Battery Ventures closed its $450 million Battery Ventures VII in September with an eye towards doing more international deals.
The only new LP on fund VII is GIC, the private equity arm of the Government of Singapore Investment Corp. The Asian institution is expected to help Battery get a better handle on the Asian market. Just recently, the firm announced it joined the China Venture Capital Association, and Battery has allocated up to 15% of its fund for international investing.
There are no current plans to establish an office in Asia, although General Partner Tom Crotty says that he and his colleagues have discussed the possibility of forming a partnership with existing investors already on the ground in Asia.
Whether Asia turns into the next great venture market remains to be seen. But, without a doubt, the region can’t be ignored as numerous developments take place in China and throughout the Asia Pacific region that make it conducive to do business there.
Besides increasing in international investments, Battery plans to maintain its traditional investment strategy. This means approximately one-third of its capital will go to technology startups, one-third to “early emerging” companies (i.e. finished products and revenue) and the remaining third to later stage deals, which also is likely to include some buyouts or rollups of special situation companies.
The firm will begin investing Battery VII in early 2005.
Battery closed fund VII at $450 million after the Wellesley, Mass.-based firm spent several months whittling down about $2.25 billion in proposed limited partner commitments.
“It was a nice problem to have, but it took us a while to get through it,” Crotty says.
When the firm sent fund-raising letters to existing limited partners earlier this year, it asked each recipient to provide a minimum and maximum commitment. The low-end was four times the $450 million target, while the high end was five times.
Crotty and his partners first dealt with the over-subscription by cutting all LP commitments on a pro rata basis, but soon began having to make adjustments for things such as LP capital under management. A $1 billion endowment, for example, couldn’t quite stomach the same type of cut as a $50 million pension fund.
In addition, Battery had accepted five new limited partners into its sixth fund in 2000 at artificially low commitments levels, with the understanding that those levels would be raised significantly for Fund VII.
To keep its promise – and to deal with other adjustment issues – Battery did not accept commitments from most of its individual investors. The firm also did not accept repeat commitments from a handful of institutions.
Among the banished institutions was a public pension system that had acceded to Freedom of Information Act requests.
Crotty stresses that other public institutions were allowed to participate.
“We kept virtually all of our publics, because we don’t view FOIA as a reason to eject LPs,” Crotty says. “The reasons for not inviting that other one back did not involve FOIA.”
The firm has not made any personnel changes in conjunction with the fund close. Battery had promoted four senior associates in July – Neeraj Agrawal, Michael Brown, Roger Lee and Carl Stjernfeldt – to the position of partner. They helped fill the void of departed general partners Todd Dagres and Ravi Mohan, who each left earlier this year, and of former general partners Michael Darby and Anthony Abate, who were laid off in late 2002.
Also laid off in the past 24 months have been a principal, three venture partners, two back-office professionals and two operational employees.
Most of the management changes came as Battery decided in late 2002 to forgo $51.4 million in expected fund management fees to offset the possibility of future clawback liabilities. Also, the firm late last year reduced the size of its sixth fund from $1 billion to $850 million.
Terms for Fund VII are identical to those of Fund VI, except for a change to the clawback liability provisions.
Locations: Wellesley, Mass.; San Mateo, Calif.
Fund Name: Battery Ventures VII.
Fund Size: $450 million
Under Management: $2 billion
Investment Strategy: Battery VII will be invested over the next three years and is expected to contain a portfolio of 35 to 40 investments, which will range in size from $5 million to $25 million each.
Investment Focus: Battery VII, similar to the firm’s previous funds, will back information technology companies across all stages of growth from seed through to later stage and buyouts.
General Partners: Tom Crotty, Oliver Curme, Rick Frisbie, Morgan Jones, Dave Toabors and Scott Tobin in Wellesley, and Ken Lawler and Mark Sherman in San Mateo.
New LP: GIC, the private equity arm of the Government of Singapore Investment Corp.
Sample Portfolio: Since its founding in 1983, Battery Ventures has invested in nearly 180 companies across a broad spectrum of information technology markets and stages. Past and current portfolio companies include Airespace, Akamai Technologies, Allegiance Telecom, Arbor Networks, Broadbus Technologies, Cbeyond Communications, CipherTrust, FORE Systems, Friendster, HNC Software, Infoseek, LIFFE, Neoteris, Netezza, Nextel, Orion Multisystems, Pixelworks, Qtera, RiverDelta, Sigmatel, Vastera and Witness Systems.
Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey and original research.