Kyphon to buy St. Francis for $525M, boosting struggling venture firm USVP

Updated

St. Francis Medical Technologies, of Sunnyvale, a company that treats spinal injuries, will be acquired Kyphon of Sunnyvale, for as much as $725 million, the companies said.

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This must be especially welcome for Silicon Valley venture firm US Venture Partners, a backer of St. Francis which has performed poorly lately (see data below). This deal comes just as St. Francis was about to go public; the offer was too good for St. Francis’ private investors to pass up.

Kyphon will pay $525 million in cash when it closes the deal, and up to $200 million more in cash or stock payments based on future revenue.

Venture backers, including Essex Woodlands, Trellis Health, Versant and US Venture Partners had invested about $27 million into the St. Francis over several rounds since the company was founded almost a decade ago. USVP owns 26.7 percent of St. Francis, and so is likely to get on the order of $140 million. Philip Young tells VentureWire (sub required) his firm will see a return of between 15 and 20 times its investment. We’re not sure what one of its funds USVP invested from, but you’ll see below that it hasn’t done too well lately.

It is another firm that has become bloated over the years, raising larger amounts of money and struggling to invest it all. The data shows USVP has lost more money for its investor so far than it has made from its funds raised in 1996, 1999 and 2000, as published by the Washington State investment board. It is the most recent data available, valid as of March 31. And this doesn’t included results from USVP’s 2001 fund, which is also clearly in the red. The table below shows the following, from left to right: 1) The date of Washington State’s investment into USVP; 2) the amount actually handed over to USVP so far to invest; 3) current market value of USVP’s private portfolio; 4) the total money returned by USVP, 5) the total value [3+4]; 6) gain since inception [(3+4)-2]; and 7) the Internal Rate of Return. Since Washington State is only one of dozens of investors, it will only get a sliver of the St. Francis bounty, so it’s not clear if it is in the black yet on USVP. Washington State continues to ignore our requests for more information about its investments (we’ve called and emailed at least five times over the past year). But St. Francis will go a long way in helping compensate for that $23 million loss you see in the last column.

Over the past few months, we’ve also tried several times unsuccessfully to contact partner Steve Krausz (the venture firm’s site is Flash-based, so there is no direct link to his profile) to ask him how he manages to sit on 13 boards, which is a tremendous amount of work. Boards meet, on average nine times a year. This means Kraus has a board meeting every three days, and that includes weekends. (Update: Gosh, in addition to the 13 mentioned on the USVP web site, we’ve just found evidence that he’s on most, if not all, of the following boards, too: Xponent, Occam, Montavista Software, Xirrus, Electric Cloud, Megapath Networks, Asempra and X1. We’re still verifying this, but the end result is profound, and must surely be a record: How do you hold a board meeting every day and a half, including weekends?).

We’re not sure how much success USVP has had in its IT investments. However, health care investments are doing well now, and USVP is smart to have to stayed diversified (other firms abandoned the sector during the last Internet boom). Partner Phil Young (left), responsible for the investment in St. Francis, sits on ten boards. So he has a more relaxed schedule: Only one board meeting every four days.