Fund Notes –

The University of Utah has raised a $5 million private equity fund, the University Venture Fund (UVF), making it the largest student-run private equity fund with outside capital.

While the amount is just a drop in the more than $17.7 billion that U.S. firms raised last year, the University Venture Fund is still very much the real thing. A team of 25 students from the Salt Lake City-based university will invest the funds in private equities and perform due diligence. A range of graduates and undergraduates are enrolled, and the program also includes students from Westminster College in Salt Lake City and Brigham Young University in Provo. The fund has a 2.5% management fee, a 20%/80% carried interest split, a standard 10-year investment window and, most importantly, limited partners that expect to see returns.

Institutional LPs include UBS Bank USA and Morgan Stanley. Sorenson Media CEO James Lee Sorenson and his father, medical device entrepreneur James LeVoy Sorenson, provided $500,000. Also, Tim Draper invested $1 million.

The idea to create a fund as a learning aid was hatched by Dominion Ventures Founder Geoff Woolley, who came up with the concept when he returned to his alma mater as a guest lecturer in 2000. Jared Hutchings, a recent graduate of the university, and the managing director of Utah’s fund, started working on it as a senior in 2001.

“We basically went out and talked to firms and asked if we could do the due diligence on their deals,” he says. “It took awhile to develop relationships and earn trust, but were able to show that we were earnest about the work.” And from there, he says, the concept took off.

While The University of Utah has the largest student-run private equity fund, it is not the only student-run investment vehicle. Cornell sponsors BR Ventures, which is run out of the Johnson Graduate School of Management, while the University of Michigan’s $2.6 million Wolverine Venture Fund has been operating since 1997.

One of the differences between Utah’s fund and the others is that it is the only fund that has raised money from outside sources. Sorenson Capital Founder James Sorenson was the initial donor that got the fund off the ground, and his firm is listed as an investment partner to UVF. Texas Pacific Group, Bain Capital, and Peterson Capital are among the other firms listed as investment partners, while UV Partners, vSpring Capital, Canaan Partners and Thomas Weisel Partners are just a few of the venture firms that work with the fund.

“As a rule, you won’t see us lead an investment,” Hutchings says. “We’re passive investors in a generalist fund. The deals will primarily come from our partners.”

Kenneth MacFadyen & Alastair Goldfisher

BAVP Stays In-House

BA Venture Partners in February closed its seventh fund, with a $400 million commitment from sole limited partner Bank of America.

The Foster City, Calif.-based firm gave brief consideration to accepting outside investment, but ultimately decided to stay in-house, largely due to a lack of formal fund-raising experience.

“I was amazed by the amount of interest, particularly because we didn’t send out a PPM or anything,” says Kate Mitchell, a managing director with BAVP. “Bank of America actually wanted to invest $500 million [as it had for Fund VI in 2000], but we were more comfortable at $400 million.”

The firm doesn’t expect many changes to its investment strategy, which can best be described as multi-stage. It hopes to invest in about 40% of its companies at the Series A level, and the rest at later stages where it can really help with commercialization.

As for industry sector, BAVP is a generalist at heart, but right now has a particular hankering for consumer technology and health care therapeutics companies.

“I remember seeing a ring-tone deal early last year, and wondering how it would ever be successful,” Mitchell says. “What I learned from that is to pay attention to what our kids are paying attention to. … We even took the entire team to a place where we could play all sorts of new [electronic] games.”

So far, the firm has invested in two companies out of Fund VII: Enuclia Semiconductor Inc., a fables semiconductor startup in Beaverton, Oregon; and Innovative Micro Technology Inc., a Goleta, Calif.-based MEMS manufacturer.

Jim Jones, who recently was promoted from director to managing director with BAVP, says that Fund VI already is in the black, and that he anticipates a 2x return on investment.

Also promoted to managing director alongside Jones was Sharon Wienbar, while Eric Sigler was promoted to director. New to the firm are CFO Tracy Pappas (formerly of Saints Capital) and associate Gaurav Kotak (formerly of Intuit).

Dan Primack & Jerry Borrell

Trident Capital Spears $400M

As it begins to invest from its sixth fund – a $400 million vehicle – Trident Capital will pay particular attention to backing Chinese-based outsourcing companies.

The Palo Alto, Calif.-based firm invests in a variety of tech sectors, including security, ecommerce, business process outsourcing and health care IT services, among others.

One investment sector that the firm finds increasingly interesting is innovation management, says Venetia Kontogouris, a managing director with Trident. Kontogouris, a BPO specialist, says that the firm is considering investments in Chinese BPO companies.

Robert McCormack Jr., a venture partner with the firm, has been working in Shanghai since last fall exploring BPO opportunities.

Trident Capital closed on Fund VI in late January with $400 million in commitments, about half the original size of its preceding fund.

