Thursday, December 30, 2010

‘Jobs Bill’ Provision Triggering $72 Million Investment in Connecticut Companies

Expanded Tax Credit Program Creates New Fund for Growing Firms

Governor M. Jodi Rell has announced that a key provision of the bipartisan Jobs Bill is triggering a $72 million investment in at least 25 Connecticut small businesses, helping to create jobs, spur innovation and strengthen the state’s economy.

Advantage Capital Partners is the first venture capital and small business finance firm to be certified as a fund manager under the newly revised Insurance Reinvestment Tax Credit program, which was updated as part of the Jobs Bill. The program leverages private capital provided by insurance companies that is then invested by state-certified fund managers.

The Jobs Bill – passed by the Legislature in the waning days of the regular session – is a sweeping, bipartisan package that offers incentives for employers, supports small business and emerging industries, provides resources for tuition and training, helps manufacturers find efficiencies and includes accountability measures to safeguard state taxpayer dollars. The bill was the product of cooperative efforts Governor Rell began in the first leadership meeting of the legislative session.

“As I have traveled the state, one of the top concerns I have heard – especially as the economy has struggled – has been the lack of access to capital, especially risk capital for new ventures with considerable start-up costs but high growth potential,” Governor Rell said. “With the changes that we made to the Insurance Reinvestment Tax Credit program, there will be a much-needed infusion of investment dollars into our state to support business formation and growth, as well as strengthen our high-tech work force. I expect that this program will be paying important economic dividends for years to come.”

Advantage Capital Partners, a group of venture capital partnerships that has raised more than $1.3 billion since 1992, has raised $72 million for investment in Connecticut-based companies. The firm provides equity and debt capital, along with value-added counsel and other support, to operating businesses that have the potential for excellent investor returns as well as significant community impact.

For the Connecticut fund, Advantage Capital has partnered with Ironwood Capital, an Avon-based investment management firm focused on private equity, mezzanine and senior debt investments. Ironwood Capital will identify, underwrite and manage these investments.

Advantage Capital’s fund will identify promising debt and equity investment opportunities in everything from seed-stage through mature but growing companies.

“Advantage Capital Partners is committed to fostering the growth of small businesses in Connecticut,” said Steven T. Stull, President of Advantage Capital Partners. “Our firm has a strong track record of raising private capital for investments which promote economic opportunity, enable job creation and retention, and contribute to a robust investment climate. We look forward to working with the State of Connecticut and with Ironwood Capital to accomplish these important goals.”

The revamped Insurance Reinvestment Tax Credit program now allows fund managers to invest in any Connecticut-based business, not just insurance-related companies. Twenty-five percent of the investments must be committed to green technology efforts, while 3 percent must go toward pre-seed investments.

“The passage of the jobs bill earlier this year was a momentous occasion for Connecticut,” said Joan McDonald, DECD commissioner and Connecticut Innovations board chair. “It provided a host of new incentives and resources for businesses to boost investment and create jobs across all industry sectors. The changes made to the Insurance Reinvestment Tax Credit program, most notably in the pre-seed area, are another important building block in our efforts to move to an innovation-based economy.”

To learn more about the Advantage Capital Connecticut fund, please contact Victor Budnick at (860) 409-2108 or John Strahley at (860) 409-2106. Companies seeking capital can submit requests for funding via email to

Tuesday, December 28, 2010

Cleantech venture capital

11 predictions for 2011

by Rob Day, a Partner with Black Coral Capital, based in Boston.

1. The cleantech venture capital shakeout will become more obvious

I haven't seen too much written about this by those outside the industry, mostly because it's been pretty quietly done. But as we've talked about here before, there's been an exodus of investors out of the sector lately. To date, it's been mostly individuals -- either individual VCs leaving their firms, or the "cleantech guy" at diversified firms now being redirected back out of cleantech investing into other sectors. But wearing my limited partner hat, I'm seeing a whole lot of cleantech-specific firms out there or getting ready to go out there and raise new funds. And I just don't think the LP community will be able to support all of them. The big institutional LPs have been shifting away from venture capital as an asset class, and they've become more tepid about cleantech. 2010 saw a stop of any new cleantech venture firms; 2011 will see the shakeout of existing cleantech venture firms. Certainly there are a good number of cleantech-specific funds that previously had been able to raise funds simply on the basis of being cleantech specialists, but who now will be competing against each other for increasingly scarce LP dollars. And (often because of the overall VC category performance, and the lack of VC exits overall over the past decade) many won't have an advantaged track record, and won't have a really differentiated pitch versus their peers. I think it'll be lean times for many of those funds. The firms won't go away, but there may be more obvious slimming of staff as operating budgets go down and the lack of dry powder makes it less necessary to keep staff on. The good news is, given the continued need for experienced senior management at cleantech venture-backed firms, I think a lot of this will be VCs leaving to take operating roles. The other good news is that I think things will continue to get gradually better for cleantech venture fundraising.

