PALO ALTO, Calif. – Charter Growth Capital at press time was readying the launch of its second fund, likely to target $200 million, said General Partner Kevin McQuillan.
Charter Growth Capital II is a follow-up to Charter Growth Capital L.P., a $106 million vehicle that closed last summer and is about 70% invested (VCJ, June 1998, page 20).
Fund I at press time had backed 27 enterprises – four are now public, six are registered to go public and one was sold. The vehicle is expected to back another four to five companies, and its internal rate of return has exceeded 100%, McQuillan said.
Portfolio companies that have held IPOs include Copper Mountain Networks Inc., a digital subscriber-line equipment company; Commerce One Inc., an electronic commerce company selling office goods; Com21 Inc., a cable modem company; and Ramp Networks Inc., an Internet access equipment company. Guidant Corp. last fall purchased medical-device enterprise, InControl Inc.
Like its predecessor, Charter Growth Capital II primarily will back late-stage information technology companies, including business-to-business e-commerce and telecommunications concerns. The firm initially estimated some 25% to 30% of the first fund would be invested in health-care companies, but in the end only about 15% of its investments were in that sector. McQuillan expects the second fund to put only 10% of its capital in health care, primarily in the services area, because it is difficult to make money in the unpopular health-care sector. Conversely, IT offers more quality deals and is much more profitable, he said.
McQuillan expects deals from the new fund to average $2 million to $8 million per company, an increase from the first vehicle’s $3 million average. With a larger fund, the firm expects to fund-raise less frequently, perhaps on a three to three and a half year cycle.
Charter Growth hopes to add more traditional, financially-oriented investors to its roster of limited partners, as well as additional strategic investors. SANYO Electric Co. Ltd., Mitsubishi Corp. and the Cha Group, a family office, backed the first fund as did General Motors Investment Management Corp., the auto giant’s pension. Charter helps portfolio companies establish themselves in Asia by drawing on contacts in that region.
Management fees and the carried interest split had not been determined by press time, but McQuillan expected them to be in line with industry standards.
Charter also is in the market for a new partner with information-technology investing experience to join General Partners Jim Boettcher, Steven Bird and McQuillan. Barr Dolan, who had split his time between Charter Growth Capital and Charter Venture Capital, an affiliated early-stage vehicle, is returning to Charter Venture Capital full time. McQuillan said Charter Growth was in discussions with candidates but did not expect to make any hires until the fourth quarter.