Trident mostly stayed with returning investors in raising the fund, though the firm declined to name names.

An SEC filing lists Amsterdam-based Stichting Pensioenfonds ABP as an LP. Limited partners in past Trident funds include Sitra; subsidiaries of NIB Capital NV and General Motors Corp.; Liberty Mutual Group; Northrop Grumman Corp.; Abbott Capital Management on behalf of institutional clients; Thomas Weisel Partners; Massachusetts Pension Reserves Investment Management Board; Princeton University, and individuals.

Trident’s previous fund, Trident Capital Fund V, initially raised $730 million in 2001 but the firm cut that down to $530 million. Fund VI has retained the same fee and carry structure of its previous fund, a 25% carry rate with a management fee of 2.5% for the first five years with a reduction afterwards. Fund VI brings the firm’s capital under management to $1.5 billion.

– Matthew Sheahan

KP Adds Joy To Its Team

To employ some oft-used sports metaphors, the team at Kleiner Perkins Caufield & Byers (KP) has not only added a new wrinkle to its offense, but its players – across the board – are putting in 110%, despite year-old plans to slowly retire part of its lineup.

In January, KP announced it hired as a full-time partner Bill Joy, the computer scientist best known for co-founding Sun Microsystems in 1982 and helping develop Java and other technologies.

The move reunites Joy with his friend and KP partner Vinod Khosla, who also co-founded Sun, as well as the firm’s managing partner John Doerr, with whom Joy has been working with informally for years. As an investor in the three-person partnership Highbar Ventures, Joy has funneled numerous ideas and entrepreneurs to Doerr and the rest of the KP team, which has made an undisclosed amount of investments in the referred companies with his help.

But Joy’s official addition to the Menlo Park, Calif.-based firm deepens an already sizable investing bench, comprising six managing partners, who have fiduciary responsibilities, and seven partners.

The distinction between the two appeared to bear significance in February 2004 when the firm closed its 11th fund at $400 million. At the time, KP announced in a statement that the “partners,” including Khosla, Kevin Compton, Will Hearst, Doug MacKenzie, John Denniston and Juliet Flint, would “work exclusively with the new KPCB fund on technology investing, while also planning to spend more time with family and on personal causes.”

In short, it sounded as though the six managing partners – Doerr, Brook Byers, Joe Lacob, Ted Schlein, Russ Siegelman and Ray Lane, who joined in late 2003 from Oracle Corp. – would do most of the heavy lifting.

Perhaps KP didn’t anticipate how busy a year it would have. In 2004, it sewed up 45 deals, a more than 60% increase over the 26 deals it did in 2003 and a deal making amount that rivals the 47 investments that the firm made in 2001. Nine of its investments last year went to startups, including the mobile game maker Digital Chocolate; enterprise data outfit MetaMatrix; The Graw Group, a social networking service that pairs family members with online communities; and Akimbo Systems, which sells content delivery hardware and software for streaming media on the Internet and corporate intranets.

Kleiner recently invested in XenSource, which is developing various services and applications for software written in a new programming language called Xen, in a $6 million Series A. Funding came from Seven Rosen Funds, Intel Capital and KP, with Compton joined the board.

Compton already sits on the boards of three other companies – KnowNow, Kodiak Networks and Intersperse – and was expected to slow down his investing pace along with the partners over the last year. However, in regards to his investing pace, Compton says that it’s work as usual at Kleiner. “My pace is pretty much unchanged; I’ve been investing at the same rate for the last 15 years.”

Compton pauses and jokes, “Unfortunately.”

Still, Compton says that he plans on “doing less deals going forward,” although a slowdown does not look likely anytime soon, for any of the partners. Joy, who will be focusing his attention partly on energy efficiency – a major interest of Doerr, too – says, “We see an enormous amount of exciting stuff coming.”

– Constance Loizos

Mayfield To Raise New Fund

As Mayfield gears up to raise another fund later this year, it’s betting that zeroing in on consumer-oriented technologies will make its case more compelling to investors.

Mayfield will raise a fund in the range of $350 million to $400 million later this year, says Managing Director Janice Roberts. The firm closed its last fund, Mayfield XI, at about $1 billion in 2000; it has since been reduced to below $900 million. And as “an enhancement” to the partnership, the firm has hired Raj Kapoor as a venture partner to help out with consumer-related deals (see story related story, page 6).

Roberts says that no other major changes are expected before Mayfield works out the details of its fund-raising efforts, “though we may complement the team with analysts and associates.” Mayfield currently has seven managing directors and one associate. Roberts and managing directors Yogen Dalal and Allen Morgan spend most of their time at Mayfield contemplating consumer trends.

