PALO ALTO, Calif. – EnterVentures, with offices in California and Australia, and VC Mentors, an Australian incubator and initial public offering adviser, have launched Avelin Capital, a joint venture that will invest in the United States, Asia and Australia. In September, Avelin will kick-off fund raising for its second vehicle, a $300 million-targeted fund. Avelin expected an early May first close on $60 million for its freshman effort, the $100 million-targeted Accelerated Growth Partners I, said Rob Allan, chief executive officer of EnterVentures and a member of Avelin’s investment committee. This vehicle should hold its final close in early August, he added.
The new fund will back early- to expansion-stage companies developing technologies that are leveraging the Internet, Allan said. Investments will be split into three areas: 30% in Internet infrastructure; 40% in communications; and 30% in Internet content plays, including business-to-business e-commerce, he added. The vehicle will back between 20 and 30 companies, with initial investments of $1 million to $3 million, and follow-on investments taking some deals as high as $7 million to $8 million.
Allan said the new vehicle will likely be fully committed in two to three years. Avelin’s second fund will focus more heavily on the Asia-Pacific region, he said. Due to its size, the fund will likely invest in companies that are at a later stage of development, he added. Allan said the second fund would have a larger minimum investment, probably a floor of $3 million, and an average deal size of approximately $10 million.
The Accelerated Growth fund will look to take advantage of its wide-ranging geographic base by identifying promising, and relatively less expensive, technology companies outside of the U.S. “We will look for technological innovations outside of the U.S., which will allow us to lock up these companies at lower valuations. Then we will either move them to the U.S. or set them up, so they can access additional U.S. venture capital funds or get a U.S. public market listing,” Allan added.
EnterVentures and VC Mentors decided to work together because of the expanded deal flow and broader market coverage provided by the partnership, Allan said. In addition, both companies had been operating on a deal-by-deal basis and believed that raising a fund would provide them with quicker access to capital, which in turn would allow them to improve their speed of execution.
Avelin retains a 2% management fee and an 80%/20% carried interest structure. One wrinkle unique to the new fund is that limited partners will have some access to the general partner’s carry, because EnterVentures and VC Mentors are capitalizing Avelin with an investment of approximately $10 million from the Accelerated Growth fund. “We will not do this for the future fund – it was an enticement for this fund, to get people to sign on,” Allan said.
The vehicle’s LPs are approximately 70% American and 25% Australian, other foreign investors make up the rest of the LP ranks. The majority of American LPs are institutional investors, like Kingdon Capital Management Corp., while the ranks of Australian LPs are dominated by high-net-worth individuals, Allan said. Other LPs include OffRoad Capital, Kingsway Capital Ltd. and Paribas. He added it was important for the fund to have a reasonable percentage of the vehicle’s capital come from Australia, so that Avelin’s second fund would be eligible to receive leverage from the Australian government programs that support VC funds and incubators.
The fund currently has five deals in the pipeline, Allan said. Avelin’s investment committee consists of Allan, John Worton, Steve Ezzes, Ewen Crouch and Michael Easson. Avelin is close to adding a sixth member to the committee.