SPOKANE, Wash. – Northwest Venture Associates in January held an initial $50 million close on its third fund, the $33 million-targeted Northwest Venture Partners III, said Jean Balek-Minor, a general partner at the firm.
The firm recently applied to become a Small Business Investment Company (SBIC), which typically leverages two-to-one. Northwest, however, expects to receive only $82.5 million because it is still investing a portion of its previous fund, which is an SBIC, making it ineligible to receive the full $100 million.
Fund III, initially targeted at $33 million, with an additional $67 million in SBIC money, exceeded its limit by $17 million, due to the enthusiasm of its existing limited partners. The firm decided to raise a third fund while Northwest Venture Partners II LP still had $25 million for investment because deal sizes in the Northwestern United States – the firm’s primary focus – have doubled in the last year, Balek-Minor said. The firm also hopes to attract higher quality deals with bigger investment sizes.
The latest fund will back up to 30 Internet, software, telecommunications, specialty retail and medical device companies with typical investments averaging about $4.2 million, an increase from the average $2.5 million invested by previous funds. Northwest is willing to put up around $7.5 million over several rounds of financing, Balek-Minor said.
At press time, Fund II had invested in eight, out of a total 15 to 20 companies. The $6.1 million Inland Northwest Investors LP, which closed in 1996, backed 13 companies.
Four of the firm’s portfolio companies have held liquidity events within the past 12 months: AdRelevance Inc. was purchased by Media Metrix in October 1999; Netpodium was sold to IterVu in August 1999; Tegic was sold to America Online Inc. in November 1999; and Packet Engines Inc. was sold to Alcatel in December 1998.
The firm’s five general partners are Mark Mecham, Chris Brookfield, Tom Simpson; Joseph Herzog and Balek-Minor.
Northwest limited partners consist of a mix of corporations and individual investors. Some 90% of the limited partners in Fund II committed additional capital to Fund III. The two funds will co-invest, but Fund II, however, will be entitled to the first $1.5 million of each deal, Balek-Minor said.