MENLO PARK, Calif. – Founded to take advantage of the number of business worthy technologies being generated by universities, Diamondhead Venture Management LLC expected to hold a $150 million second close on its freshman fund, Diamondhead Ventures LP, by the end of the fourth quarter, said David Lane, managing director. The vehicle started fund raising in April with a target of $100 million, he added. The fund held a few rolling closes during the third quarter of this year on the $135 million it has raised to date, he noted.
Lane, who founded venture capital firm Alpine Technology Ventures in 1995, launched Diamondhead Venture Management at the beginning of this year with Raman Khanna, formerly Stanford Univeristy’s chief information officer.
“We want to take advantage of the growing momentum of companies coming out of universities,” Khanna said. “Ten years ago, maybe only one or two companies were coming out of universities in a year. About three years ago following the establishment of the Internet that changed dramatically now, it’s a pretty quick turn around for a faculty member to have a great idea and turn it into a company,” he noted, adding “today, the rite of passage for faculty members is not books or articles, but have they successfully spun out a company?” Moreover, universities are also under served by the VC community, Lane said, adding this means Diamondhead is positioned to harvest promising deals which have not been getting funded.
Diamondhead’s new fund will invest exclusively in early-stage Internet infrastructure plays, Lane said. The vehicle will likely back 15 companies with an initial investment ranging from $1 million to $5 million. The firm’s goal is to have a portfolio company’s product enter into the marketplace anywhere from 12 to 18 months after the company receives its funding. Diamondhead plans to be the first institutional investor in the majority of its portfolio companies. Approximately one-third of the vehicle’s deals will be Series B opportunities he added.
The firm plans to focus its efforts on the infrastructure opportunities emerging from Stanford University, the University of California at Berkeley, the University of Southern California, the California Institute of Technology and Carnegie Mellon University. The firm is targeting these schools because of the quality of their research, as well as their proximity to Diamondhead’s Silicon Valley office, Lane said. “We needed to focus on these campuses in order to be well known at these five schools,” he added. In the case of Pittsburghbased, Carnegie Mellon the distance from the firm’s office is a bit longer, although this might not be the case for long. Anne Watzman, a Carnegie Mellon spokeswoman, said the university is considering opening a Silicon Valley-based branch campus at NASA’s Ames Research Center in Moffett Field, Calif. The fund will also consider deals coming from other universities, Lane said, though these opportunities will not be a primary focus of the firm’s efforts.
While Diamondhead has an advisory board including members drawn from the faculty of these universities, the firm has not entered into a formal relationship with any of these institutions. “We did not enter into a formal relationship with any of the schools because we did not want them to have a say in our investment process,” Lane said.
Diamondhead’s limited partners include 50 high-net-worth executives from technology companies, financial investors like Moore Capital Management Inc. and American Family Insurance, as well as corporate investors, Lane said.
The firm has six corporate partners: Sun Microsystems Inc., Oracle Corp., Fujitsu Ltd., Foxconn Electronics Inc., Sonera Group PLC and HCL Technologies Ltd., which it will turn to provide fast-track services to get its portfolio companies up and running quickly, he added. Lane declined to say whether or not all of the firm’s corporate partners were also LPs. He did say the group collectively holds a significant stake in Diamondhead.
Lane described the vehicle’s management fee and carried interest structure as coming in at standard industry levels. He declined to say how much the firm itself had invested in the fund. The firm’s investment team consist of Managing Directors Lane and Khanna, Special Limited Partner Peter Wolken, and Venture Partner Joel Jakubson. Lane said the firm had no plans to hire any additional investment professionals in the short term.