ANN ARBOR, Mich. – Arbor Partners L.L.C. in late October closed on the first $30 million of its second fund, targeted at $60 million. The firm expects to hold a final close on Arbor Venture Partners II L.L.C. in late December or early January, said Donald Walker, a managing director at the firm.
Unlike the group’s first vehicle, which backed an assortment of start-up and early-stage software and e-commerce companies, the sophomore effort will be completely dedicated to e-commerce investments, with a primary focus on the business-to-business sector. Within that space, the firm will target companies that create enabling technologies for e-commerce companies.
Arbor Partners will make early- to expansion-stage investments in companies throughout the United States with a bias toward companies based in Michigan. The investment team will back about 15 to 18 companies, selected from the 40-some proposals that cross their desks each week. Average investments will be $4 million, spread over several rounds, Walker said.
Arbor Partners’ first fund, the $5.4 million Arbor Venture Partners I L.L.C., is completely invested in or committed to nine companies, about half of which are in the Midwest. The firm began raising that vehicle in March 1997 and held a final close in August of that year. Arbor Partners has been the sole investor in some of its deals.
A highlight from the first vehicle is USinternetworking Inc., a provider of access to Internet-based software, which went public in April at $21 a share, and at press time was trading in the upper 50s. Other portfolio companies from the first fund include BlueGill Technologies Inc. and Steeplechase Software Inc., both based in Ann Arbor.
Arbor’s investment strategy attracted limited partners who liked the firm’s Midwest focus, Walker said. Limited partners in the first fund, A.G. Edwards and Hexagon Investments, are returning for the second, joined by Masco Capital Corp. and Ralph Wilson Equity Fund, among others. The firm retains a traditional carried interest split of 80%/20%.
Arbor Partners works with an executive advisory board, consisting of venture capitalists and company executives, that assists the firm with networking and deal flow.
Arbor Partners is led by former entrepreneurs Stephen Swanson, Richard Crandall, Richard Eidswick and Walker, who all founded Arbor and serve as its managing directors.