Crosslink sets sights on $600M hybrid fund

Crosslink Capital has begun raising its fifth fund with the intention of splitting the $600 million vehicle between venture and hedge fund-like investments in the public markets. The fund will be more than twice the size of the $280 million Crosslink Crossover Fund IV, which was raised in 2003.

The San Francisco-based firm currently invests from three parallel vehicles—one that invests in public companies, one in startups and a third that splits investments between the other two funds.

Its $250 million venture fund, called Crosslink Ventures V, was raised in 2005. It has has invested in at least five companies to date: wireless equipment maker Strix Systems, Internet companies KLP International, Pandora Media and Red Swoosh, and semiconductor company Intematix.

The hedge fund team invests in tech stocks, typically going 60% net long with as many as 30 to 40 companies and 15 to 25 trading short at any given time. The hedge fund’s top holdings, as of November, were IT infrastructure provider Equinix Inc. (Nasdaq: EQIX), for which it holds shares worth more than $36 million; semiconductor company Virage Logic (Nasdaq: VIRL), for which it holds shares worth $17.4 million; and software company Omniture (Nasdaq: OMTR), for which it holds shares worth nearly $17 million, according to a regulatory filing.

In 1999 and 2000, the Crosslink hedge fund returned 60% and 40%, respectively. But it returned only 1.5% in 2001 and lost 8.4% during 2002. It picked up in 2003, returning 25.7% and leveled off at 9.6% in 2004 and 13.7% in 2005, according to previously reported numbers from one of the firm’s internal marketing memos.

Hedging their bets

Hedge funds are increasingly investing in early stage tech companies. Artis Capital Management, for instance, invested in YouTube alongside Sequoia Capital. Also, hedge funds managed by Farallon Capital Management, Och Ziff Capital and Maverick Capital have all invested in various venture deals. Farallon and Och-Ziff helped biometric payments startup Pay By Touch raise $60 million in February 2006 on the heels of a $130 million round that the company raised in September 2005.

More recently, online video delivery startup Brightcove raised nearly $60 million from VCs and hedge funds in its Series C financing from Maverick Capital and hedge funds AllianceBernstein and Brookside Capital. Venture firms Accel Partners and General Catalyst Partners also backed Brightcove.

Bill Burnham is hoping that his VC connections can help give him insights into public market investments. The former Mobius Venture Capital investor raised $10 million for a hedge fund he launched last summer called Inductive Capital. Burnham, who was a software investment analyst before becoming a VC, says that he is relying on insights from VCs to help him pick stocks.

Similarly, at Crosslink, the firm’s venture group meets with the public equity investors each week to discuss deals and industry trends. Burnham, though, is quick to point out that VC prognostication should be taken with a big grain of salt. “A lot of the VCs are not very well in touch with what’s hot or not in the public market now,” he says. —Alexander Haislip