CUPERTINO, Calif. – Bay Partners expected to hold a first and final close on its latest vehicle, the $400 million-targeted Bay X, in late November, said General Partner Chris Noble. Bay launched the fund in September and has already received commitments for far more than the vehicle’s targeted amount, he said. The firm is now in the process of trying to determine where to cap the fund so it can set allocation levels for its limited partners, he added.
Noble said he would be surprised if the firm allowed the fund to grow past $600 million. “That is on the outer limits of what we can responsibly manage,” he said, adding “as the leveraged buyout guys found out, big funds are the enemies of returns because they force you to move outside of your area of expertise.”
The fund will focus on early-stage networking equipment, software and services companies, wireless equipment, companies in the enterprise software/Internet infrastructure space and Internet services ventures, Noble added. “We are trying to stay flexible within our focus as trends emerge,” he noted. The vehicle will do 30 to 40 deals with an initial investment size of about $5 million. Follow-on investing should push the total amount in one company to about $10 million. Noble said he expects the fund to do between 15 and 20 deals a year.
The vehicle will back deals nationwide, although Noble said he expects the majority of the vehicle’s portfolio companies to be located near the firm’s office in Silicon Valley. “We believe venture capital is a local business, so to do a great job of early-stage VC investing, you need to know where the bodies are buried,” he explained.
When the firm kicked off fund raising for Bay X, it did so with the added goal of geographically diversifying its LP base, Noble said. “We wanted 50% of the capital to come from the U.S., 25% to come from Europe and 25% to come from Asia,” he added. Bay set this goal not because it plans to open offices in Europe or Asia, but because of its belief that it is important to provide its portfolio companies with potential global partners in the form of international LPs.
Financial institution, banks and pension funds make up the majority of the firm’s LP base, he said. Bay’s existing LPs include Deutsche Banc Alex. Brown, the Government of Singapore, Nippon Telegraph & Telephone Corp., Texas Pacific Group, Bank of America Corp., A.G. Edwards & Sons Inc., Bank One Corp. and Alliance Capital Management LP.
Noble declined to reveal how much Bay’s general partners will invest in the fund, beyond saying it will be a fairly good percentage of the fund. He described the vehicle’s management fee and carried interest structure as at standard industry levels.
The firm’s previous vehicle, the $200 million Bay IX, which closed in 199l, has done approximately 11 deals to date representing about 70% of the fund’s capital, Noble said. He anticipated the fund will be fully committed to 15 to 20 companies by the end of 2000.