NEW YORK – Crest Communications Holdings LLC expected to hold a mid-January first close on approximately $70 million for its new fund, Crest Communications Partners II LP, said William Sprague, a managing director at the firm.
Crest launched fund-raising efforts with its existing limited partners at the beginning of November for the $250 million-targeted vehicle, he added.
The firm plans to hold a final close on the vehicle in the third quarter of this year, he noted. Given the current slow down in the venture capital market, Sprague said he is unsure if the fund will actually meet its targeted size. “There is no question we will raise less money now than if we had gone out into the market six months ago,” he said, adding “I just don’t know if that means $25 million less or a $100 million less.”
Crest has received great support from its existing LPs, Sprague said. “Now, if institutional investors decide to support the fund to its targeted amount, great – but if not, it is not a huge deal,” he said. The firm’s existing LP’s include Chase Manhattan Corp., FleetBoston Financial Corp., First Union Corp., Travelers Insurance Co., and GE Capital Corp.
Despite the state of the VC marketplace, Sprague said he is not worried about finding good deals in which to invest. “The Internet will still be here and so will extranets, so there’s still going to be demand for companies that provide the tools to support this,” he added.
Fund II will focus on communications infrastructure companies, Sprague said. “We will back product and service companies, as well as companies developing new technologies that facilitate broadband deployment and applications,” he said. The new vehicle should back about 15 companies, he added. Crest will only do deals that it can put a minimum of $5 million to $7 million in over the life of a deal, Sprague said, noting the firm’s maximum invest size for the new fund will be $20 million to $25 million. The firm is committed to having enough capital on hand to fund its portfolio companies through their entire lifecycle, Sprague said, because in today’s tightening VC market other firms may become increasingly more reluctant to step-up and provide additional capital to “somebody else’s deal.”
Crest’s investment philosophy is stage independent, Sprague noted. “We find promising market segments and then tap good companies at the inflection point of value creation,” he said. This means the firm does deals ranging from start-ups to late-stage transactions and consolidation plays, he added.
The firm has invested its previous vehicles nationwide and will continue to scout deals on both coasts, but Sprague said Crest will also invest the new fund in a more geographically efficient manner. “This means time management. Maybe we will pass on a Madison, Wis. deal if we do not have another deal out there we want to do – unless it looks like a huge homerun,” he explained.
The new fund has an 80%/20% carried interest structure and a 2% management fee, Sprague said. Crest will put up 2% of the fund’s total capital, he added. Crest will likely add two to four more investment professionals to its team of seven in the coming months to help invest the new vehicle, Sprague noted.