Monday, December 22, 2008

SF Biz Times: Saints Capital goes marching in, buys startups

"When venture capitalists get desperate, they may appeal to Saints.

Founded with $11 million just before the Internet bubble exploded at the beginning of the millennium, Saints Capital has become a $1.3 billion colossus by snapping up the assets of strapped venture funds, limited partners and other investors in alternative assets, often at pennies on the dollar.

Now, with the nation in recession, history is repeating itself, and Saints is buying baskets full of startup companies from investors seeking liquidity and freedom from ongoing cash-call commitments.

“I feel like a mosquito at a nudist colony,” said Ken Sawyer, founder and managing director of the San Francisco-based firm. “There are so many assets up for sale, it’s a really good investment opportunity for us.”

Saints is not alone.

Around the world, secondary investors have been busy acquiring assets from distressed investors of all kinds, including Wall Street investment banks."

"Saints last year was one of the most active venture investors in the United States, placing 149 investments, Sawyer said. The firm also enjoyed major exits, with seven companies in which Saints invested having initial public offerings — 20 percent of all Nasdaq information technology IPOs, he said. Other portfolio companies were sold for hefty profits, including TellMe Networks, which Microsoft bought for roughly $800 million.

This year has also been busy on the acquisition front.

In March, Saints said it had bought six companies from Safeguard Scientifics Inc. of Pennsylvania for $100 million and $31.5 million in assumed debt guaranties.

In June, Saints said it would buy interests in 54 companies from the Boston Scientific Corp. of Massachusetts for about $100 million.

In September, Saints bought interests in 10 companies from Innovacom Gestion, a Parisian venture capital firm, for an undisclosed sum.

And this month, Sawyer said Saints is spending roughly $100 million to buy portions of positions held in 27 companies — including LoopNet, the San Francisco-based commercial real estate firm — from the Chandler Family Trust. The trust is the only limited partner in Rustic Canyon Partners, the largest Southern California-based venture capita-l firm with $800 million in assets under management. The general partner of Rustic Canyon was a co-investor with Saints in that deal. The Chandler Family Trust is the former controlling owner of the Times Mirror Co., which previously ran the Los Angeles Times and other properties.

Sawyer expects to continue buying assets at a rapid clip into 2009.

“We are finding opportunities much like we found in the time period after the 2000 crash,” he said."

So Saints started buying other people’s assets, and did very well, posting an overall internal rate of return above 50 percent for all exits, according to Sawyer.

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