With talk about a multibillion-dollar deal to sell NBC Universal to Comcast burbling away, General Electric CEO Jeff Immelt popped the top on a $250 million venture fund designed to buy stakes in small healthcare technology companies.

“What we’re trying to do is embrace the venture community, try and do a series of early-stage and later-stage type investments,” Immelt said in an interview. “We don’t do everything inside our four walls.”

Competing venture capitalists might consider Immelt’s embrace more of a bear hug. GE is taking a similar approach to the energy industry. It has a stake in A123 Systems, the battery maker that was one of the best-received initial public offerings of the year. Scott Malone, our reporter who interviewed Immelt, notes that taking stakes in smaller companies rather than buying them outright gives GE more flexibility. It gains exposure to a wider array of technologies, any one of which could take off.

“GE is in the midst of a $6 billion drive to revamp its healthcare arm, called ‘Healthymagination,’ that includes rolling out products intended to help hospitals and other health providers cut costs and making investments to encourage the adoption of electronic medical records,” Malone reports.

Might be just cosmetic, but a new name would be a good place to start.

One of the biggest criticisms made of the IPO process is that investment banks turn around and flip hot new stocks for a big, quick profit, crowding out institutional investors with a longer attention span, and showing with no regard for a company’s long term prospects.

But Menlo, California-based InsideVenture, which is backed by major venture capital firms such as Venrock and Frazier Ventures, major institutional investors such as T Rowe Price, and even the New York Stock Exchange, thinks its new Hybrid Private-Public Offering (HPPOs) method of launching IPOs, introduced this week, is a way around that problem and a way to spur a recovery in the IPO market.

Here’s how an HPPO would work: small and mid-cap companies would still have to file standard IPO registrations with the U.S. Securities and Exchange Commission. But the company would then work with InsideVenture to allocate about half the shares to its existing shareholders and any of the 225 long-term fundamental investors that are InsideVenture members. Once it had lined up a roster made up of enough long term investors, the company would launch its IPO.

InsideVenture CEO Mona DeFrawi told Reuters in November that the disappearance of boutique investment banks after the dot com bust earlier this decade left the major investment banks focused mostly on larger-cap companies, leaving an opening for her firm’s services.

In March, InsideVenture introduced 50 private healthcare and tech companies to its member institutional investors at a conference, but a spokesman for InsideVenture said no companies have yet filed to do an HPPO-type IPO.

Still, with an IPO market that so far in 2009 has only seen seven deals, by mature companies at that, anything is worth a try.

(PHOTO: Reuters/Chip East, New York Stock Exchange, March 2009)

Even in the depths of a recession, venture capitalists are relentlessly upbeat, but one of their big customers poured cold water on that Thursday, asking some members gathered in Boston for the annual meeting of the National Venture Capital Association to go out of business.

“I hope some of you go out of business. I hope that does happen,” Rebecca Connolly, a partner in Fairview Capital, said on a panel. Her West Hartford, Connecticut, firm has about $3 billion under management, 70 percent of it in venture capital funds and the rest with private equity.  Fairview, a fund of funds, manages money for pension funds and endowments

Connolly said that until 2000, venture capital provided good returns but since the dotcom bubble burst in 2001 returns have been very disappointing, hardly justifying the investment. Venture capitalists are supposed to find small companies with big potential and help them grow into big companies, like Microsoft, Starbucks or Intel.

“Let’s just flush everything out and get back to less competition, less money,” Connolly said, adding a caveat: “Just not my funds.”

The venture capitalists meeting here have been pondering what to do to start making more money again. They discussed ways to get initial public stock offerings going again, which are a good source of high returns.

When venture capital firms disappear they don’t die with a bang, or even a whimper. Instead, they just fade away, as partners are unable to raise new rounds of funding for investment. One senior official of the NVCA, asked about Connolly’s comments and whether lots of funds were starting to disappear, had a succinct answer: “I don’t want to talk about it.”

Photo: Fairview Capital

peHUB reports:

Forty U.S.-based venture capital firms raised just $4.3 billion in the first quarter of 2009, according to data released this morning by Thomson Reuters and the National Venture Capital Association. The downside is that this represents the lowest number of funds to raise capital since Q3 2003. The upside is that the actual amount of capital raised was higher than the $3.5 billion raised in Q4 2008 (slight solace, but solace nonetheless).

Just three of the funds were first-timers, while the largest raiser was August Capital ($650m for Fund V).

In a prepared statement, NVCA president Mark Heesen said: “First, the majority of venture firms are not actively fundraising at this time because they have either recently raised a fund and are investing those dollars or are waiting until market conditions improve. Second, despite the recession, venture firms with solid track records continue to be able to secure sizable commitments from limited partners as there remains a great deal of promise for future returns from the venture capital asset class.”

