Adams Street Partners, one of the world’s largest private market investors, has been backing venture capital funds since the dawn of the VC industry in the 1970s.
Since then, the Chicago firm has grown its AUM to $41 billion, opened international offices and invested in dozens of venture managers, according to public pension documents including some of the most sought-after funds, such as Accel, Andreesen Horowitz and Benchmark.
Until four years ago, these VC partnerships were subsumed in various of Adams Street Partners’ multi-strategy funds of funds, including a flagship global fund – a circa $800 million pool of capital the firm has raised annually for about a decade.
But in 2016, Adams Street decided to form a dedicated early-stage venture capital fund by leveraging its existing VC program. To run it, the firm hired Brijesh Jeevarathnam as partner and co-head of global venture fund investments. Prior to joining Adams Street, Jeevarathnam spent 10 years investing in venture at Commonfund Capital in Connecticut.
The VC-specific offering has closed two vehicles: a 2016-vintage $202 million inaugural Adams Street Venture Innovation Fund and a much larger $426 million Venture Innovation Fund II, which wrapped up in 2018. These two pools of capital are still a small portion of the firm’s billions in VC AUMs amassed over decades of investing in the asset class, Jeevarathnam says.
An approach with biases
LP interest in Adam Street’s dedicated venture vehicle appears to be increasing. The firm is currently raising its third Venture Innovation Fund, which is targeting $525 million, according to documents presented to Ventura County Employees Retirement Association in February.
“We don’t have a prescriptive approach, but we do have some informed biases,” Jeevarathnam says of the type of VC managers the fund of funds tends to back.
While the strategy invests with a roster of brand-name VCs, it continues to invest in emerging managers, adding on average one or two new GPs a year.
“These new funds are typically spin-outs from established managers,” Jeevarathnam says.
He offers an example of an emerging manager the firm recently backed. “We know [this VC firm] because they were on the board of several companies where we were also investors. We know their viewpoint on the market, investment selection and value creation,” Jeevarathnam says about this GP, who is currently running their first fund but has 10-plus years’ investing experience.
According to previous reports, one such spin-out backed by Adams Street is Aleph, an Israeli firm started by Michael Eisenberg, who was previously a GP at Benchmark.
While the fund of funds focuses primarily on early-stage managers, the firm’s VC managers invest in seed-stage to pre-intial public offering companies, says Jeevarathnam, who adds that stages of investing are not very clearly defined now, and therefore “mean less and less.”
He explains: “A company is growth-stage when nearly all the tech risk is worked out, unit economics are positive and all that is left is execution risk.
“We don’t have a dogmatic view on fund size, but generally smaller is better because it keeps GPs more motivated, ensuring GPs and LPs have aligned interests.”
The firm has had success with a couple of funds in the $50 million-$100 million range, Jeevarathnam adds.
Still, he acknowledges that fund size must be aligned with the stage of company development and strategy.
According to VCERA’s documents, Adams Street continues to re-up with long-term partners that have been raising increasingly larger funds to support later-stage companies, such as Battery Ventures, Index Ventures and CRV.
The fund of funds backs a broad swath of enterprise and consumer-focused managers, preferring GPs that can invest across disciplines. “But in certain areas you need specialists, such as crypto, where we have some exposure,” Jeevarathnam says.
Adams Street has not fundamentally changed its venture strategy or commitment pace to adjust for the coronavirus pandemic. The firm continues to write checks, which tend to range from $10 million to $50 million, to existing partners, and it has already added a new GP “fully virtually.”
“The investment bar for new managers remains as high as ever. In a remote, shelter-in-place work environment, we try to be more thorough by having more phone calls and online meetings. We are also looking for people who are super referenceable through our network,” Jeevarathnam says.