As for Kapoor, he says that what he’ll be watching most closely as an investor is the proliferation of personal media and expression, such as posting photos and blogging. “I’m really interested in the ways that people are expressing themselves as they never have before and the opportunities created by that uber-trend,” he says.

He calls the blog space “particularly challenging,” but sees plenty of ways to capitalize on related services and technologies, calling it “a matter of time” before the business of blogging makes as much sense as its emotional appeal.

– Constance Loizos

AsiaTech Nears Close on Fund V

The red-hot venture activity in Asia has lured yet another firm to the fund-raising trail. Taipei-based AsiaTech Ventures is near a first close on its fifth fund, VCJ has learned.

General Partner Peter Chu says that the firm is aiming to raise $100 million, but anticipates a first close of $30 million by the end of March.

U.S. and Asian-based firms raising Asian-centric funds are nothing new. For instance, Taipei-based Crystal Ventures – which also has offices in Cleveland and Palo Alto, Calif. – was expected to close earlier this year on the first commitment of its third fund, a $150 million vehicle that will focus on Asia.

And in October, Wellesley, Mass.-based Battery Ventures closed its seventh fund at $450 million, allocating up to 15%, or nearly $70 million, for international investments.

AsiaTech, too, sees the value of investing in its own backyard. The firm, which is one of the oldest venture firms in the Asia Pacific region, will focus nearly the entire new fund on China.

The focus represents a continued shift for AsiaTech, which over the last six years has stepped up its activity in Asia. Just five years ago, only about half of the firm’s assets were devoted to Asia, with the rest of the investments headed into the United States.

Chu says that practically all of Fund V will go into China-based startups. Chu also tells VCJ that one of the top 10 U.S.-based VC firms has formed a strategic alliance with AsiaTech, essentially becoming an LP in the new fund, to increase its presence in China and leverage off AsiaTech’s experience in Asia. He declined to name the firm.

But Chu says that despite the increase of buyout activity in China from The Carlyle Group and others, venture firms have yet to significantly expand in Asia. He says that the alliance with the U.S. firm is an example of how more and more venture firms will soon enter Asian markets in which they have limited past experience.

AsiaTech was founded by Hanson Cheah and James Yao in 1997, with money from family owned telecommunications, technology and manufacturing conglomerates in Taipei and Hong Kong. The firm’s inaugural fund of $20 million was raised during the height of the Internet boom, and about 80% of it was invested in the United States. Chu says that the first fund had a return of six times the investor’s investments.

Among the high profile investments in its first fund was Eachnet, which was purchased by EBay in 2003 for $225 million in cash. When the new fund is closed, AsiaTech will manage about $300 million in assets.

– Jerry Borrell

Granite Lures New LPs in Fund II

Granite Global Ventures, an expansion-stage firm that has a taste for deals in Asia, announced that it closed a new fund, Granite Global Ventures II, with $225 million in commitments.

The Menlo Park, Calif.-based firm brought on a host of new institutional limited partners, particularly university endowments and pension funds. New LPs in the fund include the Crossroads Group, Dutch Pension Plan, Invesco, Northwestern University and the University of Chicago.

Limited partners from the firm’s inaugural fund include Grove Street Advisors and Pacific Corporate Group, each investing on behalf of institutional clients, Teton Management, U.S. Bancorp Piper Jaffray and Singapore-based Technopreneur Investment and Venture TDF Global. The majority of the fund’s LPs are U.S.-based. One of Granite’s LPs is a European pension fund.

Like its first fund, Granite’s second will focus one-fourth of its deals on Asia with a concentration on Mainland China. The firm focuses on expansion-stage companies in IT and health care companies. About one-third of its deals tend to be in software and services, another third in communications and hardware and the remaining third split between health care and general sector deals in China.

Granite’s current portfolio includes AthenaHealth, a Waltham, Mass.-based Web-based management system provider for physicians; Sunnyvale, Calif.-based IP video delivery platform provider SkyStream Networks and XenoPort, a Santa Clara, Calif.-based drug technology developer.

Among the firm’s recent exits was optical service provider ZettaCom, which was acquired by IDT for about $35 million last year.

The firm has announced three deals from its new fund. One in an enterprise software company, another in a digital home company and the third in a health care company. All three of these portfolio companies are U.S.-based.

– Matthew Sheahan

Crystal Clear on Fund

Crystal Ventures was expected to close late last month on the first commitment of its third fund, a $150 million Asian-centric fund.

Crystal also is looking to add to its team of six current general partners to replace Henry Wong and Howard Lee, who previously left to form Diamond TechVentures. The pair is raising a $50 million fund to invest in China.

