and have had trouble investing it wisely (the average VC fund fails to make money). One nascent firm, Ridgelift, led by former USVP partner Stu Phillips, was forced to shut down before even raising a fund.

DAG Ventures, however, has just finished raising $477 million for its third fund. We’ve nicknamed the SF-Palo Alto firm “Coattail Ventures” for its strategy of investing in companies already backed by the top-tier firms. These firms include Kleiner Perkins, Sequoia Capital, Benchmark, and lately, Accel. DAG makes few exceptions. By piggybacking on the work of those firms, DAG can cherry-pick from among the best deals, so that even if it invests later, and therefore pays a higher price to invest, it can avoid backing the less successful ones that never make it off the ground. It expects to cap the fund at a total of $500 million. DAG plans to add two more investment partners over the next year, partner John Cadeddu tells VentureBeat. The firm saw two of its companies, Matrix Semiconductors and Grouper, sold last year.

And Palo Alto, Calif.’s Accel Partners and IDG Technology Venture Investment, a firm based in China, have raised a joint $510 million China investment fund, according to the WSJ (subscription required). With China’s economy still expanding and entrepreneurship on the rise, investors are willing to open their wallets for investments there too. The fund is focused on Internet and mobile phone deals. It follows a smaller, $310 million joint fund two years ago. One investment from that fund, All Yes Investment Network, was bought by Focus Media for about $300 million.

Updated

Silicon Valley’s top venture firm Sequoia Capital is raising what appears to be a massive amount of funding for companies in China, according to VentureWire (sub required), citing filings by the firm with the Securities and Exchange Commission.

Sequoia is a secretive firm, and hasn’t announced anything, but the filing says a Sequoia fund for early stage Chinese companies, its second, now totals $220.5 million, and it may raise more for a final total of $225 million. Sequoia’s first fund there, raised in 2005, totaled $200 million.

The firm has also raised $429.75 million for a “Growth Fund,” or for investing more mature Chinese companies, and may raise more, for a total of $450 million, according to the filing.

That amount is larger than any other U.S. venture capital firm in China — at least that we’re aware of.

Everyone knows that China and India are highly likely to continue to see stronger economic growth rates than the U.S. — especially online.

Since the Web’s beginning, online commerce in the U.S. has seen annual sales increase at more than 25 percent, but that rate has peaked, and will slow over the next decade, according to Jupiter Research statistics sited in by the NYT story over the weekend.

Increasingly, investors are looking abroad, and China is a favorite. Sequoia has invested in several companies there, from search engine Qihoo, to video advertising company CTS Media, and petrochemical research company, Accelergy. It has aggressively poached investors from other firms there, including Fan Zhang, a former director of DFJ’s China operations

Sequoia’s moves are also significant because of its high profile. Other firms in the valley may follow its lead. Most recently, Kleiner Perkins, another top firm, moved to invest in China, after years of hesitation.

Update: There’s a good series about China’s growth, and its enormous environmental challenges, in the Mercury News. The first piece quotes Eric Straser, partner at Silicon Valley’s venture firm Mohr Davidow Ventures: “The question of the century is: Can China industrialize in a way that does not crush the planet?” The second piece delves more into the huge market for environment-related investments. It cites Gary Rieschel, a VC who once was based in the U.S, but who relocated to Shanghai: “Silicon Valley has a huge play here.” There are links to other articles in the package, too.

(Update: This just in: Texas Pacific Group and Goldman Sachs’ private equity arm have agreed to acquire Alltel, the wireless phone company, for $27.5 billion, the largest telecom buyout ever. There’s a frenzy of activity in the private equity world, and we’re likely seeing its peak.)

This isn’t a venture capital story, but is significant because it is an unprecedented commitment by China to a U.S. investment firm — and suggests more Chinese money may be flowing our way, possibly to VC firms.

The Chinese government said it would acquire a $3 billion stake in the Blackstone Group, the private equity firm, as party of China’s efforts to diversify its $1.2 trillion in foreign-exchange reserves beyond United States Treasury bills. The New York Times has the story:

Blackstone’s leader, Stephen Schwarzman, called the Chinese move “huge.”

The deal, which is set to coincide with Blackstone’s $4 billion initial public offering this year, will give China a roughly 8 percent stake in Blackstone, which owns companies that have 375,000 employees and $83 billion in annual sales.

It would also represent a watershed for the booming private equity industry as it tries to gain a foothold in China. “It’s a historic change. It’s a paradigm shift in global capital flows,” said Schwarzman.”

Typically, large organizations such as pension funds like to invest in private equity firms because it lets them put lots of money to work. China is no different, in wanting a way to park its vast reserves. Pensions also invest in venture capital, but typically do so through intermediaries such as funds-of-funds, where capital can be invested in several VC firms at once. Look for China to consider doing the same.

Kleiner Perkins, one of the most respected venture capital firms in Silicon Valley, but also one of its most parochial, has finally decided to invest in china.