See the other 10 predictions here.

Wednesday, December 22, 2010

Women In Venture Capital

High Performance Entrepreneurs: Women in High Tech

New research shows what many have long suspected: women entrepreneurs are poised to lead the next wave of growth in global technology ventures. The full report, prepared by Illuminate Ventures, documents the performance of women entrepreneurs in the past decade and the trends that are propelling them towards critical mass in the high-tech sector. Register to receive the full 15-page paper.

Big Progress in Recent Times: More women are serving as officers of venture-backed companies with successful exits. In 1988, only 4% of the 134 firms that went public in the U.S. had women in top management positions. Of 2009’s 19 high-tech IPOs, all but two had at least one woman officer.

Venture-level Returns: In the past 10 years more than 125 companies with over 200 women co-founders or officers have achieved IPOs or >$50M M&A exits in the U.S. high-tech sector alone.

Impact of Women Investors: Women now represent just over 15 percent of angel investors, but just 5%-7% of partner-level high-tech venture capital investors in the U.S. Firms with women investment partners are 70 percent more likely to lead an investment in a woman entrepreneur than those with only male partners.
The bottom line: More than ever before, women are influencing the face of business. They are on the cusp of becoming a leading entrepreneurial force in technology. As the global economy regenerates, new business models are needed to stimulate economic and job growth. Investors seeking to reinvigorate bottom-line performance and to favorably impact the entrepreneurial strength of our economy would be wise to support strategies that enable high-tech start-ups that are inclusive of women entrepreneurs.

Please Register Here to Receive The Complete Whitepaper

Monday, December 13, 2010

3rd Quarter Venture Capital Activity


Full report:

ß DowJones VentureSource (“VentureSource”) reported that the amount invested by venture capitalists in the U.S. in the third quarter of 2010 was approximately $5.5 billion in 662 deals, a decrease from the $7.7 billion invested in 740 deals in 2Q10. The PwC/NVCA MoneyTree™ report based on data from Thomson Reuters (the “MoneyTree™ Report”) also reported a decrease in 3Q10 venture capital investment, with $4.8 billion invested in 780 deals, compared to $6.9 billion being invested in 962 deals in 2Q10. Despite the decrease in 3Q10, investments by venture capital funds in 2010 is on pace to modestly surpass the amount invested in 2009, although 2009 was the weakest year for venture investment since 2003.

ß VentureSource reported 102 acquisitions of venture-backed companies in the U.S. in 3Q10, for a total of $5.7 billion, an increase from the $4.8 billion paid in 85 acquisitions reported for 2Q10.Thomson Reuters and the National Venture Capital Association reported 104 acquisitions of venture-backed companies in the third quarter of 2010, compared to 97 currently being reported for 2Q10. Acquisitions of venture-backed companies in the first three quarters of 2010 have almost already surpassed total acquisitions in all of 2009. The largest acquisition in 3Q10 was Walt Disney’s acquisition of Playdom for $563 million.

ß There were 14 venture-backed IPOs in the third quarter of 2010 raising a total of $1.2 billion, compared to 17 in 2Q10 raising a total of $1.3 billion, according to Thomson Reuters and the National Venture Capital Association. Although IPOs declined in the third quarter, there have already been significantly more IPOs in the first three quarters of 2010 (40) than in all of 2009 VentureSource reported nine venture-backed IPOs in 3Q10 raising a total of $723 million, compared to 15 IPOs raising $900 million in 2Q10. The largest IPO in 3Q10 was by Green Dot Corp. raising $164 million.

ß Fundraising by U.S. venture capital funds increased in the third quarter, with 45 firms raising $3 billion in the quarter, compared to 51 firms raising $2.1 billion in the second quarter of 2010, according to Thomson Reuters and the National Venture Capital Association. The largest fundraising in 3Q10 was $750 million by IVP. Both Thomson Reuters/NVCA and VentureSource report VC fundraising in 2010 to be behind the pace of 2009, which was the lowest year for fundraising in six years.

