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January 06, 2007

"Selling to PE firms becoming a common exit route"

Mercury News has an article on US VCs exiting their invstments by selling them to larger Private Equity firms that are flush with money.
The extent to which private equity and venture capital may begin colliding remains in question. Rothstein points to Beringea-backed Mergermarket, which attracted eight potential bidders earlier this year, half of which were buyout firms, according to Rothstein. The company, which had raised $12 million in venture capital, ultimately sold in August to the international education company Pearson for $192 million, giving Beringea 18 times its investment. But it might have collected less without the private equity interest.

``Even if a private equity firm doesn't buy one of our portfolio companies, they're in there, stirring up trouble and increasing the (sale) price,'' said Rothstein.

Another VC on Sand Hill Road said to expect yet a different approach on the part of private equity firms, suggesting they may begin to ``roll up'' venture-backed companies.

``A lot of companies are doing OK but can't go public on their own,'' said the VC, who asked not to be named because of his firm's current negotiations with two private equity firms. ``If we as VCs try to merge them, it's not going to work because VCs and founders have their own agendas. But a private equity firm can come in, buy the companies, and merge them, and hopefully create something more valuable.''
Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.