AUSTIN, Texas – Convergent Investors LLC held a $64 million final close in September on Convergent Investors VI LP, said Chris Yeoman, an associate with the investment group. The fund is Convergent’s first traditional venture capital fund, Yeoman added. The vehicle, which was launched in May with an $80 million target, held an initial close on about $50 million at the end of June, he noted.
Convergent has been investing for three years, amassing a portfolio of 11 companies to date. However, each transaction involved a slightly different group of investors and capital, Yeoman noted. Convergent’s core group of seven investors decided to formalize the effort to fix some of the problems they encountered with the ad-hoc’ approach, he said. These seven investors became the general partners of Convergent VI and invited the other investors in previous Convergent investment vehicles to invest in the new fund as limited partners, he said. Convergent’s general partners are Jimmy Mansour, Brian Smith, William Hanzlik, John Chaney, Robert Gauntt, Steve Shaper and Henry James.
The new fund will back early-stage technology companies or companies in an industry with rapid growth and large markets. “We do not rule any industry out. We will look at every company on its own merits and we will not ignore a great opportunity – but these are usually in young, evolving markets and that generally means technology,” Yeoman said. The fund’s investment focus will also be slanted toward the backgrounds and experiences of Convergent’s general partners, which include finance, banking, transaction processing and computers, he added.
Yeoman anticipated the fund would do about 20 deals, with an initial investment size of $1 million to $5 million. Convergent will also do some follow-on investing, he added. Yeoman expected the fund to do most of its deals in the South and in Texas, near Convergent’s Austin and Houston offices. The fund will also invest in the Northwest, because one of its general partners, Henry James, is based in Seattle. However, Fund VI is not restricted to investing in these areas, Yeoman said, adding Convergent will take an opportunistic approach to doing deals in other areas.
The fund’s LPs are all individuals who Yeoman declined to name. “We got near the $80 million target and figured close enough,” he said, noting Convergent’s general partners collectively put up about 51% of the fund’s total capital. “So we really presented the fund to investors as a co-investment opportunity for them. The general partners dominate the fund, really,” he added. The fund-raising process went well, considering the vehicle was launched around the same time as the beginning of the correction in the stock markets, he said. Convergent plans to rely on these investors to provide some deal flow, help perform due diligence, serve on corporate boards or advise companies, he added.
The vehicle has completed one deal for $500,000 to date, he said, noting Convergent is actively pursuing an additional five deals currently. Yeoman would not disclose the fund’s management fee or carried interest structure, beyond saying they were each significantly below industry standard levels.