3Par Venture Backers Reap $560 Million by Hanging On
3Par Determines Revised HP Proposal Is Superior
Tony Avelar/Bloomberg
An employee works on 3Par Inc. InServ T-class data storage servers at the company's headquarters in Fremont, California.
An employee works on 3Par Inc. InServ T-class data storage servers at the company's headquarters in Fremont, California. Photographer: Tony Avelar/Bloomberg
Sept. 3 (Bloomberg) -- Ashok Kumar, senior technology analyst at Rodman & Renshaw LLC in New York, talks about Hewlett-Packard Co.'s agreement to buy 3Par Inc. Hewlett-Packard offered to buy 3Par for $2.35 billion, ending an 18-day bidding war with Dell Inc. for the maker of storage systems and stepping up its rivalry with EMC Corp. Kumar speaks with Rishaad Salamat on Bloomberg Television. (Source: Bloomberg)
Patience paid off for the venture capitalists who backed data-storage supplier 3Par Inc.
3Par’s earliest and biggest venture investors, Menlo Ventures, Worldview Technology Partners and Mayfield Fund reaped a combined $560 million windfall by holding onto shares acquired near the time of the company’s initial public offering in 2007.
Their strategy broke with the tendency among Silicon Valley firms to sell shares soon after a company goes public. Other venture capitalists, stung by the recession and an IPO drought, are eager to find new ways to lift returns, said Barry Schuler, a managing director at DFJ Growth Fund in Menlo Park, California. Some may be tempted to hold onto stock longer.
“Everybody is adjusting, post this last meltdown,” said Schuler, former chief executive officer of America Online Inc. “The tradition with VCs is that they are not managers of public equities.”
Of the 29 U.S. venture-backed technology companies that went public in 2007 and haven’t been acquired, six still have all of their early funders on board, according to Bloomberg analysis of regulatory filings.
Hewlett-Packard Co. yesterday won a bidding war for 3Par with an offer of $33 a share, valuing it at $2.35 billion.
Dell Bidding
Menlo, Worldview and Mayfield, which own a combined 38 percent of 3Par, saw the value of their holdings surge by $559.3 million since Dell Inc. last month kicked off a tussle with HP. Before the first bid was made public Aug. 16, Fremont, California-based 3Par traded at $9.65, or 31 percent lower than the initial public offering price in November 2007. The stock was trading below its IPO price for most of the past three years.
The bidding ended yesterday when Dell opted not to top HP’s offer. Buying 3Par gives HP data-center products to help it compete with storage leaders such as EMC Corp.
“In this particular case, the VCs really did believe in the long-term potential of the company,” said Lise Buyer, founder of Class V Group, an IPO consulting firm in Portola Valley, California. “It looks like this time they made the right move for the right reason.”
3Par rose 1 cent to $32.89 at 12:24 p.m. on the New York Stock Exchange. Shares of HP, the world’s biggest computer maker, gained 61 cents to $40.29.
Boosted Stake
Menlo, based in Menlo Park, California, and Worldview, based about 17 miles away in San Mateo, increased their 3Par holdings since the IPO. Menlo raised its stake to 9.37 million from 9.32 million shares in 2007, while Worldview’s climbed to 8.38 million from 7.89 million, according to filings with the U.S. Securities and Exchange Commission. Mayfield, also based in Menlo Park, cut its holdings by 40 percent to 6.2 million shares from 10.25 million.
Based on the agree-upon sale price, the stake owned by the three firms is worth $790.5 million.
James Wei, a general partner at Worldview and 3Par board member, declined to comment. Mark Siegel, the Menlo partner who sits on 3Par’s board, didn’t respond to requests for comment. Mayfield spokeswoman Kamini Ramani declined to comment.
Menlo and Worldview have sold most of their holdings in other technology companies that went public in 2007. Menlo has sold almost all its stake in chipmaker Cavium Networks Inc., and Worldview has exited networking-equipment company Infinera Corp.
Rest of Industry
While the 3Par acquisition will help venture returns, it may not be big enough to boost confidence across the board for the VC industry, said Alex Bangash, managing director of Middletown, New Jersey-based Rumson Consulting Group, which invests in venture firms.
From the beginning of 2008 through June of this year, 44 venture-backed companies have gone public in the U.S., about half the number in 2007 alone, according to the National Venture Capital Association. U.S. venture fundraising tumbled 56 percent to $1.9 billion in the second quarter from a year earlier, the association said.
“The amount of negativity about venture is at an all-time high,” said Bangash, who is also co-founder of Trusted Insight Inc., an online marketplace for alternative investments. “This is not going to reverse the trend.”
To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net
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