Some large endowments, among others, may be feeling a sense of deja vu these days. The reason: For the third time in the last few months, another new early stage venture firm-Celsius Capital-is emerging onto the scene, and it wants their money.
Celsius is targeting $150 million for its inaugural fund, and it hopes to close on it during the third quarter. The fund will seek investment opportunities in China and the United States.
Celsius’s partners believe that their pitch-“innovation arbitrage between the U.S. and China”-will catch the attention of investors who want to take part in all the deals occurring in red-hot China.
Though the plans may seem audacious for an upstart, prospects for the nascent, Palo Alto, Calif.-based firm look bright. After all, one of the co-founders is Bill Burnham, 34, who recently served as a managing director at Mobius Venture Capital. And Burnham was previously a renowned e-commerce analyst at Credit Suisse First Boston (CSFB). His co-founding partner is Carlos Bhola, 42, who started Vonage, the fast-growing upstart offering inexpensive calling packages through Voice over Internet Protocol (VoIP). Bhola is also an investor. He left Vonage in early 2002 shortly after the company launched its service. And he has run his own investment and advisory concern called 2B Holdings for the past five years.
Burnham and Bhola worked together at CSFB when Bhola was the head of e-commerce and Internet banking while Burnham was in research. The pair is stressing their credentials to LPs, just as other new fund managers are likewise finding success in raising their respective inaugural funds.
For example, Fred Wilson and Brad Burnham co-founded New York-based Union Square Ventures, which closed its inaugural $125 million fund in January. Wilson had previously co-founded Flatiron Partners; Burnham (no relation to Bill Burnham) was a general partner at AT&T Ventures.
Similarly, those behind the first Shasta Ventures fund – which closed in February on $210 million – are also boasting about their background. Ravi Mohan, Tod Francis and Rob Coneybeer were formerly general partners at Battery Ventures, Trinity Ventures and New Enterprise Associates, respectively.
The Celsius partners hope that their LP-friendly management fees will attract investors. To that end, Celsius says that it is committed to returning 100% of committed capital before the general partner participates in any profit taking.
“We’re a first-time fund and it’s appropriate because people are taking a bigger risk in backing a first-time fund,” Burnham says. “Also, this is hopefully the first of many funds, and we think if we’re fair with LPs, it’s a good way to build a long-term relationship.”
Whether Celsius’s investing strategy pans out remains to be seen, but the firm already has plans to make follow-on investments in several companies that 2B Holdings had previously invested in. The portfolio includes SmartPay, a Shanghai-based electronic payment company a la PayPal. SmartPay has raised more than $8 million in two rounds, including investments from 2B and the Lunar Group, a Chinese fund.
Also in the 2B portfolio are Calltower, a VoIP startup based in San Francisco that has raised $6.2 million in two rounds from 2B and Sunflower Capital Partners.
A successful exit for 2B came from EachNet, another Shanghai company that is China’s largest online auctioneer. EBay bought a third of EachNet for $30 million in cash in 2002 and paid $150 million in 2003 to acquire the rest. EachNet’s venture investors, mostly Asian, had given the company about $27 million.
Burnham did not identify which of 2B’s holdings would receive capital from Celsius, which plans to invest $10 million to $15 million over the life of each investment. He added that Celsius is “about to close” a new deal in China, as well, on an unidentified company.
The two have hired former Mobius associate Tony Lo and onetime 2B associate Woo Kim as principals. They have also brought on board as a venture partner Peter Stern, who co-founded the discount trading outfit Datek Online and served as its CTO.
So far, at least, the fund-raising is going well, says Burnham, who left Mobius at the end of 2003. Mobius had downsized in preparation to raise its seventh fund of $350 million. It has yet to close its latest fund.
But Burnham is not looking back. Instead, he’s meeting with “a lot of LPs,” which he says is the hardest part of the process for an inaugural fund.
“LPs have much higher bars for first-time funds, so you really have to work hard to distinguish what you’re going to do with their money and convince them that [your fund] is an exception to the rule,” he says.
Burnham adds that Celsius is not expressly targeting Mobius LPs, because “its LP base is probably not a great fit for our fund.” Tokyo-based Softbank Corp. provided half the capital for Mobius’s last fund but has not committed to a fund since 2000. Mobius closed on a $1.45 billion partnership in 2000 and subsequently cut it back to $1.25 billion.
Instead, he says, Celsius is targeting Fortune 500 companies, large financial services firms, family offices and endowments. Of the last, he says, “They’re tough nuts to crack, but they’re great LPs if you can get them.”
– Constance Loizos
Dagres Sparks New Firm
Todd Dagres is returning to the VC market, after a short sojourn as a Hollywood film producer. Dagres, a onetime general partner at Battery Ventures, is one-half of Spark Capital, a new Boston-based firm that began marketing its $200 million inaugural fund in April.
The fund will focus on the so-called “conflux” of media, entertainment and technology, with a particular focus on companies that can create new markets. It hopes to serve as a portfolio company’s first institutional investor, but also will make select later-stage plays.
How investors feel about a new fund focused narrowly on digital media is unclear, but Spark certainly enters a competitive field. Walden Venture Capital of San Francisco, which raised a $270 million fund in 2000, is one of a handful of firms that specialize in the technology subsector. But a growing number of firms are dedicating more of their resources to digital media. Most notably, Intel Capital announced last year that it was setting aside $200 million for its Intel Digital Home Fund; it has invested aggressively in related software and hardware companies since.
Mayfield and Benchmark Capital are also among the firms that have recently hired partners who will be looking at digital media deals, in addition to broader Internet opportunities, such as search and online advertising, which are increasingly falling under the same rubric. And startups developing new digital gadgets and services continue to assemble funding almost daily.
Word of Spark Capital surfaced in January, after Dagres began evangelizing digital media investing to several prospective limited partners. In a February interview, however, Dagres denied that any firm was in the works, and that any sort of formalized fund structure would be “much too organized” for his tastes. