We’re thrilled to announce that Intel Capital has joined the investment syndicate at our portfolio company, IP Commerce. The Company and Intel announced the financing earlier today.

We’ve worked with Intel in a number of other investments, including our co-investment at Crisp Media, and introduced them to IPC several months ago. They, like us, were immediately intrigued by IP Commerce’s platform as a service (“PAAS”) approach to electronic payments. Ultimately, Intel concluded that the Company is the clear leader in its space and that the Company’s approach to integrating value added services into the payment process stream is unique and incredibly valuable to payment application developers.

I’m personally excited to be working with Intel here as we’ve developed a valuable repeat relationship with them. In particular, I’m pleased to once again be working with Bavanipratap Rana, my colleague from Intel at Crisp Media, and Vibhor Rastogi, who together will represent Intel on this investment. Rana and Vibhor have a keen understanding of the Company’s opportunity and will work hard to bring the full resources of Intel along to support the Company’s efforts. Welcome to the team and congratulations to IP Commerce on completing this important financing.

Meritage Funds is pleased to announce that David L. Solomon has been appointed as a Managing Director of the firm. Mr. Solomon was a co-founder of Meritage and has served as an Operating Partner of the firm since its inception. Mr. Solomon has 16 years of operating and entrepreneurial experience and 13 years of public accounting experience.

“David’s proven entrepreneurial, management and investment judgment will be key to the Firm’s ongoing success.” stated Jack Tankersley, Founder and Managing Director of Meritage Funds. “With David’s decision to assume a leadership role, the Firm’s long-term future is bright.”

Mr. Solomon currently serves as Chairman of the Board of Meritage portfolio company IP Commerce and served as director of Meritage portfolio company Diveo Broadband Networks until its sale in December 2010. Mr. Solomon served as CEO and later Executive Chairman of Meritage portfolio company NuVox Communications from November 1999 until its $643 million acquisition by Windstream Corporation in November 2009. Under Mr. Solomon’s leadership, NuVox grew its annual revenues from less than $200,000 to over $530 million. Prior to NuVox, Mr. Solomon served as CFO of Brooks Fiber Properties (acquired by WorldCom for $3.4 billion) and as a Partner with KPMG.

Congratulations to the Masergy Communications team on signing a definitive purchase agreement with ABRY Partners! Masergy is the last remaining investment in Meritage Fund I’s portfolio and we are delighted that the proceeds from this sale will put this Fund in the top quartile of communication-oriented funds of its vintage year.

For more information about this transaction, read Masergy’s press release here.

We’re pleased to let you know that our portfolio company, Crisp Media, has completed a $6 million growth equity financing led by EDB Investments (“EDBI”). You can read Crisp’s full release here and TechCrunch’s reporting on the financing is here. Based in Singapore, EDBI is a leading strategic investor focused on assisting operating companies in their efforts to expand into the Asian Pacific (”APAC”) region.

Over the past year, Crisp has established itself as the leading mobile rich media vendor in North America. The Company has struck strategic relationships with nearly every major online publisher in North America, including Yahoo!, CNN, The Weather Channel, ESPN, The Wall Street Journal, MSN (Microsoft). In addition, the Company has established a strong reputation within the agency and advertiser communities for its ability to deliver large mobile rich media buys, that are served from a single technology platform reaching smartphones, tablets and other connected devices. The Company’s outstanding campaign execution has resulted in repeat advertising buys from some of the largest brands in the world including Toyota, Ford, Sprint and others.

Many of Crisp’s customers (both publishers and agencies) market globally. To date, Crisp has executed a number of global campaigns, serving these campaigns from the Company’s North American operations. With increasing global demand for Crisp’s platform, particularly in APAC, the Company embarked on a plan to establish operations in the APAC region, culminating in EDBI’s strategic investment. EDBI’s investment will not only provide Crisp with the capital to facilitate this expansion, but will also offer the Company critical contacts in the APAC region, accelerating the Company’s market entry.

We welcome EDBI in joining Meritage and Intel Capital in Crisp’s investment syndicate and look forward to working with both EDBI and management to establish Crisp as the leading global mobile rich media platform.

Separately, the Internet Advertising Bureau (”IAB”) mobile working group has decided that its work to standardize how rich media advertising is integrated into mobile application environments will be based on ORMMA.  ORMMA (open rich media mobile advertising) is an open standards initiative of which Crisp Media is a founding member.  Xavier Facon, Crisp’s CTO, has been instrumental in launching ORMMA and establishing this vendor-agnostic approach to delivering in-app rich media ads as an industry standard in very short order.  This emerging standard will serve all participants in the mobile ecosystem well, including publishers, advertisers, and rich media vendors like Crisp.  Kudos to the ORMMA members for doing something that is good for everyone in the industry.

Meritage is a private equity firm having raised just over $600 million in committed capital since formation. We typically make two to four new investments per year. At the start of 2010, we had a total of eleven portfolio companies. During the year, we sold three of our companies - Diveo, NuVox and NewPath - to strategic buyers. We were delighted with each of these transactions.

In the case of Diveo and NuVox, our exit was frankly overdue as our Fund I made its initial investments in these companies in 1999. In an ideal world, these companies would have been sold as early as 2007 and certainly by 2008, as both were strongly EBITDA positive with excellent growth. As we all know well, strategic buyers had limited appetite for acquisitions in the 2008-09 timeframe, and the timing of our 2010 exits was due in large part to the return of strategic buyers with pent-up demand to the marketplace.

Both NuVox and Diveo were formed in frothy markets where debt and equity funding was readily available for capital-intensive projects, and both companies had large, unwieldy investment syndicates. As these companies started to mature, they encountered perhaps the most difficult markets (both financial and operational) in the history of the communications industry. While many larger and better-known enterprises failed in this market, NuVox and Diveo survived by virtue of significant restructurings and excellent leadership. In the case of NuVox, Meritage partner David Solomon was the Chief Executive Officer and led the company not only through a significant restructuring, but also through two major acquisitions. Under David’s stewardship, NuVox grew from a few hundred thousand dollars in revenue in 1999 to well over $500 million in revenue at the time of its sale. Interestingly, there were investors in NuVox who chose not to participate in the restructuring, and therefore did not benefit from David’s work. In the case of Diveo, Bob Goad stepped in and provided the operational and strategic leadership necessary to build the company into a strongly EBITDA-positive entity following its restructuring.

NuVox was purchased by Windstream Communications in February for approximately $650 million, and Diveo was purchased by Universo Online in December for approximately $475 million. We at Meritage take great pleasure in having been part of building these two significant enterprises. Both companies were started in the best of times, and both weathering the worst of times. NuVox and Diveo are now in the hands of significantly larger enterprises where they will be important earnings contributors going forward.

The third company we sold in 2010 was NewPath Networks, a Fund III portfolio company. NewPath was an altogether different story, as the sale of this company occurred only 16 months from the date of our original investment. We invested in NewPath alongside Charterhouse Group in April of 2009, believing that the company’s distributed antenna system (“DAS”) networks represented the next generation in communications tower infrastructure for high-density markets. We also believed that NewPath’s management team, led by Mike Kavanagh, was the best management team in the sector. NewPath was the smallest of the three “pure play” DAS operators by size but had achieved strong market positioning as a result of its strategy of building systems with high lease-up potential.

When we participated in the company’s $30 million institutional financing, we believed NewPath had adequate capital to build a significant footprint and make needed operational gains. Shortly after the closing, however, the industry landscape changed dramatically. First, our largest competitor was purchased by a large private equity firm, which made available significant additional capital (rumored to be $150 million) to this competitor. Our second largest competitor responded by raising $128 million in a significant equity financing. All of a sudden, NewPath’s $30 million looked quite modest! We quickly initiated a financing effort to raise at least $75 million, despite our concerns about dilution. Soon after hiring an investment banker, NewPath was contacted by both of its pure-play DAS competitors as well as several major tower operators, all seeking to purchase NewPath rather than have us raise additional capital. The company’s pure-play DAS competitors had the most to gain from an acquisition but proved to be “flat footed” in the process, thus setting the stage for the ultimate acquirer, Crown Castle, to become the dominant force in the sector.

Crown Castle purchased NewPath in September 2010 in a transaction that valued the company at approximately $115 million. By combining its communications towers and capital with NewPath’s DAS capabilities and know-how, Crown is now extremely well positioned. Although we would have liked to have grown NewPath into a much larger company, we realized that given the limited resources of the NewPath investors and the enormous dilution that was in store if we proceeded to raise more capital, we were ultimately on a precarious path. Therefore, from a portfolio management perspective, this was an excellent transaction.

Our success in 2010 demonstrates that the strategic buyer is alive and well for services companies. Buyers are seeking scale and/or seeking to fill specific strategic needs. This means that there continues to be an enormous role for private equity investors to grow their portfolio companies both organically and inorganically to take advantage of the current appetite of strategic buyers. Of course, the downside of an improving market is the impact on pricing of new investments. As we have learned on more than one occasion during the past ten years, private equity investors must be disciplined from a valuation perspective in order to generate attractive returns.

In a recent conversation with one of our limited partners, we learned that their 2010 distributions exceeded their internal forecast by 2.5 times, illustrating that our strong 2010 liquidations was an industry-wide occurrence. While the volume of activity will likely not match the 2010 level, we at Meritage believe that 2011 will continue to offer a robust environment to sell strong, profitable and growing companies.

Meritage Funds is pleased to announce that Ryan Pollock has been promoted to Managing Director of the firm. Mr. Pollock joined Meritage in 2004 and brings 14 years of operating and private investment experience to Meritage. Since joining the firm, Mr. Pollock has been instrumental in shaping the firm’s investment thesis, sourcing new investment opportunities and managing the firm’s investment portfolio. Mr. Pollock’s promotion is in recognition of the significant contribution he has made to the firm and to the high expectations the firm has for him in the future.

“Ryan has been with us seven years, and has proven to be very effective in working with our portfolio companies and very diligent in the sourcing arena.” stated Jack Tankersley, Co-Founder of Meritage Funds. Meritage Co-Founder David Solomon noted that “Meritage prides itself in bringing the combination of both proven operating skills and investment talent together to best serve our portfolio companies. Ryan’s experience here at Meritage, along with his prior experience as an early employee who helped start a major financial services firm, allows us to build on a tradition of investment professionals with a combination of both skill sets.”

Prior to joining Meritage in 2004, Mr. Pollock worked for Investec Asset Management, a $70 billion global investment management company based in London. Mr. Pollock holds an undergraduate degree from the University of Cape Town, a graduate degree in International Economics, Politics and Philosophy from Oxford University and an MBA from the University of Texas at Austin, where he graduated as a Venture Fellow. He currently serves as a director of Miniweb Technologies and Perlego Systems, both Meritage portfolio companies. Mr. Pollock is a member of the board of directors of the Rocky Mountain Venture Capital Association, a venture advisor to the Founders Club in London, an executive coach to MBA students at The Daniels College of Business at Denver University, and the founder and Chairman of Starfish Greathearts Foundation USA.

We have always believed that successful investors differentiate themselves by contributing to the value creation process at each portfolio company. As a result, we stay close to our roots, focusing our investment efforts on technology-based service enterprises that leverage recurring revenue business models. While this focus is well-defined and enduring, our investment charter has historically offered us tremendous flexibility regarding the developmental stage of the companies in which we invest.

We are grateful for that flexibility, because it has enabled us to construct diversified portfolios targeted at the investment stage(s) where we see the best risk/return ratio. That said, we are constantly refining our stage orientation to ensure proper alignment with current and long-range market conditions, the objectives of our Limited Partners and the skills, interests and intellectual assets of our firm.

Recently, we have narrowed our stage orientation to focus exclusively on Growth Equity opportunities. We believe that Growth Equity investment is an investment style unto its own, separate and distinct from venture capital and leveraged buyout investments as traditionally defined.

So what is Growth Equity? Definitions abound, but in our view Growth Equity investments should exhibit the following characteristics:

Proven Value Proposition and Economic Model

Candidates for Growth Equity investment typically operate in a quantifiably large market with a proven value proposition and economic model. These businesses know how to sell their product/service and how to identify their target customer and understand the economics of customer acquisition. With this foundation in place, growth-stage businesses can deploy investment capital at the use(s) of proceeds that generate the highest return on investment.

This cannot always be said of venture investments, which often wander in the woods and must “pivot” before discovering a market, or leveraged buyouts, which must focus on repayment of debt to create equity value.

Attractive Risk-Adjusted Upside Potential

Growth and value are concepts that are inextricably linked in the financial markets. It is a well-known axiom that the faster a company is growing, the higher the multiple it commands, and vice versa. It is obvious but worth emphasizing that growth-stage businesses create incremental value by growing revenue and profitability. Growth potential is unbounded (except by market size and competitive dynamics) and so Growth Equity investment return potential is unbounded as well.

The same can be said of venture investments, although exit value is often tied more to “strategic value” (which can be fleeting) than financial value. While it is easy to recall high-profile acquisitions of venture-backed companies with unproven economic models, these exits are very much the exception to the rule. Growth Equity returns are more predictable because base exit value is tied explicitly to growth and financial performance, with the added upside potential of strategic value. Buyouts on the other hand often create value through cost-cutting and by reducing debt. As a result, traditional buyout returns are often bounded, as there is only so much cost cutting and debt repayment available to a given company.

Limited Risk of Capital Loss

We make Growth Equity investments in companies that have created a baseline of value and are typically unlevered, so that the preferred equity is not subordinate to debt. If the investment is priced right, the investment need only maintain its value in order to return capital to preferred shareholders.

This is distinct from both the venture capital asset class and the buyout asset class. In buyouts, the equity is typically subordinate to debt, creating a default risk that could wipe out equity. One need look no further than this past business cycle to see how leverage cuts both ways. In venture, the company must typically grow into its valuation by hitting development and/or performance milestones, which if not achieved can render the equity worthless. Venture is about harnessing home-run potential, but with that upside comes higher loss ratios.

We think Growth Equity will offer investors the best risk/return ratio over the coming decade and likely beyond. Does this mean that we think the venture capital and buyout asset classes are doomed? No, quite the contrary, we think that some firms will thrive in both of those categories, although many will also fail. The same can be said of Growth Equity. We are committed to making Meritage a leader in the growth equity segment of the private capital markets. We think we are well suited to accomplish that goal.

The Founders Club, (www.founders-club.com), a unique venture capital equity exchange fund, announced that it has accepted an undisclosed angel investment from the partners of US venture capital firm Meritage Funds. Meritage VC Ryan Pollock has joined the Technology & Cleantech team of Venture Advisors at the club. The partners of Meritage Funds invested their own personal cash as part of The Founders Club angel round and join a powerful syndicate of other VCs, fund of funds VC investors, CEOs and entrepreneurs in the US and Europe.

Andrew Romans, founder and general partner, said: “The commitment of the partners at Meritage Funds with a personal investment demonstrates that seasoned VC veterans in the US see value in the club. The Meritage founders have a very strong investing track record in the USA and Europe over the past 30 years. With over $600M of assets under management and a unique model for combining operating and venture talent, Meritage is an ideal addition to our ecosystem. The investment by the Meritage team, and the addition of Ryan Pollock as a Venture Advisor, represent an important beachhead into the US market as we build on the club’s existing relationships with the best Founders, CEOs and Venture Capitalists worldwide.”

Ryan Pollock of Meritage said: “We have been a sounding board for this innovative ecosystem since Andrew first came up with the idea. Now that The Founders Club is a reality, we wanted to join as both participants as well as investors.” Pollock continued, “Meritage has always brought a global perspective and network to the entrepreneurs it backs. Our participation in the club fits with our approach to venture investing and we believe membership in the club will provide us with access to a powerful international group of respected entrepreneurs and fellow VCs who have uniquely aligned their incentives to collaborate.”

The Founders Club is an established family of funds where VC backed entrepreneurs agree to invest a percentage of their future equity returns into one of The Founders Club funds in return for fund ownership and membership in the club. There is no cash cost to join. Members only contribute cash from proceeds at the time they sell or liquidate their equity position in their company. Each fund comprises between 20-30 high potential venture backed portfolio companies, thereby affording any single entrepreneur a strategy to create wealth while accomplishing portfolio diversification. Portfolio companies are selected by committees comprised of Venture Advisors from premier venture capital firms in the US, Europe and Israel. Entrepreneurs accepted into the club on this basis have access to other members as well as the venture capitalists serving on our Venture Advisory committees.

The Founders Club is currently accepting the final few members into its two existing portfolios, namely: Healthcare & Life Science Fund I (biotech pharmaceutical, medical devices, healthcare IT & services) and Technology & Cleantech Fund I (classic ITC, mediatech & environmentally friendly technology).

Crown Castle International Corp. (NYSE:CCI) announced that it has completed its acquisition of NewPath Networks, Inc. (”NewPath”), one of the leading providers of distributed antenna systems (”DAS”). DAS is a network of antennas connected by fiber to a communications hub designed to facilitate wireless communications services for multiple operators. In connection with the acquisition, Mike Kavanagh, co-founder and Chief Executive Officer of NewPath, has joined Crown Castle’s U.S. operations as President of DAS operations.

“We are pleased to be combining the NewPath and Crown Castle DAS teams to capture opportunities in the market and provide customized infrastructure solutions to wireless carriers,” stated Mr. Kavanagh.

“Increasingly, we believe that distributed antenna systems will be an important complement to traditional tower installations,” said Ben Moreland, Crown Castle President and Chief Executive Officer. “We are pleased with our acquisition of NewPath, which furthers our ability to extend wireless infrastructure beyond those areas served by traditional towers, thereby broadening our service offering in this growing market.”

Meritage is pleased to announce its investment in Access Media 3 (”AM3″). Meritage was joined by co-investor WP Global in this transaction. AM3 provides triple-play media services (high-speed Internet, satellite TV and voice) to the multiple dwelling unit (“MDU”) market. AM3 is highly focused on converting the large majority of its customers to bulk billing relationships with approximately 80% of its customers today falling into that category.

The capital raised by AM3 will quickly be used to execute on the Company’s aggressive strategy to grow through acquisitions and organic growth. AM3 is positioning itself as an intermediate aggregator. There are a significant number of small video, data and voice providers that are too small to be of interest to a large buyer, but sufficiently large to be a good target for AM3. To date, the Company has completed six highly strategic acquisitions including inVision Networks, SkyPix, the satellite assets of Tunnel Vision Technologies, Avvid, OnShore Networks and Grand Plaza. AM3 has grown from addressing the media needs of 3,000 customers to well over 26,700 customers and 32,700 Revenue Generating Units in less than 3 years. The infusion of capital will also allow the Company to accelerate its plans to continue delivering innovative products and services to its customers through its state-of-the-art back office infrastructure.

In addition to the fact that this investment is a perfect fit for Meritage’s Venture Growth strategy, AM3 is attractive because the Company is EBITDA positive today and has no debt. The management team is also a strong positive, as the CEO has had success in building and profitably exiting a large network-enabled service business through both organic growth and acquisitions.