The full release is below.

VENTURE CAPITAL FUNDRAISING ACTIVITY SLOWS CONSIDERABLY IN THE FIRST QUARTER OF 2009

Cisco's $590 million all-stock purchase of Flip video camera maker Pure Digital last week may sound like a nice price for the venture capital-backed company, especially given the non-existent exit market right now.

But Venture Capital Journal editor Larry Aragon writes in a PEHub blog post that the $590 million number doesn't sound that meaty when you calculate the return on investment for Pure Digital's venture capital backers. And that's especially true because some top-notch VC firms like Benchmark Capital and Sequoia Capital have invested in Pure Digital. (Venture Capital Journal and PEHub are part of Thomson Reuters.)

Aragon calculates that if Pure Digital's VC investors put in about $95 million, and assuming that they own about half the company (since it's a stock deal), "that's a return of just over 3x their money."

Now, Silicon Valley's brand-name venture capital firms have long been used to returns on investment that are several multiples higher than that, usually around 10 times the investment. We know the dotcom boom days are never coming back, but a selling price that brings back only three times the money invested -- that too, over a five-year period, according to Aragon -- is cause for concern about how profitable the VC model really is.

Surely, the VCs might have been tempted to hold out for a better return on their investment if the public markets showed any signs of life. But with IPOs of venture capital-backed companies remaining a dream in the current environment, guess the venture capitalists decided that Cisco's offer was one they couldn't refuse.

Photo: Pure Digital Website

Jay Sidhu is back.

The former chief of Sovereign Bancorp has a tentative deal to invest $30 million in Federal Trust Corp and take control of the small Florida-based savings and loan. Federal Trust Bank operates 11 full-service offices and had total assets of $639.8 million as of June 30.

About two decades ago, Sidhu started down a similar path, when he took over as chief executive of Sovereign. By the time he left had transformed a $400 million Pennsylvania thrift into a regional bank with some $89 billion in assets and 800 branches, stretching from Maryland to Boston. Under Sindhu, Sovereign acquired more than two dozen banks and branch networks divested by bigger banks.

But Sidhu, who stepped down from the bank in 2006, was also a magnet for criticism. Disgruntled investors complained about Sovereign’s stagnant share price, and his agreement to sell a minority stake to Spain’s Santander and simultaneously buy Brooklyn, New York’s Independence Community Bank Corp.

Critics also decried Sovereign’s corporate governance, accusing Sidhu of controlling his board by granting directors exorbitant pay and lucrative inside deals.

The New Delhi native has apparently been planning a comeback. He controls Sidhu Advisors, an investment vehicle. And in March, he filed with regulators for an IPO of Sidhu Special Purpose Capital Corp, blank-check company, to raise up to $150 million.

If past is prologue, he’ll use Federal Trust as a platform for acquiring more banks. And along the way, he’ll no doubt attract some pointed criticism.

(Photo credit: Federal Trust logo from PR Newswire)

PE Hub’s Connie Loizos has an interview with Craig Cooper, who recently joined the VC firm founded by Israeli billionaire and media mogul Haim Saban:

Saban Capital quietly entered the business of venture capital a few months ago, adding an early-stage digital media practice to his seven-year-old, L.A.-based investment company, Saban Capital Group. For the uninitiated, Saban is a former television producer whose Saban Entertainment company gave the world, for better or worse, “Mighty Morphin Power Rangers” in the ‘90s [Editor's note: Saban also wrote the "Inspector Gadget" theme song].

Cooper hasn’t pulled the trigger on any investments yet. But in a short phone conversation, we talked a bit about Richard Yen, who joined Cooper in June from Blueprint Ventures; we discussed his focus on digital media and consumer wireless startups; and he explained why he’s cut back on his daily dose of TechCrunch.First, how did you meet Haim Saban?

I was a partner in the Softbank Tech Fund when we were first raising it in 2004, and Haim was an investor, and I got to know him very well. We started talking in the middle of 2007 about his position in LA and his capital.

Was that a long conversation? Fortune magazine estimates his net worth is more than $2 billion. How much is he giving you to invest?

We have an allocation that we don’t publicly disclose, but we have a lot of dry powder.

What’s your role within the broader firm?

Well, we’re investing in companies on a standalone basis, but also looking across all of Saban’s investments in the context of how what we do might drive larger private equity deals. Facebook was a tiny startup just a few years ago, if you remember. So it’s very much a cross-platform intelligence-based platform that we’re trying to build.

What amounts are you looking to put to work?

