AUSTIN, Texas – Austin Ventures plans to hold an initial close on its latest vehicle, the $1.25 billion-targeted Austin Ventures VIII, during the first quarter of this year, said John Thorton, general partner. The firm has not set a target amount for the first close, although Thorton said he expects the fund will close on the majority, if not all, of its capital at that time. Austin Ventures launched fund-raising efforts for the vehicle in November of last year, he added.
The vehicle will focus on early-stage companies in the software and services, communications and semiconductor industries, Thorton said. Approximately 40% of the vehicle’s capital will go toward software and services deals, while the remaining 60% of the fund will be invested in communications and semiconductor companies, he added.
Sticking to the Lone Star State
Austin Ventures will stick to its traditional Texas-centered geographic focus with its newest vehicle, he said. “This has been the strategy of the firm since the early 1980s…we did this originally because we felt the market in Texas was under served with venture capital funding,” he said, adding “now Austin is a legitimate software and semiconductor marketplace, and Dallas is a legitimate communications center. Because of our longevity we are at the center of the network of people active in these areas.” Thorton estimated of the 50 or so deals Fund VIII will ultimately back, 40 should be for companies from the Lone Star state.
The vehicle’s average deal size will range from $15 million to $20 million, Thorton said. Some $125 million of the fund will be invested in AV Labs, a seed-stage investment firm spun-out of Austin Ventures in 1999. Austin Ventures is the general partner of AV Labs and its primary source of funding, he added. AV Labs invests exclusively in software services companies based in Austin, he said. “Their goal is to accelerate the development of a start-up’s management team and speed up customer validation of a company’s product,” he explained. While the firm does not have a right of first refusal on any of AV Labs’ portfolio companies, Austin Ventures has provided additional financing to about half of the companies funded by AV Labs, he added.
The firm maintains good relationships with its existing limited partners, Thorton said, adding he believes 85% of the new vehicle’s total capital will come from Austin Venture’s current investors. The firm’s existing LPs include Harbourvest Partners LLC, Hamilton Lane Advisors Inc., The Washington State Investment Board, Virgina Retirement System, Lucent Technologies Inc., AT&T Corp., General Motors Corp., Nationwide Insurance Co., Harvard University, Dartmouth University, Rice University and some high-net-worth individuals.
The general partners of Austin will put up 1% of Fund VIII’s total capital, Thorton said. The vehicle will have a 75%/25% carried interest structure and a management fee tied to a grid based on the amount of capital under management, he added.
“As Fund VIII’s investments have liquidity events and the amount of capital under management decreases, the fee will scale down,” he explained. The fee will average 1.6% over the life of the fund, he said.
At the beginning of January, Austin Ventures added Basil Horganic, a former principal with Oak Venture Partners to the firm’s investment team as a partner.
The firm now has 19 investment professionals – eight general partners, four partners, one principal and six associates. Thorton said the firm plans to hire additional investment professionals in the coming months, including a senior level professional to focus on communications deals for the firm’s recently opened Dallas office.
Alistair Christopher can be contacted at