ß Since the first quarter of 2009, venture capitalists have invested significantly more in companies ($41.4 billion per VentureSource, $34.9 billion per the MoneyTree) than new capital that has been committed to venture funds ($22.7 billion per VentureSource, $25.4 billion per Thomson Reuters/NVCA), which is not sustainable over a prolonged period.

ß The Silicon Valley Venture Capital Confidence Index produced by Professor Mark Cannice at the University of San Francisco reported the confidence level of Silicon Valley venture capitalists at 3.7 on a 5 point scale, which was a significant increase from the previous quarter’s reading of 3.28.

SEC proposes regulations under Dodd-Frank affecting venture capital


During October and November 2010, the U.S. Securities and Exchange Commission proposed several key regulations called for by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed and President Obama signed into law in July 2010. Now, through its rulemaking proposals in October and November 2010 (the Proposed Regulations) which are summarized below, the SEC has begun to fill in a number of important details left unspecified by Congress in the original legislation.

The Proposed Regulations affect all private funds which claim exemption from the Investment Company Act of 1940 under Section 3(c)(1) or 3(c)(7) of that statute. This includes practically all hedge, leveraged-buyout, venture-capital, real-estate, mezzanine-debt, and distressed-debt funds, as well as funds-of-funds. As they relate specifically to private funds, the Proposed Regulations do three major things:

* First, they propose definitions and details regarding certain exemptions from registration with the SEC under the Investment Advisers Act of 1940 (the Advisers Act). (Dodd-Frank eliminated, effective in July 2011, the exemption which most private funds had been relying on until now, replacing it with new exemption criteria.)
* Second, the Proposed Regulations would require every firm that serves as an investment adviser to any 3(c)(1) or 3(c)(7) fund to file with the SEC and update annually a Form ADV. This requirement would apply even to smaller advisory firms which will remain exempt from registration because their assets under management are below Dodd-Frank's registration threshold.
* Third, the Proposed Regulations would impose new recordkeeping and reporting requirements on registered investment advisers.

Key definitions and details included in the Proposed Regulations

Advisers whose only clients are private funds and whose assets under management (AUM) are less than $150 million will generally remain exempt from registration under the Advisers Act when Dodd-Frank becomes effective in July 2011. (For advisers who have at least some non-fund clients, the applicable AUM threshold is $100 million.) The Proposed Regulations give guidance on how AUM is to be measured for this purpose.

Advisers whose only clients are venture capital funds will remain exempt from registration, regardless of the amount of their AUM. The Proposed Regulations would define the term "venture capital fund" for this purpose.

Advisers who qualify as "family offices" will also remain exempt from registration under the Advisers Act, regardless of the amount of their AUM. The Proposed Regulations would define the term "family office" for this purpose.

Exemption for advisers to private funds with cumulative AUM less than $150 million

The Advisers Act defines the term "assets under management" by reference to the "securities portfolios" with respect to which an investment adviser provides "continuous and regular supervisory or management services." The Proposed Regulations provide guidance on the calculation of AUM for private funds, as follows:

* An adviser to a private fund must include the fund's unfunded capital commitments in its AUM.
* An adviser to a private fund must include the value of proprietary assets, assets which the adviser manages on an uncompensated basis, and assets of foreign clients in its AUM.
* Advisers must use a fair-value methodology when measuring AUM, and cannot simply rely on cost basis.

Exemption for advisers to venture capital funds

Dodd-Frank exempts advisers solely to venture capital funds from registration under the Advisers Act. The Proposed Regulations define the term "venture capital fund" to include only private funds which satisfy all of the following criteria:

* The private fund invests only in equity securities of qualifying portfolio companies to provide them with business expansion and operating capital. At least 80% of the private fund's interest in the issuing company must be acquired directly from the company and not from the issuer's existing equity holders. An issuer can be a qualifying portfolio company if no more than 20% of the private fund's interest was acquired from founders or other preexisting investors.
* The private fund controls, or provides significant managerial services to, the qualifying portfolio companies.
* The private fund does not incur leverage at the private fund level, other than certain permitted short-term borrowings.
* The private fund is a closed-end fund, i.e., it does not offer routine redemption rights to investors.
* The private fund holds itself out as a venture capital fund to investors.

