Funds: Menlo IX Awash In LP Commitments –

MENLO PARK, Calif. – Whoever said, “money doesn’t grow on trees,” must never have spent an evening in Menlo Park.

That’s the sentiment at Menlo Ventures as executives recently returned from long weekends to resume sifting through the approximately $2 billion worth of limited partner commitments that have poured in since the firm launched its ninth fund in May. The new vehicle, which was originally slotted to net $1 billion, has now seen its maximum cap raised up to $1.5 billion in order to embrace at least some of the massive over-subscription.

“We’ve had some really great returns, even by venture capital standards,” said DuBose Montgomery, managing director and general partner with Menlo Ventures. “Fund VII may well prove a 10 bagger’ kind of fund… and that kind of track record helped us go out and over-subscribe very quickly.”

Montgomery added that he expected a final close on Menlo Ventures IX to take place in late July featuring a select handful of new investors, plus all of the firm’s existing limited partners from the $500 million Fund VIII. Some of those returning players include Pathway Capital Management, the Washington State Investment Board, HarbourVest Partners and Horsely Bridge Partners.

All limited partnership interests are being sold with a 25% carried interest structure.

The new fund’s predecessor is currently two-thirds invested or committed with additional activity wrapping up by year-end. The firm plans to invest Fund IX in approximately 60 companies with average investment size ranging between $15 million and $20 million over the life of a company. There will not be any significant strategy shifts as Montgomery said that the new fund will continue Fund VIII’s focus on domestic technology companies and its move away from health-care interests.

“We began de-emphasizing health-care in Fund VIII because the returns for investments in other sectors have far outweighed the great returns we’ve had in health-care companies,” Montgomery explained.

One of the more notable of those high-performing tech companies was Xros Inc., a Sunnyvale, Calif.-based optical switch producer in which Menlo Ventures had invested $10 million over two funding rounds. That investment granted Menlo Ventures approximately one-third of the company, which in turn, produced a heady profit when Xros was recently sold to Nortel Networks for $3.25 billion.

In addition to Montgomery, Menlo Ventures houses five other general partners -Thomas Bredt, Douglas Carlisle, John Jarve, Sonja Hoel and Mark Siegel – and plans to add one or two more later this year in order to help manage the incoming capital. The firm has also hired a pair of new analysts that will begin work later this summer.