Sierra Ventures co-founder Jeffrey Drazan says he is set to begin raising the first fund for his new firm, Bertram Ventures.
In doing so, Drazan stresses that he remains actively engaged in current Sierra portfolio investments and that he remains on the board of six companies for the firm. He also says that he will continue to be involved in the remaining investments to be made from Sierra VIII, a $500 million vehicle raised in 2000 and which is all but 20% invested.
Drazan plans to start marketing his new fund, which he’s named Bertram, after the Sierra VIII fund is fully invested. This should occur in late 2005, and his goal is to have the new firm and fund up and running by mid-2006, but it could happen sooner.
Drazan says that Bertram will focus on growth and buyouts, investing in companies with $25 million to $100 million in revenue. Drazan says that Bertram – named after his dad – will focus on two sectors: health care and another sector that he won’t identify yet, but will be IT-based.
Bertram’s first fund is planned for $250 million and Drazan says he envisions an average investment per firm of $20 million or “whatever it takes to buy controlling interest.”
Drazan has been a fixture on the VC scene since joining Sierra shortly after it’s founding by Peter Wendell. The first fund that Wendell and Drazan co-raised was a $50 million vehicle called Sierra III in 1987.
Drazan’s investments at Sierra have included Centex Telemanagement, StrataCom, Active Software, ConvergeNET and Quinta. By his estimate, Drazan says that he’s contributed $750 million of the firms realized investments with another $250 million to come. But he says that the more relevant statistic for his 21 years of investing is a 59% compounded IRR for his cumulative portfolio companies at Sierra.
Drazan says he plans to set up Bertram in Menlo Park, Calif., in the same building and across the hall from where Sierra is based on Sand Hill Road.
MPM To Split in 06
MPM Capital, a Boston-based VC firm focused on life sciences investing, plans to substantially alter its partnership before raising another fund. The moves are expected to occur by early 2006, at the latest, as MPM Capital already has committed nearly 75% of its $900 million third fund.
“The group of partners who raised [MPM BioVentures II] as a team will change as we roll into subsequent funds,” says Luke Evnin, a San Francisco-based general partner with MPM Capital. Evnin declined to provide details. He says that the firm remains focused on its current investment activity.
Others familiar with the situation, however, have been vocal about their concerns. Five different sources tell VCJ that MPM Capital will split into two separate firms, with Evnin and founder Ansbert Gadicke retaining the MPM Capital name for a late-stage venture capital effort that also would include some public investing. The firm currently makes PIPE transactions through its $400 million MPM BioEquities Fund.
One of the many VCs who have co-invested with MPM Capital says that the persistent rumors of the breakup are “unsettling.” He says that his firm and other co-investors are directly affected because of several unanswered questions surrounding an expected split. “If I have a GP from MPM on my deal, then who’s going to be the replacement?” the source asks. “And how committed to the portfolio company is that person going be and how is that going to affect the company? It’s easy when it’s just one person leaving a firm, but when changes happen to an entire firm, it causes concern.”
The VC added that MPM Capital is a valued partner with “deep pockets” and “some very smart people.” And the source notes that it’s a good thing that the issues are resolved now, before MPM Capital goes on the fund-raising circuit. But because rumors of a split have been circulating for some time, the source has heard from some LPs who are concerned. And he’s heard from at least one LP who passed on MPM Capital’s last fund. “One LP that passed said, We dodged a bullet there,'” the source says.
Reportedly, if Evnin and Gadicke retain the MPM Capital name, another group of partners would form a firm devoted to traditional venture investing, including some early stage activity. Both groups would maintain their life sciences focus.
The split apparently has been triggered by a variety of factors, including divergent investment strategies, compensation concerns and inter-personal team dynamics.
“It’s impossible to do regular VC deals, particularly early stage ones, if you’re investing out of a $900 million or a $1 billion fund,” says another source at a rival VC firm that focuses on the life sciences sector. “There are some people there who want to return to that type of investing, without having to push up against MPM’s high minimum [capital] requirements.”
Evnin and Gadicke reportedly receive a disproportionately high percentage of MPM Capital’s management fees, which has generated some backroom grumbling. Add to that an entire office full of “Type A” personalities – Gadicke’s being the most notable – and a parting of the ways is not surprising.
Evnin declined to discuss a split, as did General Partner and CFO Robert Liptak and Senior Advisor Shari Annes.
MPM Capital’s third fund, raised in 2002, featured an IRR of 2.3%, as of Sept. 20, 2004, according to the California Public Employees’ Retirement System (CalPERS). However, the fund was only about 37% called-down, as of that date, and it has subsequently exited, or has agreed to exit, such investments as InterCell AG (via an IPO) and Idun Pharmaceuticals (to be bought by Johnson & Johnson).