To be a "venture capital fund" a private fund may invest only in "qualifying portfolio companies." The Proposed Regulations define that term to include only an entity which satisfies all of the following criteria:

* is not publicly traded at the time of the venture capital fund's investment,
* does not incur leverage in connection with the investment by the venture capital fund,
* uses the capital provided by the venture capital fund for business expansion or operating purposes, and
* is not itself a fund.

Exemption for Family Offices

Dodd-Frank exempts family offices from registration under the Advisers Act. The Proposed Regulations define "family office" as an adviser whose clients include only persons who are family members. A "family member" includes a spouse, a spousal equivalent, a subsequent spouse, a parent, a sibling, a child (including children by adoption and stepchildren), and a spouse or spousal equivalent of the foregoing.

In the event of an involuntary transfer from a family member, the Proposed Regulations would afford the adviser a four-month transition period in which to register under the Advisers Act or transfer the management of the assets. In case of a divorce, a former spouse could continue to receive advice for the assets already being managed by the family office, but could not make additional investments with such adviser.

The clients of a family office may include any charitable organization that is funded solely by a family member, and any trust or estate existing for the sole benefit of a family client, or any investment vehicle wholly-controlled by a family client and operated for the sole benefit of family clients. Clients may also include non-family members who are executive officers, directors, trustees or general partners of the adviser, or other persons who have participated in the investment activities of the family office for at least 12 months.

New filing requirements for advisers exempt from registration

Under the Proposed Regulations, all investment advisers which are exempt from registration under the Advisers Act, but whose clients include any 3(c)(1) or 3(c)(7) private fund, would nevertheless be required to comply with certain limited reporting obligations. These exempt advisers would be required to file a limited Form ADV with the SEC and provide certain information about their activities to the SEC. The information required to be reported would include, among other things, the adviser's form of organization, a description of its other business activities, its financial industry affiliations, the identity of its control persons and owners, and any disciplinary history for the adviser and its employees.

The Proposed Regulations would require exempt advisers to file their first limited Form ADV by August 20, 2011, and to update their Form ADV filings annually.

Additional Reporting for Advisers to Private Funds

The Proposed Regulations amend Form ADV for a registered adviser to a private fund (exempt advisers will also be required to provide certain of this information in its limited Form ADV) in order to require reporting of the following information:

* The amount of AUM.
* Information regarding its private funds, including: (1) names and jurisdictions of such funds (though a code can be used to preserve anonymity); (2) general partners and directors; (3) names and jurisdictions of any foreign financial regulatory authorities are subject; (4) status as a master/feeder.
* Whether private fund is a fund of funds.
* The fund's investment strategy. The fund's gross and net asset value, minimum investment and number of beneficial owners.
* Whether clients of the adviser are solicited to in the fund, and the percentage of the adviser's clients invested in the fund.
* The number and types of investors in the fund.
* The name of the adviser's auditor, whether it is independent and registered with the PCAOB and whether audited financials are distributed to investors.
* The name of the adviser's prime broker and whether it is SEC-registered and acts as a fund's custodian.
* The name and role of the fund's administrator.
* The name of each marketer, whether it is a related person of the adviser, its SEC file number and URL for any website used to market the fund.
* Information regarding employees, including the number employees registered as representatives of a broker-dealer.
* Information regarding the adviser's clients, including disclosure as to whether any are business development companies, insurance companies or other investment advisers and whether any are subject to ERISA.
* Disclosure about participation in client transactions: The Proposed Regulations require advisers with discretionary authority to determine whether brokers or dealers used in client transactions would be required to report whether any such brokers or dealers are related persons.
* Information about the adviser's non-advisory activities.
* Advisers with $1 billion in AUM may be subject to future rules regarding certain incentive-based compensation arrangements.

Statement by NVCA President Mark Heesen and TechNet President Rey Ramsey Regarding Support for Extending Clean Energy Tax Incentives

The National Venture Capital Association (NVCA) and TechNet strongly support the addition of two critical energy tax provisions to the tax bill. The Treasury Grant Program, Section 1603 and the Advanced Energy Manufacturing Credit, Section 48C are both due to expire at the end of the year and, if they are allowed to lapse, investment into clean energy technology companies in the United States will suffer. Failure to extend these critical energy tax programs will further widen the lead that other countries – most notably China – now enjoy in the global clean energy marketplace.