I was Israel last month looking at early-stage deals in the range of $100,000 to $500,000; we’ll also look at deals that are between $10 million and $20 million. Because we don’t have any LPs telling us what to invest, we have a lot of flexibility.

Who’s “we”? Will Saban himself need approve every deal you want to do?

It’s effectively a group decision. We have an investment committee that includes Haim, [Saban Capital Group COO] Adam Chesnoff, and myself, and we run the practice like a traditional investment firm. We have weekly meetings and the whole team contributes into deals. So the private equity guys tells us what they’re seeing and we tell them what we’re seeing; we think that approach gives us a better overview of what’s happening across the spectrum.

Are you primarily targeting the LA area as you look to invest in digital media and wireless startups?

Our initial focus is on the San Francisco-San Diego corridor. But we’re going to be looking internationally. The U.K. and European markets are big for the rest of Saban Capital, and we have strong links into Israel as well. In fact, we’re hosting a tour of 15 Israeli companies that are coming through LA this fall, and some of our strategic partners will come and meet those companies. There’s a lot incubation over there - and some very unique ideas.

There are two of you and 10 guys on the private equity side. Will that even out over time?

We’ll certainly look to scale the group as we scale our invsestments. Hopefully we’ll have enough deals that we’ll need to bring on additional resources, but we haven’t contemplated that yet.

Where are you getting your deal flow? Who do you see most down in LA?

I’m doing a lot with [former AOL CEO] Jon Miller, but I was also here in LA for Softbank. And historically, because of my wireless background, I’ve had big deal flow through that channel. There are only a few people in terms of digital media in LA who see most of the deals and I’m probably one of them. That said, if someone is raising money, that’s a flag for me. I’m looking for independent opportunities that I can develop.

You don’t want to see entrepreneurs who are raising money?

I want to invest in companies that I find, whether they are raising money or not. There’s so much clutter in our economy. Everyone is jumping on digital media. Look at our principal news sources: mocoNews, TechCrunch. There’s no competitive advantage anymore except to break out of the pack and actively identify deals that you think are promising. Otherwise, I’m just reading TechCrunch and calling the same guys that everyone else is.

How are you finding these companies that aren’t soliciting funding?
I read 50 to 100 magazines a week. I’m continually hunting for information about new opportunities. I just pride myself on finding things that no one else has identified. I cold call a lot of people.

Read the full interview here

PE Hub’s Connie Loizos has an interview with Martin Pichinson, co-founder of Sherwood Partners, known to VC industry veterans as “the undertaker” for its speciality in shutting down failed companies. As one might imagine, Sherwood’s business is booming:

In January of 2007, the firm was being asked to take on three new clients a month. Fast forward to today and it’s taking on three to four newly imploding companies every week. Most of them are Web 2.0 startups backed by Valley VCs, but Sherwood also counts Google and Microsoft as clients.

I reached Pichinson — an extroverted 62-year-old who once managed musical acts and tends to pepper his speech with words like “caca” — yesterday, after he returned from a three-week trip to Poland. Here’s part of that conversation:

How long does it take you to wind down a company?

If we restructure the company — try to save it, it’s anywhere from 3 months to 12 months. If we close it, it takes up to a year because of all the legal ramifications.

Where are these startups, and their backers, going wrong?

Well, you’ve got to start bringing in companies like Sherwood early to work with managers and help shave off costs. It’s all about extending the runway long enough that customers can absorb a product. Everyone comes up with this cockapoo about startups. It’s not about being smart. It’s about being around long enough.

Cutting costs, negotiating better — these sound like business fundamentals that a startup’s VCs should be helping with.

This is what people don’t understand: decades ago, when a VC put money into a Cisco or HP and sat there and worked with them, they were managing a $2 million fund. Now, with funds the sizes they are, do VCs really have the time to work with all these companies when they don’t know which will be the winner? No.

Click here to read the full interview at PE Hub.

PequotVentures, the venture capital arm of hedge fund Pequot Capital Management, has shut down its Silicon Valley office and now operates only out of New York. Managing general partner Lawrence Lenihan said the contrarian move made sense because the plethora of venture capital operators in Silicon Valley forced PequotVentures to compete on price.

That's not so true in New York, where there's less competition on the fund side but lots of promising media and finance businesses, he told the Reuters Hedge Fund and Private Equity Summit on Tuesday.

New York is also looking like increasingly fertile ground relative to Boston's once booming Route 128 corridor. Lenihan, who admits that as a New Yorker he may carry a certain bias, said that shuttle flights which once were packed with New York investors going to Boston to check out companies are now carrying many more Boston investors in the opposite direction.

"If you look at the deal flow and you look at the amount of companies that are being built, I think there's been a noticeable slowdown in technology innovation in the Route 128 corridor," he said.