For inspiration on how to manage Draper Fisher Jurvetson’s (DFJ) new Russian-oriented fund, all Alexei Andreev has to do is look at the firm’s lineage. William H. Draper Jr., the grandfather of DFJ founder Tim Draper, is credited as being the first professional West-Coast venture capitalist. And Tim Draper’s father, Bill, was also a VC pioneer in Silicon Valley, having launched Draper Richards, which became the first firm to work with Indian entrepreneurs to fund U.S.-based companies that employed workers in India.
Andreev hopes to model DFJ’s new fund in a similar vein.
DFJ announced in late May the formation of DFJ Nexus Fund I, which will invest in early-stage companies in Russia or doing business in the former Soviet Union.
Andreev, a native Russian, was unwilling to disclose how much the firm plans to raise or from whom, although the fund has been rumored to be targeted at $50 million, according to the Russian Business Monitor.
Andreev, the managing director of DFJ Nexus and a venture associate at DFJ since 2002, says the firm plans to partner with Mint Capital, a Moscow-based VC firm headed by Alastair Stoby.
Andreev worked in the nanotechnology industry in Russia before joining Sputnik Funds, a large Eastern European-focused private equity firm based in Bermuda and with operations in Moscow. He says there are a lot of good Russian technology deals available at good valuations.
After several fits and starts, the private equity industry in Russia appears set for a genuine start. Like the beginning of the VC industry in India, Russia will benefit from having tens of thousands of Russian emigres in Silicon Valley who can provide the expertise and contacts for setting up companies in Russia.
– Jerry Borrell
TA Associates Seeks Foreign LPs
TA Associates is raising a new $500 million private equity fund that primarily will be marketed to limited partners based outside of the United States. The fund-named TA Atlantic & Pacific V-is expected to hold a first and final close in December.
The Atlantic & Pacific family of funds traces its roots back to the early 1980s, when tax laws made it difficult for private equity firms to raise funds that included both U.S. and foreign limited partners.
Rather than deal with the complex legal paperwork, TA Associates simply began raising separate vehicles that co-invested with one another on a pro rata basis. The practice has continued over time, as TA manages five Atlantic & Pacific funds for foreign LPs, a pair of predecessor funds named Advent Bermuda and Advent Atlantic, plus nine funds for domestic LPs, including the $2 billion TA IX which closed in 2000.
Most of the tax justifications have dissipated, but TA has maintained its dual fund structure. However, TA sometimes provides domestic LPs with securities distributions from public portfolio companies, while the firm liquidates such securities for foreign investors and then distributes cash.
Kevin Landry, chief executive of TA Associates, announced in 1999 that he would retire when TA IX was fully invested, which should have been a few months ago. Landry now says he will remain on board until the spring of 2006-due to the private equity market slowdown-at which point he will partially scale back his involvement. Andrews McLane, a senior managing director with TA, is expected to follow a similar course.
Save for those likely changes, Atlantic & Pacific V will not deviate from the traditional TA Associates investment strategy, which is to make investments in technology, finance and health care companies. It also participates in some earlier-stage deals and makes mezzanine investments out of a $500 million subordinated debt fund.
Landry says that the firm has no plans to replace or augment its mezzanine vehicle with a business development company.
– Dan Primack
Techxas Adds Networking Exec
Techxas Ventures has added a new member to its roster as it gears up to raise its third fund later this year. The Austin, Texas-based firm in early May brought on board Brian Smith, founder, chairman and former CEO of Crossroads Systems (Nasdaq: CRDS), a publicly traded networking equipment company. Smith, who was named managing director of Techxas, is also a principal with Austin-based Convergent Investors, a private equity fund with more two dozen investors. Smith will retain his involvement with Convergent.
Bruce Ezell, Techxas co-founder and managing director, says the addition to the investment team comes as the firm not only raises a new fund (which is targeted between $100 million and $150 million), but also broadens its focus. It has primarily invested in Texas-based early stage deals in software, information technology, biotechnology and nanotechnology. With the addition of Smith, Techxas will also concentrate on hardware and semiconductor deals, Ezell says.