Crystal Ventures co-founder Joseph Tzeng says that the departures of Wong and Lee were part of the evolution of the firm as it has transitioned over the last several months to concentrate more on investing in wireless, Internet and traditional media sectors and less on hardware and software IT deals. “Henry and Howard remain friends and we will support them in their [new firm],” says Tzeng, who, along with Crystal co-founder Daniel Kellogg, will sit on Diamond’s board.

Tzeng says that a media report that a third Crystal partner, John Hsin, is also leaving, is erroneous. However, Crystal has shut down its Singapore operations as it concentrates more on China. Hsin, who led the firm’s Singapore office, is currently opening a new office in Shanghai.

In addition to its new Shanghai office, the firm will open a new office in Beijing this year. Tzeng says that the firm has an interest in Korea and Southeast Asia.

Together with Crystal Ventures Fund I ($40 million) and Crystal Ventures Fund II ($160 million), the firm will manage assets of $350 million. LPs have included GIC SI, EDB of Singapore and TIF Ventures. Like the first two funds, the fund III will be Asian centric, investing in startups in the Pan-China region. Since its 1997 inception, Crystal Ventures has had offices in Cleveland, Palo Alto, Calif., Taipei, Singapore and Hong Kong. The first two funds focused mostly on Internet infrastructure-related startups, hardware and software and even some semiconductor companies.

– Jerry Borrell

Frazier Raising Fund

Seattle’s Frazier Healthcare Ventures held a first close on Frazier Healthcare V for more than $267 million, according to a filing with the Securities and Exchange Commission (SEC). The fund is targeted at $450 million, according to the filing.

The California State Teachers’ Retirement System was the only limited partner listed in the filing. The firm declined to comment on the fund, citing SEC restrictions. Frazier Healthcare IV closed in 2001 with $400 million.

Frazier Healthcare Ventures has said that a number of its partners would become general partners in Frazier Healthcare V. Those partners are Nathan Every, Patrick Heron, Thomas Hodge, Trevor Moody and James Topper.

Frazier recently invested as a return backer in QuatRx Pharmaceuticals, an Ann Arbor, Mich.-based provider of drugs to treat cardiovascular, metabolic and endocrine diseases, in its $31 million Series D round. Frazier also backed ElderHealth’s $30 million Series G round last year. Baltimore-based ElderHealth provides health care to elderly patients. Frazier also backed San Diego antiviral therapeutics developer Chimerix in its $11 million Series C round last year.

Frazier’s portfolio company CoTherix, a Belmont, Calif.-based drug developer, went public last October with a $30 million IPO. And portfolio company, ActivX Biosciences, a LaJolla, Calif.-based drug developer, was acquired by Japanese company Kyorin Pharmaceutical for $21 million. ActivX had raised more than $37 million from VCs.

– Matthew Sheahan

Shasta Nears Close on Inaugural Fund

Shasta Ventures has yet to announce any investments, but that hasn’t stopped limited partners from lining up for its inaugural fund. The Menlo Park, Calif.-based firm is in allocation mode, and expects to soon hold a final close in excess of its $175 million target capitalization.

If oversubscription for a first-time fund manager doesn’t seem to make much sense, it is worth noting that the principals of Shasta Ventures previously plied their trade as partners of Battery Ventures, Trinity Ventures and New Enterprise Associates.

They are part of a burgeoning group of “venerable emerging managers” who are expected to have a number of fund-raising success stories in 2005.

“There are a few recognizable names out there [in the fund-raising market], but the fresher ones might be from new firms that are carving out a specific niche,” says Greg Turk, director of private equity investments for the Illinois Teachers’ Retirement System. His group recently committed $25 million to Shasta, joining other LPs such as the California State Teachers’ Retirement System, Paul Capital, Baylor Health Care System, Bell Atlantic Master Trust and Fort Washington Capital Partners.

The next venerable emerging manager to close a fund could be Union Square Ventures, which has been in the market with a $125 million-targeted vehicle for more than nine months. The New York-based firm was launched by Fred Wilson (formerly of Flatiron Partners) and Brad Burnham (formerly of AT&T Ventures).

Note: Shasta announced a $210 million final close after VCJ went to press

– Dan Primack

IDG Eyes New Structure

International Data Group has announced it will simply serve as a limited partner – albeit a significant one – while its venture offices go out in search of third-party capital.

Each of the firm’s five offices traditionally has operated autonomously, with IDG being the sole limited partner in each office’s stand-alone fund.

But IDG Ventures Boston hopes to close on $150 million by early in the second quarter. “We’re going to continue our strategic relationship with IDG, but this is the best way to go about building a real early-stage VC franchise in Boston,” says Chip Hazard, a managing general partner with IDG Boston.

The group traditionally has been organized along geographic lines, with separate fund structures for the Boston, West Coast, European, China and Vietnam offices. IDG Ventures’ West Coast office also is prepping a new fund and recruiting two new partners.

– Dan Primack