At a time when many venture funds are thinking twice about accepting public pension fund money, CMEA Ventures went out of its way to woo the public LPs.
In September, the early stage tech/life sciences fund held a final close on $300 million for its sixth fund, $50 million more than its target. The firm could have raised more, but “we felt that $300 million is about the right size fund for us to manage, given the number of managers we have and the obligations we have to previous funds,” says Tom Baruch, founding general partner of the San Francisco-based firm.
The makeup of fund VI is quite different than its predecessors. Limited partners in CMEA’s earlier funds were primarily high net-worth individuals and corporations. But of the approximately 40 LPs in fund VI, about 40% are pension funds, 25% are foundations, 20% are corporations and 15% are individuals.
The firm had no qualms about taking money from public pension funds, since it is not worried about its IRRs being published, Baruch says. CMEA is opposed to underlying portfolio company information being made public, but there has been no instance of a public pension fund doing that, he says.
New investors in fund VI include the Dow Employees Pension Plan, IMS Health, Ohio Public Employees Retirement System, the Colorado Public Employees’ Retirement Association, and the State of Michigan Retirement Systems. Returning LPs include ChevronTexaco and IBM.
“We wanted a more stable base of LPs,” Baruch says. After holding a first close with previous investors in October 2003, CMEA hired San Francisco-based placement agent Denning & Co. to help it navigate the unfamiliar territory of institutional investors.
CMEA benefited from having a good story to tell about the performance of its two previous funds, which were raised in the tainted vintage years of 1999 and 2000. Baruch declines to reveal the IRRs for funds IV and V, but he says that “they are very highly ranked relative to their peer groups,” based on return data gathered Thomson Venture Economics (publisher of VCJ).
The biggest exit from fund IV likely came from the sale of Silicon Spice, a communications chipmaker, to Broadcom Corp. (Nasdaq: BRCM) for about $1.2 billion in stock. The fund’s other exits include GoBeam, a VoIP company sold to Covad Communications (Nasdaq: COVD.OB), and Sanera, a storage company sold to McData (NasdaqNM: MCDTA). In addition, portfolio company Alliance Fiber Optics (Nasdaq: AFOP) had a relatively successful IPO in 2000, but the chip company’s stock now trades for less than $1 per share.
Fund V’s investments included Xenogen Corp. (Nasdaq: XGEN), a drug discovery company that went public in July, and Salmedix, a cancer drug discovery company that registered to go public in April.
Funds IV and V are fully invested, and CMEA has already made five investments from fund VI. It invested in LiveOps and Odyssey Logistics & Technology, which both provide outsourcing services; Strix Systems, which develops wireless “mesh” networks; Ensemble Discovery Corp., a drug discovery company; and Pyxis Technology, which is developing design tools for next-generation semiconductors.
In the new fund, the average size of deals will be $5 million to $10 million, but CMEA will also do seed deals for less than $500,000 because of its strong focus on early stage companies, Baruch says. The fund targets four investment sectors: semiconductors and high-performance electronics; enterprise productivity software and outsourcing services; drug development; and drug chemistry.
Baruch formed CMEA as an affiliate of New Enterprise Associates in 1989 and the firm became independent in 1997. The firm, which manages more than $750 million in its portfolio, is no longer affiliated with NEA. Besides Baruch, the GPs in the new fund are David J. Collier, M.D., Karl D. Handelsman, Gordon D. Hull, Faysal A. Sohail and James F. Watson.
– Lawrence Aragon
InterWest Closes Year’s Largest Fund
Targeting its forthcoming investments equally between IT and life sciences, InterWest Partners closed its latest venture fund, InterWest Partners IX, with $600 million, making it the largest VC fund raised this year.
Before InterWest closed fund IX in September, the largest venture funds raised this year were Essex Woodlands Health Ventures’s sixth fund ($400 million) and Benchmark Capital’s fifth fund ($400 million).
InterWest began fund-raising in mid-June with a goal of $500 million, says General Partner Stephen Bowsher. Quickly, though, the fund held its final close at the end of August.
While the firm has not named any of its LPs, Bowsher says that InterWest mandated that 10% of the fund be held for new investors. He says that the firm attracted between 10 and 12 new investors and that all but one or two of them are foundations or endowments. Though the firm didn’t disclose investors, this summer, the Pennsylvania State Employees’ Retirement System (SERS), a previous investor, announced it committed $50 million to InterWest’s new fund.
Bowsher says that a “vast majority” of InterWest’s previous LPs re-upped in its new fund. According to Thomson Venture Economics (publisher of VCJ), LPs in the firm’s previous fund include Abbott Capital Management, Alaska State Pension Investment Board, BankAmerica Capital, California State Teachers’ Retirement System, Pantheon Ventures, State Universities Retirement System of Illinois, University of California, University of Pittsburgh and Verizon Investment Management.