CalPERS also reported that MPM Capital’s second fund, raised in 2002, had a net IRR of -5.9% as of Sept. 30, and that it was over 91% called down.
Split Rock Closes 1st Fund
When St. Paul Venture Capital (SPVC) split into a pair of independent firms in July 2004, each group planned to raise solo funds within a year. The firms are now making good on that promise.
Split Rock Partners was the first to market in November, and the firm recently capped its inaugural effort with $275 million. The Minneapolis-based firm features a Menlo Park, Calif.-based office, and plans to make early-stage IT and life sciences investments in the Upper Midwest and California. Most of its IT deals will be in the software and services spaces, with around 75% of its life sciences disbursements going to medical device makers, and the remaining 25% earmarked for specialty pharmaceutical companies.
The fund-raising activity was run internally by Managing Director Jim Simons, while all four of the firm’s managing directors (Allan Will, Dave Stassen, Michael Gorman and Simons) participated on the road show. Split Rock did not use a placement agent.
“We’ve been actively focused on fund-raising since [the SPVC breakup], and have 36 active companies in our portfolio,” Gorman says. He says that Split Rock added its first portfolio company at about the same time that the fund closed. It’s a startup formed in partnership with medical device incubator The Foundry, and does not yet have a name.
The firm also generated some exit buzz recently when Experian acquired former SPVC portfolio company LowerMyBills.com for about $380 million. SPVC had led a $7 million second-round deal for LowerMyBills.com in late 2000.
Split Rock is not disclosing any limited partner information, except that former parent company St. Paul Travelers Cos. made a substantial minority commitment. The Minnesota Board of Investments also confirmed that it participated.
Meanwhile, the other half of the SPVC, Vesbridge Partners, which invests in early-stage networking and IT infrastructure companies from offices in Westborough, Mass. and Minnetonka, Minn., has been in fund-raising mode for a few months. Vesbridge expects to raise upwards of $250 million.
Zenas Hutchinson, Vesbridge’s senior managing director, declined to discuss fund-raising due to SEC restrictions, but a source close to the situation says that the firm has met with about 25 prospective LPs and has either completed, or planned, between seven to 10 follow-up meetings. It also has a $50 million commitment from St. Paul Travelers.
Canaan Expands Roster
Early stage tech investor Canaan Partners has closed Fund VII with $450 million in limited partners commitments. As part of the fund close, the firm named Brent Ahrens and Maha Ibrahim general partners. They join John Balen, James Furnivall, Deepak Kamra, Gregory Kopkinsky, Seth Rudnick, Guy Russo and Eric Young as GPs in Fund VII.
In addition to an expanded staff, Canaan Partners also has a larger base of LPs, as the 18-year-old firm made an effort to bring in more institutional investors into the fold. “They’ve really gone to a fully institutional investor base with this fund,” says David Braman, a senior partner with Pantheon Ventures, one of the firm’s new LPs. Another new limited in Canaan VII includes Abbot Capital.
While the firm had a base of institutional investors prior to its new fund, such as General Motors, Canaan’s LPs were initially individual investors outside the United States. The Menlo Park, Calif.-based firm began raising the new fund in January and was $100 million oversubscribed. The firm’s previous fund, Canaan Equity III, raised $700 million in 2001.
New GP Ahrens, who came to the firm in 1999 through a Kauffman Fellowship, formerly served with a Johnson & Johnson subsidiary in a variety of positions. At Canaan, two of his investments have seen exits recently. DexCom, a San Diego-based medical product developer, launched a $56 million IPO in April. Also in April, Peninsula Pharmaceuticals agreed to be purchased by Johnson & Johnson for $245 million.
Ibrahim joined Canaan Partners in 2000 and was formerly a vice president of business development with Qwest and a management consultant with Boston Consulting Group and Price Waterhouse. She sits on the boards of four Canaan Partners portfolio companies, including Habeus, a Mountain View, Calif.-based business email service provider; and South Plainfield, N.J.-based WAN-based storage consolidation service provider Tacit Networks.
GPs Balen and Rudnick said that the new fund’s fee and carry terms are consistent with past funds and “very much middle of the road.” They credit the firm’s consistency in investment and their practice of promoting from within to help generate LP interest.
Canaan Partners invests in early stage companies in IT and life sciences. The partners expect to see more investment activity in IT security and medical diagnostics, among other segments. The firm expects Canaan Equity III it to be fully invested and to begin investing Canaan VII by the third quarter of this year.
Firms Plan Fund in Africa
London-based Actis, and Montreal-based Cordiant have been selected by the Canadian government to form the Canada Investment Fund for Africa (CIFA) with a goal of raising $160 million. The new fund was announced in April at the African Finance and Infrastructure Conference in Toronto.
The Canadian and U.K. governments each will commit $20 million for the first close of $40 million for the new fund. In addition, the Canadian government will contribute another $60 million to match contributions from third party investors.
