Crosslink Closes $200M VC Fund

For most venture capital firms, the only time to hold public stock is just after a portfolio company’s IPO. But for Crosslink Capital, mixing public and private equities has long been standard practice.

For about two decades, the San Francisco-based firm has raised and deployed crossover funds dedicated to making growth investments in both stocks and startups. Concurrently, it’s raised and invested more traditional venture funds, focused on technology deals at all stages.

Apparently, limited partners see appeal in the hybrid strategy. Crosslink announced in late September that it closed a $200 million sixth fund that will make cross-stage venture investments focused on the Internet, software and energy sectors. The new fund is a bit smaller than Crosslink’s previous venture vehicle—which was raised in 2005 and came in at $250 million—with commitments from existing LPs as well as new ones, such as Guardian Life Insurance Company of America.

Crosslink General Partner Jim Feuille says the fund size reduction was deliberate, as partners began planning for fund-raising at about the peak of the financial crisis, and figured a smaller fund would prove more feasible to close.

Raising a new fund during a slow period for venture fund-raising should prove beneficial, says Feuille, who noted that in past cycles, funds raised during downturns have posted above-average returns.

“It’s a much better environment for those who do have capital… less completion, lower valuations, and fewer me-too companies,” he says while adding that the current climate seems particularly well-suited for investment in entrepreneurial companies. That is partly due, he says, to slower growth at large-cap companies and a perception among skilled workers that a job at a Fortune 500 company no longer provides sufficient security to overcome the excitement and potential rewards of working at a startup.

Crosslink doesn’t have a preset formula for how much to invest in a particular sector or stage, preferring to take an opportunistic approach. Partners look for pockets of value in areas that, due to business cycle fluctuations or other factors, may be experiencing unusual scarcity of capital.

For example, investors who participated in later stage and turnaround deals in the aftermath of the dot-com meltdown in 2003 and 2004, generally posted strong returns, Feuille says. Currently, the firm says it prefers early stage investments. However, capital from the fund has already gone to two new portfolio additions, neither of which would qualify as early stage.

In July, Crosslink led a $14 million second round of funding for Hi5, a San Francisco-based social networking site with a large Latin American user base. The firm sees it as a turnaround play, Feuille says. Hi5 has been slipping in terms of reach (total page views on the site dropped about 30% in the third quarter, according to Alexa.com) and ranked as the 120th most visited site worldwide in early October.

The startup recently brought in new management, and Feuille says that he sees potential for developing the company further as a gaming and virtual goods platform. In addition, he says, Crosslink invested at about 1x revenue, a far more favorable valuation than the prior round.

The second investment, announced in September, was a $39 million Series C round for “smartpen” creator Livescribe. Crosslink led the round for the 4-year-old Oakland, Calif.-based company, which has raised $98 million in total funding from about a dozen venture investors, according to Thomson Reuters (publisher of VCJ).

The two deals were in keeping with Crosslink’s typical practice of leading and taking a board seat, which it’s done in more than 90% of its new investments.

Crosslink also plans to continue its decade-old Entrepreneur-in-Residence program which, in its previous fund, led to the formation of SeaMicro, a developer of low-power servers, and Twin Creeks Technologies, a maker of solar panels.

It’s also open to PIPE deals which, for venture fund investments, will target technology companies with a buy-and-hold time frame of three to five years. Feuille didn’t specify any recent PIPEs, but he pointed to two older deals, such as hosting company Equinix and DVR-provider TiVo.

In addition, the firm’s portfolio includes some high profile names, such as music streamer Pandora. It’s also had a few exits, such as genealogy site Ancestry.com, which went public a year ago, and analytics provider Omniture, which was acquired by Adobe Systems last year for $1.7 billion. Another portfolio company, communications equipment maker Force10, is in registration to go public.

There’ve also been some flops. Among the more recent is Lucid Era, a developer of business intelligence software that ceased operations last year. The company had raised more than $22 million from Crosslink, Matrix Partners and Benchmark Capital.

PROFILE: CROSSLINK CAPITAL

www.crosslinkcapital.com

Founded: 1989

Location: San Francisco

Fund: $200 million for Fund VI. Prior venture fund, raised in 2005, totaled $250 million. Raised hybrid public-private Crossover Fund with $400 million in commitments in 2007.

Focus: Makes cross-stage venture investments focused on Internet, software and energy sectors.

Investments: Since July, the firm has made investments in LiveScribe, a “smart pen” maker, BlueArc, a developer of network storage systems, Validity Sensors, a developer of fingerprint sensors, Hi5, a social networking site.

Team: Venture team includes Partner Eric Chin; COO Jerome Contro; Partner Lou DiNardo; General Partner Jim Feuille; Partner Alain Harrus; Venture Partner Gary Hromadko; Founder Sy Kaufman; Partner Bruce MacNaughton; vice President Nick Mignan; General Partner Peter Rip; Vice President Carl Rydbeck; and Founder and General Partner Michael Stark.

Did You Know? Crosslink has raised two types of funds: VC funds that invest in private, venture-stage companies and the occasional PIPE transactions, and crossover funds that invest in public and private equities. For the venture funds, Crosslink calls down capital in increments, like a traditional VC. For the crossover funds, however, capital gets called all at once.

Source: VCJ reporting