It has just announced a $360 million China Fund, to invest in “high-growth industries,” including Internet, media, wireless, health and green technologies. To help it make the investments, Kleiner has hired three partners from the Shanghai venture firm, TDF Capital, and another partner from Softbank Asia Infrastructure Fund.

The announcement tonight comes after VentureBeat learned of the fund more than a week ago, and sought comment from the firm on details.

This marks a big turnaround, and is an important and essential move for Kleiner. Until recently, Kleiner had famously resisted opening offices elsewhere, saying it was well-served by staying local. It was hard to argue with: Kleiner has backed a long list of Silicon Valley hits: Sun Microsystems, Netscape, Genentech, Google — the list goes on. For 35 years, the firm remained cocooned in Menlo Park, Calif., where it has worked out of its single leafy office on San Hill Road, but remained among the very best firms.

But the pressure to expand horizons increased. A wave of China and other foreign investments has reaped big rewards for other firms. Competitor Draper Fisher Jurvetson has done well, hitting two home runs with Skype in Europe, and Baidu, the search engine, in China. DCM, another firm, has seen multiple successes. Even arch-rival Sequoia set up a China fund. The curmudgeonly erstwhile leader Don Valentine insisted that investing abroad was a huge risk, but he was overruled by younger partners led by Michael Moritz. Sequoia moved to China more than a year ago, using a similar strategy of hiring a team already there.

Kleiner’s offices will be in Beijing and Shanghai. The partners joining Kleiner from TDF are David Su, Tina Ju, and Forrest Zhong (in order, at left). The partner from SAIF is Joe Zhou (below left)

Ellen Pao, a partner at Kleiner, who has helped manage the relationship with China (we told you so) told VentureBeat that Kleiner grew comfortable with the TDF team over the past year while working on a joint investment in Shanghai company YesPPG, a men’s shirt retailer.

Kleiner valued the experience of Tina Ju, and Zhou, in particular — both have been investing in China since 1999. Ju is a UC Berkeley engineer and Harvard MBA, and has backed Alibaba, Baidu, Cgen, China Netcom, Focus Media and Hurray. Prior to 1999, she worked in investment banking at Deutsche Bank, Merrill Lynch and Goldman Sachs. Zhou, meanwhile, helped SAIF investments in Shanda, Acorn, ATA, Alchip, Unionpay Merchant and Yasi.

Kleiner is making the move in time to save face. China’s economy is still booming, and investment community is still relatively small. Kleiner’s clout here is still enough to give it good name recognition over there. Still, the foot-dragging was considerable. Retired partner Tom Perkins had prodded the company to think globally, and he griped to us five years ago that the partnership had shrugged him off. Two and half years ago, partner Brook Byers, when asked about China, said: “I can’t see doing it” (see interview below). More notably, Kleiner has become a follower, with Sequoia, its rival for top-dog status, leading the way.

John Doerr, the firm’s leading partner, makes a big deal about being within driving distance from portfolio companies. As he likes to say: If a VP of marketing at one of his portfolio companies is threatening of leave, Doerr can jump off Hwy 101 at the nearest exit, visit him, and persuade him to stay. Under this model, he can still do that.

KPCB China also includes principal Ian Goh and CFO Nancy Sun, with plans to increase the number of team members in the next 12 months.

See www.kpcb.com/china for more.

Here’s an excerpt from the Q&A we had two and a half years ago with John Doerr, Ray Lane, Brook Byers and John Denniston about China (emphasis ours):

Q: Looks like Silicon Valley VCs have started a race to invest in China. Yet Kleiner Perkins is standing on the starting line. Are you comfortable staying local?

Doerr: We might open an office on Mars. (Amazon Chief Executive Jeff) Bezos will fund it.

Q: Seriously.

Doerr: We don’t have any Asia or India initiatives, but I’d say all the partners go both places often… because the region is important for the ventures we help.

Lane: If one of us were in India or China all the time, we would know more about India and China, no question about it. But we would give up a lot that we get by living in the same office.

Byers: Matt, Kleiner Perkins is basically a service business. The question is: How do we add real service to entrepreneurs, how do we stay up with them, how do we follow what they need? That changes over time, and then we have to adapt and change. All the venture firms on Sand Hill Road are different, and that’s good for the entrepreneurs because they have a variety of different styles to choose from.

Lane: We’ve been well-served by staying in the same place.

Byers: It gets back to this culture thing. We like collaboration. We spend every Monday, and many Tuesday mornings together, in this building, sharing ideas, about what we’ve learned in the prior week, and how we can help. We meet with entrepreneurs. We form subgroups of partners to work with ventures, right away. That would be really hard to then spread around. Um, I can’t see doing it.

Q: How will Silicon Valley manage China’s emergence into an economic powerhouse?

Doerr: We can have an hour-long conversation about the quality of our education system.

Byers: We can talk about policies that would hurt. Stock options.