Actis will act as the fund’s portfolio manager. It is one of the oldest and more experienced investors in private equity in Africa. Adam Quarry, a partner at the London-based firm, says that the new fund is one of the largest ever raised for private equity investing in Africa. The fund will be invested throughout Africa, but with a focus on the larger markets and across a range of industry sectors, such as financial institutions, telecommunications, retail and natural resources.
While the range of investments that Actis makes globally ranges between $5 million to $100 million, the investments from this fund will likely be between $5 million and $50 million. “That’s because of the smaller size of the economies in which we will invest,” Quarry says.
The fund will invest in parallel with Actis Africa II, a $310 million dollar fund, bringing the total pool of capital available to Actis Africa II manager Nkosana Moyo, to about $500 million.
The selection of Cordiant to manage funds for CIFA, is the first expansion of the firm from its original asset class into other private equity investing, albeit in an emerging market.
The Canadian government’s participation in the fund is part of the $400 million Canada Fund for Africa, which was established in 2002 as part of the government’s commitment to the G8 Africa Action Plan and the New Partnership for Africa’s Development.
SunBridge Fund Rises
Asian boutique VC firm SunBridge Partners is raising a $100 million U.S. technology fund. Allen Miner, founder of SunBridge, said that he is joining three principles from Equitek Capital to raise SunBridge Partners Technology Fund III, the largest fund to date under the SunBridge umbrella.
Miner, the founder of Oracle Japan, told VCJ that the new fund will invest in RFID, wireless communications and manufacturing process innovation. He hopes for a first close this spring and a final close before the end of the year.
Miner says the fund will invest from $2 million to $6 million per startup, and he expects between 12 to 14 companies in the new fund. The $12 million SunBridge Technology Fund I and the $9.7 million SunBridge Technology Fund 2002 – which have invested primarily in Japan – have been among the most successful of all technology funds of their vintages, Miner says. Fund I, for example, had invested in Salesforce.com, Macromill and G-mode, all three of which have launched public offerings. Miner says the fund returned 3X its original capital with nine portfolio companies still active.
Joining Miner in the new fund are the three founders of Equitek Capital in the United States: Ken Erhart, Paul Grim and John Gannon. Equitek’s existing LPs have decided not to support another Equitek Fund, but because the group’s technology interests had so many overlaps, Miner says that they decided to band together under the SunBridge brand to raise a larger fund. The group will retain Equitek’s Palo Alto, Calif., office, as well as SunBridge’s Tokyo offices.
The group will focus on opportunities that arise from university and research labs. Miner says that most of the fund’s investments are aimed at Series B and Series C rounds, or companies that have products in development waiting for manufacturing support.
Summit Eyes $3B
Summit Partners has entered the fund-raising fray, sending out books for a $3 billion-targeted vehicle that will make late-stage private equity and leveraged buyout investments. It is a follow-up to a $2.08 billion fund raised in 2001, which featured a positive internal rate of return (IRR) even before recent IPOs for portfolio companies like SeaBright Insurance Holdings Inc., and OptionsXpress Holdings Inc.
“They won’t need to do much work to hit $3 billion,” says an existing Summit LP who expects to re-up. “It’s a strong firm with very good returns.”
Where Summit may run into difficulties, however, is in its quest to simultaneously raise a second venture capital fund targeted at between $250 million and $300 million. The Boston-based firm’s original VC vehicle was known as the Summit Accelerator Fund (that moniker has been dropped for the new effort), and was raised just before the Internet bubble burst in 1999. Predictably, it hasn’t fared too well. Summit Accelerator featured a -8.9% IRR, according to data from the California Public Employees’ Retirement System, as of Sept. 31.
The new Summit venture capital offering doesn’t look much like its predecessor. Not only does it have a growth equity focus as opposed to the Accelerator Fund’s early stage mission, but it also has a very different staff. Gone is Accelerator Fund founder Kip Sheeline, plus general partners Mike Balmuth and Marc Friend. Private equity vice president Tom Jennings will transition into a VC-focused principal role, while Greg Goldfarb will be promoted from senior associate to vice president. The group also is looking to increase its staff.
“I don’t think it will be a problem raising both funds at the same time,” says Marc Friend, who resigned from Summit to return to his early stage investing roots. “I’d put money in both.”
Vector on Straight Path
San Francisco-based Vector Capital has raised Vector Capital III with $337 million. Limited partners include Citigroup Pension Plan, J.P. Morgan (operating as a trustee for First Plaza Group Trust), Stichting Pensionenfunds AB and ZAM Holdings.
Limited partners in previous Vector funds include California Public Employees’ Retirement System, Credit Suisse First Boston, GE Equity, J.P. Morgan, Perot Investments, the Massachusetts Institute of Technology, the MacArthur Foundation, Vulcan Ventures and Ziff Brothers Investments.
