HARTFORD, Conn – Axiom Venture Partners expects to hold a final close on its latest vehicle, the $150 million-targeted Axiom Venture Partners III fund, at the end of April, said Alan Mendelson, a general partner at the firm. To date, the vehicle has raised $90 million, he said. Axiom held an initial close on the vehicle in May of last year and began marketing the fund to new limited partners in September, he added.
Axiom began the fund-raising process with an initial target of $250 million because the firm wanted to be able to have more capital to devote to each of its deals, Mendelson said. However, the firm has reduced its target number by $100 million because of the changes in the tenor of the venture market over the past several months, he said. Nonetheless, if Fund III reaches its targeted size, it will be more than twice as large as the firm’s previous vehicle, 1997’s $58 million Axiom Venture Partners II, he noted.
The firm will employ the same diversified investment strategy for Fund III that it followed while investing Fund II, Mendelson said. This means the new vehicle will back companies in the information technology and health sciences industries, he added. Technology investments ranging from telecommunications to wireless plays to enterprise software as well as photonics and distance learning deals will account for 80% of the fund’s capital, with the remainder of the fund going to health sciences investments. Some 75% to 80% of the money earmarked for health sciences deals will be used to back biotech companies, he noted.
Because Axiom only backs companies it believes possess, the ability to go public in three years after the firm’s investment, the new fund will back mid- to late-stage companies, Mendelson said. The new vehicle should back about 25 companies, with an average investment size of $3 million to $5 million, he added. However, because the fund has yet to hit its target size, it is currently making initial investments of $2.5 million to $3 million, he noted. To date, the vehicle has done four deals for $11 million, he added. Fund III is not geographically focused, although the vehicle will probably do the majority of its deals in the New England and California areas near the firm’s Hartford and San Francisco offices.
Axiom’s two main, existing limited partners Liberty Mutual Insurance Co. and Aetna Inc. both made substantial commitments to the new vehicle, Mendelson said. One new LP for this fund is Allianz of America Inc., he added, declining to identify any other new LPs. In order to raise a bigger fund this time around, Axiom has opened its vehicles to other institutional investors for the first time and is using Chatsworth Securities as a placement agent for the vehicle, he added. Using a placement agent to market the fund simply saves the firm’s general partners time and helps with the logistics of fund raising, he noted.
The fund retains an industry standard 80%/20% carried interest structure and a management fee that will range from 2.25% up to 2.5% and then scale back down over the life of the fund, he said. Axiom will put up 1% of the vehicle’s total capital, he added.