Hundreds of renewable energy companies have applied for and received Section 1603 “grants in lieu of tax credits.” In turn, these companies have used the cash grants to fuel their growth in the creation of thousands of new “green jobs” in the U.S. Without Section 1603, the investment and production tax credits intended to benefit these companies will remain dormant and fail to achieve their legislative purpose.

Similarly, Section 48C of the Internal Revenue Code provides a 30% tax credit for investments in facilities that manufacture components for the production of renewable or clean energy. The program was over-subscribed, and the 48C credit was instrumental in incentivizing the location of manufacturing plants and the creation of high-wage, skilled “green jobs” in the United States.

We believe that tax policy must be used to link American innovation with American production. All too often in the past innovating American companies have located their manufacturing plants in other countries. The provisions contained in Sections 1603 and 48C are vital to our ongoing global competitiveness. The NVCA and TechNet are asking Congress to take this opportunity to ensure our clean energy future with these extensions.

The economic downturn has significantly reduced the amount of private sector lending. For technologies that require significant upfront costs, the 1603 and 48C programs have been critical. Both of these programs proved extremely popular and the demand remains; extending them will help the clean tech industry move forward as the economy continues its slow recovery.

According to NVCA President Mark Heesen, “For the first time, tax policy was used to link American innovation – where the U.S. has always been strong –with American production – where too often in the past innovating companies have located their manufacturing plants in other countries so that they could remain viable companies.”

TechNet President and CEO Rey Ramsey added, “Clean tech represents an enormous economic opportunity for the United States and if we are to be a global leader in this area, we must support the growth of companies and entrepreneurs. The Treasury grant programs are effective in creating good paying jobs nationwide. Therefore, they ought to be extended.”

About TechNet:

TechNet is the national, bipartisan network of CEOs that promotes the growth of technology industries and the economy by building long-term relationships between technology leaders and policymakers and by advocating a targeted policy agenda. TechNet’s members represent more than one million employees in the fields of information technology, clean energy, biotechnology, e-commerce and finance. TechNet has offices in Washington, DC, Palo Alto, Sacramento, Seattle, Boston and Austin,Texas. Web address:

Thursday, December 2, 2010

Proposed regulations exempting advisers to “venture capital funds” from the registration requirements

On Friday November 19, 2010, the SEC issued Release No. IA‐ 3111 in which it articulated, among other things, the proposed regulations exempting advisers to “venture capital funds” from the registration requirements of the Investment Advisers Act of 1940. The proposed regulations are mandated by Section 407 of the Dodd‐Frank Wall Street Reform and Consumer Protection Act, and are expected to be codified by new Rule 203(l)‐1 under the Investment Advisers Act of 1940.


The proposed regulations are narrowly tailored to exempt those serving in an adviser capacity to venture capital funds. They do not apply to advisers to other types of private investment funds, such as private equity funds or hedge funds. Key points that are relevant to venture capital fund advisers are as follows:

1. A “venture capital fund” would qualify as such under the exemption only if it meets the following requirements:
* The fund represents itself as a venture capital fund to investors;
* The fund invests in equity securities of private companies in order to provide operating and business expansion capital (i.e., “qualifying portfolio companies,”) and at least 80 percent of each company’s securities owned by the fund were acquired directly from the qualifying portfolio company cash (and cash equivalents) and U.S. Treasuries with a remaining maturity of 60 days or less;
* The fund directly, or through its investment advisers, offers or provides significant managerial assistance to, or controls, the qualifying portfolio company;
* The fund is not registered under the Investment Company Act and has not elected to be treated as a “business development company”;
* The fund does not borrow or otherwise incur leverage (other than limited short‐term borrowing); and
* The fund does not offer its investors redemption or other similar liquidity rights except in extraordinary circumstances.
2. The exemption applies without regard to the number of venture capital funds advised by the adviser or the size of such funds.
3. The exemption is not mandatory, thus an adviser may voluntarily register.
4. The SEC has proposed a grandfathering provision for those existing funds that make venture capital investments and hold themselves out as venture capital funds. The provision applies to any venture capital fund that (i) represented to investors and potential investors at the time the fund offered its securities that it is a venture capital fund; (ii) has sold securities to one or more investors prior to December 31, 2010; and (iii) does not sell any securities to, including accepting any additional capital commitments from, any person after July 21, 2011.

Complete article