Vector Capital’s previous fund, Vector Capital II, closed in 1999 with $170 million and has done nine deals, mostly in software and IT companies. The firm says that Vector II has returned an average annual rate of more than 25% per year. It says that its most successful investment to date from the fund has been its buy of publicly traded consumer software firm Corel, which Vector bought for $63 million and took private.
The new fund was marked by the departure of Val Vaden from the partnership. Vaden is Vector’s co-founder and former managing director and currently serves as a senior advisor with the firm. Vector is led by Managing Partner Alex Slusky and Partner Chris Nicholson, who was promoted from principal last year.
Vector, which invests in a mix of venture capital and buyout deals, focuses on the software and IT sector. It invests in self-financed companies, corporate spinouts, and public and private companies undergoing restructuring. The firm does not invest in early stage startups. Its portfolio includes Flextronics (Nasdaq: FLEX), a Singapore-based provider of electronics manufacturing services; and Savi Technology, a Sunnyvale, Calif.-based provider of supply chain management software.
3i, DCM Invest as LPs
Apparently, investing in companies located in the red-hot Asian market is not enough for some venture investors. In April, a pair of well-known VC firms have taken on the role of limited partners and invested in China-based funds.
3i announced it has committed $45 million to the first close of CDH China Holdings Management Co.’s China Growth Capital Fund II in Beijing. Counting 3i’s commitment, the firm has raised $162 million for the fund’s first close and aims to raise $310 million for the growth capital vehicle.
Meanwhile, DCM-Doll Capital Management announced also in April that it was staking a claim in a China VC firm. DCM made an undisclosed commitment to Legend Capital, the Beijing-based venture arm of China’s Le Novo Group. DCM invested in Legend Capital’s second fund, which closed in 2003 with $55 million.
3i currently has investments in six portfolio companies in China. But its commitment to CDH was unusual in that the London-based firm rarely invests as an LP in other private equity firms, says Jamie Paton, the firm’s managing director for Northern Asia. The deal with CDH is “just an investment in an important company in the region,” Paton says. “3i will continue to be an active investor in areas of interest to the company.”
Wu Shangzhi founded CDH in late 2002 as a spinoff from Chinese investment bank China International Capital Corp. It raised $102 million for its first fund and has been one of the better performing independent venture funds in China. 3i maintains offices in Asia led by Mark Thornton in Singapore and Paton in Hong Kong.
Similar to 3i, DCM has been active in China for years. DCM has three current portfolio investments in China, the most prominent of them is 51job (Nasdaq: JOBS), which focuses on the employment market in China and was one of the top performing newly public companies in 2004. DCM has previously collaborated on deals with Legend Capital.
As part of the partnership agreement, DCM will operate in Legend Capital’s Beijing headquarters. Dixon Doll will stay in San Francisco while co-founder David Chao is in Beijing.
Actis Raising 2 Funds
Actis is nearing a close on two funds – a $300 million Actis India Fund and a $150 million Actis South Asia Fund II. Donald Peck, one of 12 managing partners of London-based Actis, says that each of the funds has raised a majority of its targets. Peck, who heads Actis’s South Asia operation, expects a final close in the summer.
Peck and a staff of 17 oversee investments in India, Pakistan, Sri Lanka and Bangladesh from offices in New Delhi and Pakistan. At present, Peck and his team manage two funds totaling $400 million that were raised during 1998 – a South Asia Regional Fund and Actis India Fund I.
Peck says that LPs partners in the firm’s current fund include the Overseas Private Investment Corp. and CDC, from which Actis originated in a management buyout in 2004, and which has invested more than half of the new funds’ capital.
Actis India will invest in India, while Actis South Asia Fund II will be divided evenly between India and the rest of its investing region. Peck says the group is interested in pharmaceuticals, auto components and commercial vehicles, the fastest growing segments for expansion stage companies in India. About 60% of the firm’s South Asia investments go to expansion capital, and the rest is invested in buyouts.
Peck says exits are on the rise in the region. During 2004, Actis realized $174 million on exits from previous investments, he says. More exit are in process, he says.
Evolvence Launches India FoF
Evolvence Capital is founding the first fund of funds for India, according to Jay Jaganathan a GP with the newly announced Evolvence India Fund (EIF), which has a target of about $250 million.
Jaganathan, who has spent the past 15 years working in private equity in the Middle East, joined Evolvence in 2001 as a consultant. He will head up EIF. He began fund-raising in April and expects a first close of about $50 million before July, Jaganathan tells VCJ in an exclusive interview. He says he’s raising the funds from Middle Eastern LPs and has no projected date for the fund’s final close.
EIF will focus on investments with India. The new FoF will operate from two offices, one in New Delhi and another in Dubai, that belong to Evolvence and First Capital.