MINNEAPOLIS – Crescendo Ventures has abandoned health-care investing with the February launch of Crescendo Ventures IV LP, which will solely back seed- to early-stage communications infrastructure and services companies, as well as e-business enterprises, General Partner Jeff Tollefson said.
Targeted at $500 million, the vehicle expected a first close on at least $200 million in mid-March, with about 70% to 75% of the fund focusing on communications deals in North America and the remainder on business-to-business e-commerce companies.
Some 10% to 20% of the fund’s total also will be deployed opportunistically in Western Europe and Israel, Tollefson said.
Traditionally a backer of communications infrastructure and services, and medical device companies, Crescendo’s investment staff decided with the launch of Fund IV to forego all health-care investments. This trend has been plaguing venture firms over the last few years because Internet deals have faster and larger payoffs, and they are cheaper to develop than health-care companies (VCJ, February, page 37). Additionally, Tollefson said “entrepreneurs are looking for focused funds who have years of experience and a broad network in the areas in which they are engaged.”
Investments from Fund IV will average $10 million over several rounds of financing, an increase from the $5 million to $6 million deployed through previous funds.
“In the communications sector, [a firm] has to be able to fully finance a company with or without partners to be a significant player,” Tollefson said. A larger fund enables the firm to have more control over a portfolio company, and with that in mind, Crescendo is prepared to invest up to $40 million in any one deal.
Crescendo’s previous vehicle, the $250 million Crescendo III LP, is fully committed to about 32 companies, and its predecessor, the $85 million Crescendo II LP, is completely invested in 23 companies.
Limited partners in Fund IV represent a mix of United States and European institutional investors and high-net-worth individuals, many of whom are existing LPs. Crescendo retains a 2.25% management fee and a 80%/20% carried interest split, Tollefson said.
Crescendo’s six general partners – David Spreng, Tony Daffer, Lorraine Fox, Roeland Boonstoppel, Tollefson, and Jeff Hink, who was recently promoted from principal – are spread throughout the firm’s Minneapolis, Palo Alto, Calif. and London offices. Tollefson had focused on health-care investments for the last three years, but will now remain a generalist investor.
The firm plans to hire two additional general partners in time to invest Fund IV: a communications expert in London and an e-business-focused investor in Palo Alto.