Benchmark Europe is now Balderton Capital

Benchmark Europe, one of Europe’s largest venture capital firms, has split from its U.S. counterpart, and changed its name to Balderton Capital.

The move is significant because it shows the European outpost of the U.S. firm has become successful enough to do business under its own name. Benchmark Europe raised a $500 million fund in December, is one of the largest VC firms on the continent and is starting to see its first returns: One of its investments, Yingli Solar, filed to go public yesterday on the NYSE. MySQL, another investment, plans also to go public soon.

The move is also notable because it shows how the venture model continues to tend toward local manager control. DFJ, Kleiner Perkins, Sequoia Capital and others have all expanded internationally — and will have to deal with the same challenge of managing relationships with their foreign counterparts. Indeed, DFJ saw serious defections in China two years ago.

Benchmark U.S., which has always had an equal partner structure internally, compared to most firms where there is significant hierarchy. Kevin Harvey, of Benchmark here in Menlo Park, Calif., said the intent from the beginning was that Benchmark Europe would have local autonomy, and it has been run that way. Local managers with autonomy are more efficient and make better decisions, Harvey said.

In 2000, to get Benchmark Europe started, the U.S. team had helped the European team firm with brand affiliation. With hits like eBay, Benchmark U.S. had the reputation that could help Benchmark Europe access deals. In return, Benchmark’s U.S. partners enjoyed significant ownership of “carry,” or profits, in Benchmark Europe’s funds. That carry diminished with Benchmark Europe’s second fund, and has been eradicated entirely for Benchmark Europe’s $500 million third fund raised in Dec. That fund will be called Balderton I, as of today.

The change has happened quickly. Balderton doesn’t even have a Web site yet.
Balterton has about $1.5 billion under management, and has invested in more than 70 companies, which also include Bebo, Betfair, Alphyra and Setanta. Barry Maloney, general partner of Balderton, tells VentureBeat that the partners on both sides have invested in each other’s funds. The only difference is the change in carry.

Another benefit is that Balderton can now encourage the entrepreneurs it backs to seek capital from Benchmark in the U.S., without those entrepreneurs getting concerned about giving too much of a stake to a single fund. Maloney said Balderton will treat Benchmark U.S. as a “most favored nation” when its companies seek to raise money in the U.S. MySQL is an example of a company where both sides invested in the same company.

There will be no change in the Israeli team’s name or organization, though Benchmark’s Harvey said the long-term goal is for that team to become an independent brand too.

from VentureBeat

Palm sells 25 percent stake to Elevation for $325M

Palm Inc., the smart-phone maker, will reportedly sell a 25 percent stake to a private equity firm Elevation Partners, of Silicon Valley, for $325 million.

The move, reported by the WSJ, comes after two years of a sideways trading stock (see chart below), a recognition that Palm faces ever increasing competition, and indecision about what strategy it should pursue.

It also comes after a former employee of Palm, Gibu Thomas, argued in a column at VentureBeat recently that Palm should not sell to a private equity firm. There, he argued that Palm should get over aspirations to be the “next Apple,” and sell to a corporate strategic investor — because the forces of competition are too great.

Selling a stake to a private equity buyer keeps Palm’s independent aspirations alive — because a private equity buyer is more likely to try to want to restructure Palm and sell off its stake again down the road.

Notably, Elevation Partners has ties with Apple, and it plans to introduce some former Apple talent to the Sunnyvale, Calif.-based Palm. Jon Rubinstein (pictured above left), Apple’s former head of hardware who helped oversee the creation of the iPod music player, will join Palm as executive chairman and head up product development, according to the WSJ.

Fred Anderson, a partner at Elevation, was a former Apple chief financial officer, will join Palm’s board (recently his relationship has soured with Apple’s Steve Jobs). Another Elevation partner, U2’s Bono, helped introduce the U2 iPod. And of course, Roger McNamee, another partner at Elevation, known for the prolific devices that adorn his belt — now likely to carry both a Palm Treo and an iPod — will also reportedly join the board.

This all comes, of course, just as Apple is to unleash its highly anticipated iPhone. And Palm recently unveiled the rather perplexing Foleo — designed to be a companion to Palm’s smartphones, but never quite making the case as to why it is any better than a laptop (at least in our view).

According to the WSJ, Palm will “pay $940 million in cash, or about $9 a share, to existing shareholders whose ownership of the company will drop to 75 percent under the deal’s terms. The company will fund the restructuring with the $325 million from Elevation, $400 million in new debt and more than $200 million of cash on its balance sheet to complete the transaction.
According to the terms, Elevation is paying a 16 percent premium on Palm’s price, the WSJ said.

Trends in Compensation Packages in Venture-Backed Companies

In general, while compensation is on the rise, the rate of increase slowed between 2005 and 2006. Founder compensation (in whatever role they play) is rising faster than non-founder compensation.

There are some theories on this including ...

(a) founders are becoming more savvy about their compensation packages and
(b) there is increased competition between VCs for good deals and one way to win deals and keep founders happy is to pay them more.

Non-founder CEO compensation has been fairly consistent for the past three years while founder CEO comp is up. As companies mature, these numbers tend to converge, although in general non-founder CEO’s make more cash comp – usually because they have significantly less equity – than founder CEO’s.

Comp for financial executives - both founder and non-founder - is on the rise. Double digit increases in cash and equity compensation for the past three years is not irregular.

Engineering and technical executives have seen a small rise in cash comp over the past couple of years, but equity has remained relatively stable.

Sales executive compensation has remained relatively flat. That being said, our experience is that they are making more incentive and commission compensation which follows the general macro economic uptick the U.S. has seen the past couple of years.

Marketing and business development executives have seen a steady increase in compensation over the past couple of years. Cash comp is up in the low double digits and equity about the same. With companies generally performing better than in past years, they are spending more on marketing and business development functions, as opposed to fulfilling these roles with a combination of the CEO and sales.

One other trend is the apperance of the “management carve out.” Given the recent past of tough times for start ups and dilutive / recap financings, many companies were left in a position whereby the management and employees did not own sufficient equity in the company to keep them motivated.

In some cases, they owned plenty of equity, but due to large amounts of capital raised and the VC’s liquidation preferences, their equity was out of the money in any reasonable liquidation scenario. To solve this issue, investors and management developed the concept of “management carve outs” whereby the employees would receive a certain percentage of proceeds on a liquidation event (usually 5-10%) on top of anything they would receive for their equity.

In essence, these employees were receiving a liquidation preference that sat along the liquidation preferences held by investors. As general economic conditions improve, these are becoming less common, but are still a valuable tool to keep management and employees incentivized.

from askavc