DCM Accepts Public LPs in New Fund –

Some venture firms choose to steer clear of public pensions for fear of having the LPs disclose detailed portfolio information disclosed.

In raising its fourth fund, however, DCM-Doll Capital Management (DCM) not only kept many of its current LPs, it went to public institutions to bring new investors on board. The result: DCM added the University of Michigan, among other new public LPs, to its roster in raising $375 million for DCM IV.

The inclusion of the University of Michigan is noteworthy since it comes at a time when other firms-such as Benchmark Capital, Charles River Ventures, Sequoia Capital and Woodside Fund-have kicked out or have purposely not invited public LPs into their new funds because many are required to publicize private equity performance data. For example, the University of Michigan was booted out of a new Sequoia fund last year and asked to sell off its existing stakes in earlier Sequoia funds following the university’s release of market values and internal rates of return for each of its 122 limited partnerships with venture and buyout firms.

DCM co-founder David Chao says the University of Michigan’s disclosure of fund performance is not a problem so long as detailed portfolio information remains confidential. De Novo Ventures and Novak Biddle Venture Partners echoed similar sentiments when they both took money from the University of California in their latest funds.

It took the Menlo Park, Calif.-based venture firm only four months to raise $375 million for DCM IV, which the firm announced in early June. Chao notes that the quick four-month turnaround is a vote of confidence at a time when some firms are taking up to a year to close a new fund. Among the two-dozen investors that returned from prior funds were FLAG Venture Partners, HarbourVest Partners, Horsley Bridge Partners and GIC.

The new fund is smaller than DCM III-a $470 million vehicle raised in 2000-but that is in keeping with the overall industry trend of smaller new funds.

Other than the reduced fund size and the added public LPs, little else has changed with Fund IV. The firm is sticking with the same game plan it has followed in previous funds and is retaining the same staff and maintaining its same investment focus in semiconductors, communications and software. DCM will continue to invest about three-fourths of its capital in early-stage companies and the remaining 25% in strategic investments.

The firm plans to begin investing from DCM IV later this year, with about 80% going into domestic deals and 20% into international deals. The ratio is the same as it was for past funds, but China will represent a larger percentage of deals within its allocation for international investments. Among DCM’s past investments in China is 51Job, a Beijing-based provider of recruiting services.

DCM isn’t planning any staff expansion or new offices with the new fund. Chao says DCM will keep its professional staff at 12 for a total of 26 people in the firm, which includes support, administration and services. In addition to Chao, the firm is made up of co-founder and Managing General Partner Dixon Doll and GPs Tom Blaisdell, Eric Gonzales, Peter Moran, Robert Theis.

In raising the new fund in four months, it didn’t hurt DCM to have in its portfolio several visible exits, such as Semiconductor Manufacturing International Corp., which raised more than $1.8 billion in its IPO in March; iPivot, which was acquired by Intel Corp. in 1999 for $500 million; and Recourse Technologies, which was acquired by Symantec in 2002 for $135 million.

DCM-Doll Capital Management

www.dcmvc.com

Founded: 1996

Locations: Menlo Park, Calif., and San Francisco.

Fund Name: Doll Capital Management IV.

Size: $375M

Capital Under Management: $687M

Top Execs: Co-founders and Managing General Partners David Chao and Dixon Doll. General Partners Tom Blaisdell, Eric Gonzales, Peter Moran and Robert Theis.

Previous Funds: DCM III closed in 2000 at $471M; DCM II closed in 1999 at $155M.

Investment Focus: Invests mostly in early stage, U.S.-based companies. Invests selectively in some late-stage and international companies. Typically makes initial investment of $3M-$7M, with equal amount reserved for future rounds. Total investment per company up to $15M.

Sample LPs: FLAG Venture Partners, HarbourVest Partners, Horsley Bridge Partners, GIC, University of Michigan, Santa Clara University.

Recent Investments: A Series C investment in Encover, a maker of sales service automation software; a Series A in Arroyo Video Solutions, a provider of broadcast equipment and services; and a Series C in Spoke Software, which provides professional relationship software services to corporations.

Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey; and original research.

Email: jborrell1@yahoo.com