Fund-raising for the third fund will begin this fall and will likely finish in 2005, Ezell says. The target size of the new fund is more than double the firm’s two previous funds combined. In 1998, Techxas raised a $20 million fund. Among its investments from Fund I is BroadJump Inc., a provider of software for DSL and cable modem access. Motive Inc., which is in registration for an IPO, bought BroadJump last year. That acquisition has given Techxas a stake in Motive’s public offering.
Also, Techxas raised $46 million for Fund II in 2000. Ezell says that fund is about 80% invested. Among Fund II investments was SoloMio, a wireless communications company that has raised $20 million from Techxas and others.
– Alastair Goldfisher
Innovation Factory Adds New Partner
To extend its industry expertise and financial flexibility, The Innovation Factory has expanded its VC trio partnership into a quartet. The new member is Accuitive Medical Ventures, which is in the midst of raising an inaugural fund targeted at between $50 million and $75 million.
Since its inception in 1999, The Innovation Factory, a medical device incubator, has helped fund select startups via an affiliate agreement with The Carlyle Group, Versant Ventures and Schroder Ventures Life Sciences. The strategy has been for the three VC firms to co-invest on Series A and Series B rounds at set valuations, and then to open up Series C deals to outside investors.
For example, LipoSonix Inc., a Bothell, Wash.-based medical device company focused on the non-invasive removal of body fat, was founded by The Innovation Factory four years ago. It has raised two rounds of funding from the above investors, including a $9.9 million Series B deal at a post-money valuation of approximately $20 million. LipoSonix is out raising a Series C round and has received interest from more than 30 venture firms.
In joining the trio, Duluth, Ga.-based Accuitive will provide 10% of all Series A and Series B deals for Innovation Factory startups, with The Carlyle Group, Versant Ventures and Schroder Ventures Life Sciences each taking a 30% stake. All firms are encouraged to invest pro rata during follow-on deals, and Accuitive recently provided some Series B-1 funding for LipoSonix.
“We see this as the next evolution of the VC structure,” says Michael Partsch, a managing director with Accuitive and a former associate with Versant. “Seventy percent of our deals will be co-investing with the [Innovation Factory consortium], and a lot of the rest will come from our strong connections with entrepreneurial groups and repeat entrepreneurs.”
Partsch is one of three members of the Accuitive investment team that is not also employed by The Innovation Factory. The other two are managing director John Deedrick (formerly of The Mayo Clinic’s VC arm) and Gerard van Hamel Platerink.
Tom Weldon, chairman of The Innovation Factory, also serves as chairman and managing director of Accuitive. Charlie Larson, Innovation Factory CEO, and Steve Waite, Innovation Factory president and COO, will both serve as Accuitive managing directors on a part-time basis.
– Dan Primack
Blue Sage Blooms with Inaugural Fund
Capping out at $170 million, Austin, Texas-based Blue Sage Capital closed its first fund with commitments from banks Wells Fargo, Bank One and The LBJ Holding Co., the investment trust of former President Lyndon Johnson.
Blue Sage is a 2-year-old regional buyout firm that focuses on the lowest end of the middle market-established companies in the Southwest whose annual revenue totals up to $30 million and an EBITDA around $6 million.
In its investments, Blue Sage will take a controlling interest in its portfolio companies, investing up to $15 million in equity capital, and complementing that with senior debt financed by the firm’s limited partners, says Peter Huff, one of the firm’s three general partners.
Blue Sage is piggybacking on the success of its neighboring private equity players, such as Austin Ventures, Texas Pacific Group and Hicks Muse Tate & Furst. But it is carving out a niche that none of them have attacked-middle market companies, such as niche manufacturers or specialty finance businesses. It will consider deals across all industry sectors except for biotech, real estate and drilling for oil, Huff says. The fund has not yet closed a single deal, though it will likely announce its first one, a company in Houston, before the summer’s end, he says.
Huff, once a managing director with Whitney & Co. and most recently a partner with Austin Ventures, will manage the fund alongside private equity veterans Bo Baskin and Jim McBride. Baskin is a former investment banker who did stints at Goldman Sachs and First Boston. He is also the founder and chief executive of Baskin Family Camps, an organization that runs summer camps.
McBride has spent the last decade as the senior non-family executive for The LBJ Holding Co. The three partners will have the assistance of four associates and directors.
LBJ Holdings invested $20 million in the fund. Other limited partners include state pension funds, financial institutions and the federal government. The fund held a first close last June with $125 million.
– Carolina Braunschweig