Saints Capital: Offering Secondary Market Liquidity

I recently had a very interesting conversation with Ken Sawyer, founder of Saints Capital, a new fund that offers secondary market liquidity to small companies and their shareholders. Let’s look at a few examples.

Tellme was just acquired by Microsoft for $800 Million. But this was an exit that took a long time to come along. Saints had acquired shares from one of their institutional investor back in 2002. It made subsequent institutional purchases in both 2005 and 2006 and also acquired common shares from employees in many different years. Saints had a strong belief that the management team at Tellme had commitment and vision to drive the company to a successful outcome even in 2002 when the Company refocused its business model and was losing a tremendous amount of money.

This story is representative of many venture funded startups out there whose exits have been elusive. Meanwhile, the venture capitalists who invested out of their older funds are approaching the end of those funds, and need liquidity on those long held investments. For some, strategies have changed, market preferences have shifted, interests have moved on to cleaner, greener pastures.

And in most of these cases, the entrepreneurs who have been slogging for 5-6-7 years, and have huge portions of their net-worths tied up in one non-diversified venture, are also nervous.
Take the example of Sidestep. Saints’ role here was to come in and buy out the founders, providing the liquidity they were seeking, the needed money to support the company, and in doing so become the second largest investor in the company. Sidestep is actually a very good company, and in a pretty hot space (travel search engine), so chances are, they would do well on the investment.

A third case that Ken shared with me was that of Primedia. Saints acquired a 10 company portfolio, including Internet Brands, Business.com, Military Advantage and several others from Primedia. They had an attractive exit for TMP worldwide. Substantial additional capital has been invested by Saints to help the portfolio companies grow, and while internet companies were out of favor in 2002 and 2003, these types of investments have proved quite popular in the current environment. Benchmark led a new round of investment in Business.com for example.

Saints has had 2 IPOs in 2006: Comvault (storage) – up 38% from IPO price as of the end of the year, and Accorda – third best performing IPO in 2006. In the latter, a developer of drugs for the treatment of multiple sclerosis and spinal cord injuries, Saints was the second largest investor. It priced at 6 and closed the year at $15.06. Currently trades at 19.70. Not bad.

Commvault was acquired as part of a portfolio purchase they did from Amerindo plc in April 2006. Other companies in the porfolio included Tellme, Force10, 3ParData and others. Acorda was acquired from Elan in December of 2005. The company went public shortly after that but priced well below the initial expectation and traded down after the IPO. Saints did not sell even after the lockup ended and after the Company announced good clinical results the stock went on a tear.

While private equity firms often sell companies to each other (recent example: AKQA was sold by Francisco Partners to General Atlantic), in venture, this is a far more rare phenomenon. A private secondary market doesn’t really exist, and yet, given the fact that the IPO bar is so much higher these days, and companies are taking generally longer to build, it looks like Saints is bringing to the party a much-needed way out.

So if you are a tired founder in need of liquidity, or a tired VC in need of portfolio rebalancing, perhaps you want to give Ken Sawyer a call. I can certainly make a few calls to companies who could use his services!