DALLAS – In an attempt to capitalize on industry relationships two decades in the making, The Crossroads Group, best known for fund-of-funds investing, launched Crossroads Catalyst, an operation that will connect the firm’s network of venture capitalists, entrepreneurs, incubators and services firms, said Brad Heppner, Crossroads’ chief executive officer.
To many VC investors, capital has become a commodity. The overwhelming amount of cash pouring in – some $46.5 billion was raised in 1999 – has sparked competition among limited partners to offer dollars with added value. With this in mind, The Crossroads Group, after years of traditional passive fund-of-funds investing, decided to take a more active role, Heppner said. Crossroads Catalyst will use its network of contacts to help place entrepreneurs with VCs, focusing on those firms that have had success with a sector in the past, or who act as a first mover in a space. Additionally, the catalyst will help start-ups form strategic relationships and fill their boards of directors.
Crossroads Catalyst launched in July when it solidified the first of about six anticipated relationships or “Venture Catalyst Agreements” with management consulting firm Bain & Co. Inc. The two firms will jointly evaluate investment opportunities, including those incubated by bainlab, Bain’s Internet start-up practice.
Founded in 1981, The Crossroads Group has raised 16 funds that it invested in 225 different funds among 85 venture capital firms in the U.S. and Europe. The firm places its capital with Sierra Ventures, Menlo Ventures, New Enterprise Associates, Technology Partners, Trinity Ventures, Oak Investment Partners, Sprout Group, Battery Ventures and Highland Capital Partners, among others, Heppner said.
While Crossroads Catalyst will not be compensated for the services it provides, it can be argued that a conflict of interest exists: As a limited partner in certain VC funds, the firm has an interest beyond that of the start-up it is trying to match with an investor. Heppner’s response: Crossroads invests with 85 well-performing funds, why would a start-up want to go elsewhere?
The Crossroads Group is raising the $600 million-targeted The Crossroads 1999 Private Investment Portfolio A LP, which will make fund-of-funds investments, together with the $150 million-targeted The Crossroads 1999 Series Direct/Co-Investment Portfolio A LP, allocated for direct investments, Heppner said. The firm is looking to increase the amount of direct investments it makes to somewhere between 35% and 50% of the total amount invested by the firm, up from the 12.5% it invested last year, Heppner said.
The firm’s limited partner base includes American General Co., Texas Christian University, Georgetown University, San Antonio City Fire & Police Pension Fund, Bain & Co. and senior partners at McKinsey & Co., Heppner said.
Director and General Counsel Joseph Malick, Director Scott Myers and Senior Associate Colin McGrady will manage the catalyst and will report to Heppner. Additionally, each of the relationships the catalyst forms will be staffed with a Crossroads partner, director, associate and three analysts, Heppner said.