The Menlo Park, Calif.-based firm’s previous fund, InterWest Partners VIII, closed in 2000 with $750 million. InterWest never cut its eighth fund, but it is taking longer to invest than the firm had planned, and the partners agreed that their new fund should be smaller to preserve their preferred three- to four-year investment cycle.
InterWest Partners VIII is approximately 85% committed, Bowsher says, and the eighth fund will likely be fully invested by the end of the year. InterWest will likely start investing the ninth fund in early 2005. The firm plans to divide its investments equally between IT and life science companies with a preference for IT software systems and components and biotech and medical devices.
InterWest has raised more than $2 billion from LPs since it was founded in 1979 and has invested in more than 200 companies. Most recently, InterWest co-led a $40 million Series C round of funding for Silicon Optix, a fabless semiconductor company focused on advanced digital video and image processing. Two biotech companies from its seventh fund have launched IPOs in the last year, Corgentech (Nasdaq: CGTK) and Myogen (Nasdaq: MYOG).
– Matthew Sheahan
CNET Founder Has $50M
CNET founder Halsey Minor is so confident in the future of “on-demand” applications that he’s willing to spend $50 million of his own money to prove the point.
In October, Minor announced the launch of On Demand Venture Capital Fund, which features himself as sole limited partner and investment professional.
He says the fund will invest no less than $500,000 and possibly as much as $20 million in each on-demand company. While Minor says it’s unlikely that one company would get that much, he would not rule it out if the right investment opportunity came along.
Minor already invested in three on- demand companies before announcing the $50 million fund. His investments include San Francisco-based Web network service provider Grand Central Communications, a company for which he currently serves as CEO; InsideScoop, a San Mateo, Calif.-based provider of on-demand CRM services; and San Francisco-based CRM provider Salesforce.com (NYSE: CRM).
InsideScoop supplies business information from such sources as Dun & Bradstreet and Thomson Financial (the parent company of Thomson Venture Economics, which publishes VCJ). The information can be supplied through a sales-force-automation system that provides information to a sales people as they make customer calls. InsideScoop is built on Grand Central’s integrated software infrastructure.
Inside Scoop, says Minor, was an investment that showed the viability of the on-demand model. The test going forward from here, he says, is to get large customers to adopt the on-demand model.
Minor said he established the On Demand Venture Fund as a “springboard” to accelerate the development and deployment of on-demand applications at a time when Internet-based software delivery has become extremely popular.
“The birth of the on-demand technology model will be as important to global business as the birth of the Internet was for consumers,” said Minor in a statement. “With the launch of the On Demand Venture Fund I am now providing the financial resources for a larger group of entrepreneurs to build and launch on-demand services.”
On-demand services preclude the need for companies to invest in software and hardware to run their networks. Services instead are delivered over the Internet, and companies pay for software applications through a subscription-based model, such as a monthly licensing fee.
Some analysts already have taken notice of the technology trend. In February, Merrill Lynch issued a report called Software Goes On Demand, which noted that the adoption of software in an on demand world is moving at a rapid pace. Certainly, the initial success of Salesforce.com, which launched a $100 million IPO in June, would point towards future growth and opportunities. He says his ownership stake in Salesforce is now worth about $170 million.
“Halsey recognized the potential of On-Demand services early on,” says Marc Benioff, chairman and CEO of Salesforce in a prepared release. “Much like his vision for the consumer Internet was borne out with the success of CNET, Halsey’s foresight regarding the on demand model continues to gain validation.”
Before he was funding startups, Minor was a founder of a number of Internet companies, such as CNET, which he started in 1993. Minor also founded Vignette and Snap.com/NBCi.
After leaving CNET in 2000, Minor was a co-founder of 12 Entrepreneuring, a San Francisco-based venture fund started with Benchmark Capital and Internet entrepreneur Eric Greenberg. The effort, which raised nearly $150 million from investors, collapsed, costing Minor millions of dollars and good relations with some Silicon Valley VCs. Still, Minor says that as he pushes on-demand, he will forge a good bond with traditional venture capital firms and have partnerships with investors in place over the next six months.
Minor certainly has the capital on hand to invest in on-demand companies. And he’s got the bravado.
Having invested his own money in Grand Central Communications and SalesForce.com, and with his stake in SalesForce.com worth about $170 million, Minor says he’ll stack those investments against the average VC firm from the 1999-2000 era.
– Matthew Sheahan
Tri-State Growth Funds Three
For the phrase “Tri-State area,” what normally comes to mind is the greater metropolitan area of New York, New Jersey and Connecticut.
But Cincinnati-based private equity firm Fort Washington Capital Partners wants to change that. Earlier this fall, the firm announced that it had committed undisclosed amounts to three new venture funds through its Tri-State Growth Capital Fund I.
The new vehicle is a $40 million fund-of-funds that invests in venture funds active in the Tri-State area of Northwestern Kentucky, Southeastern Indiana and Ohio. It invests between $1 million and $5 million per fund.
