WELLESLEY, Mass. – To help its portfolio companies benefit from strategic limited partners, Battery Ventures in early May launched a side vehicle to invest exclusively in businesses developing ways to integrate voice, video and data traffic into one network.
The Convergence Fund, a $40 million fund that will invest alongside the recently wrapped $400 million Battery V (VCJ, April, page 26), was raised among strategic L.P.s with a strong interest in developing data, voice and video “convergence” technology, including Nortel Networks Corp., Bell Atlantic Corp., Ameritech Corp., Corning Inc., Novell Inc. and Williams Communications. The strategic L.P.s will remain in close touch with Convergence deals and provide strategic insight to its portfolio companies.
Although Bell Atlantic and Corning also back Battery V, investments in the Convergence Fund are drawn from the corporate side of the companies, while investments in Battery V come from pension funds.
“From our perspective, [the Convergence Fund] gave us a more streamlined channel of communication with the corporate partners,” said Battery General Partner Rick Frisbie.
The movement to integrate voice, video and data traffic has sparked so much interest that communications companies were eager to invest in a vehicle dedicated to funding early-stage opportunities in that market.
“Think about Lucent and Cisco,” Mr. Frisbie said. “Two years ago, they didn’t really compete. Today, they’re head-to-head. Telecom equipment managers are scrambling to see what’s going on in data.”
All Convergence Fund deals will co-invest with Battery V, a start-up to late-stage backer of software, communications and Internet companies. Together, the two vehicles will invest about $10 million per company through several rounds of financing.
Battery V had closed three deals by press time, including a $3 million investment in online pet food retailer Petstore.com, a $7 million investment in e-commerce solutions software provider Corillian Corp. and $5 million in non-conforming mortgages Internet brokering system Pedestal Capital Corp. Convergence Fund has not co-invested in any of these deals, but Mr. Frisbie anticipated Battery V would make three additional investments by the end of June.