Fort Washington invested in Palo Alto-based Charter Life Sciences, a spinout of Charter Ventures that is raising a $100 million inaugural fund, Charter Life Sciences Ventures. Charter, which opened an office at the University of Cincinnati, held a first closing of $30 million earlier this year. The firm will invest in early stage medical devices, biotech and specialty pharmaceuticals. The fund will also have a special focus on cancer, cardiology and women’s health.
Fort Washington also committed to Draper Triangle Ventures, which is raising Draper Triangle Ventures II with a target of between $60 million and $80 million. It plans to focus on early stage investments in technology and medical device companies. Draper Triangle is the Midwestern arm of Draper Fisher Jurvetson and is based in Pittsburgh (see story below).
And Fort Washington has invested in EDF Ventures in Ann Arbor, Mich. The firm is seeking between $50 million and $100 million for EDF Ventures IV, and filed to raise $88 million with the Securities and Exchange Commission. It focuses on licensing technology from universities. It has targeted Cincinnati-area companies in the past and says it will increase that focus in the future.
While the three new funds Fort Washington invested in are not based in the tri-stage region, bringing venture firms into the area from outside is part of Fort Washington’s strategy, says Gus Long, a managing director with the firm. While he’d like to see both an increase in Cincinnati-area homegrown venture funds and established funds coming to the area, either one will benefit the venture capital industry in the region.
Previously, the Tri-State fund-of-funds announced commitments to Athenian Venture Partners II, Chrysalis Ventures II, QCA First Fund and Triathlon Medical Ventures.
Limited partners in the Tri-State Growth Capital Fund include Cincinnati Children’s Hospital; Proctor & Gamble; Fort Washington’s parent company, the Western Southern Financial Group; and the University of Cincinnati. The fund-of-funds is about 80% invested. Long says that Fort Washington Partners will likely begin raising a second Tri-State fund-of-funds next year.
– Matthew Sheahan
Arcturus Is Beaming
Arcturus, the brightest star in the Northern Hemisphere, became famous when its light was used to open the 1933 world’s fair in Chicago. The name of this heavenly body is now being used by a Los Angeles-based venture capital firm that hopes to spotlight early stage venturing in Southern California.
Arcturus Capital held its first close in October on a fund that has a goal of $100 million. The fund has a hard cap of $150 million and plans to have a final close by early 2005. Arcturus has not yet filed documents with the Securities & Exchange Commission, but the firm confirmed that the fund’s lead limited partner is a large institutional investor based in Tulsa, Okla. Other LPs in the fund include family offices and high net-worth individuals.
De Luna Partners acted as an advisor for the firm.
While the firm is not disclosing the amount it has closed on, General Partner Stephen Watkins says it is a significant amount that allows the firm to begin investing in semiconductors, photonics, nanotechnology, IT platforms and life sciences. Watkins, a former pharmaceutical executive, says Arcturus will veer away from drug discovery, because of its intense capital requirements and need for specialized expertise in the medical and pharmaceutical fields.
The fund has a four- to five-year investment cycle and a fee and carry structure Watkins describes as standard for the industry. Arcturus prefers to lead deals with an investment between $1 million and $3 million.
“Given the environment in Southern California, there are so few venture funds focused on early-stage venture that we are already being inundated with deals that are right up our investment alley,” Watkins says.
This fund is technically the second fund raised by Watkins and his team. Arcturus invested a small venture fund of less than $2 million between 1999 and 2000. Arcturus portfolio companies include Bay Microsystems, a Santa Clara, Calif.-based developer of network processors, and San Diego-based drug developer Perlan Therapeutics.
In addition to Watkins, general partners include Steve Birnbaum, a founder of Oxcal Venture Fund, former principal with Zerox Development Corp. and founder of Hohenberg & Associates; Donald Hall, a former senior portfolio manager with Zurich Scudder Investments; Edwin Moss, a former executive with BankAmerica Venture Capital and currently a senior director with Mellon Ventures; and Frank Tota, a past director of several venture-backed companies in the HRL Laboratories incubator.
– Matthew Sheahan
New Draper Triangle Fund
Draper Triangle Ventures, a Pittsburgh-based affiliate of Silicon Valley-based Draper Fisher Jurvetson, earlier this fall held a first close on its second fund with $40 million in limited partner commitments.
Draper Triangle Ventures II will focus on investments in information technology and medical devices. With the new fund, the firm also plans to expand its geographic reach by investing in more deals in Ohio and open an office in Cincinnati.
Expanding in Ohio is a nod to some new fund investors in that state, including the Ohio Bureau of Workers Compensation and Fort Washington Capital Partners.
Draper Triangle expects to hit its $60 million target for its second fund early next year. Draper Triangle I is a $53 million vehicle launched in 1999. Draper’s backing has come from pension funds – such as the Pennsylvania State Employees Retirement System – institutions and universities. Among its investments was ClubCom Inc., a Pittsburgh-based provider of private TV and communication networks in fitness centers. Draper Triangle and other backers invested about $14 million in ClubCom, which was acquired earlier this year for about $22 million by fitness company Precorof.
– Alastair Goldfisher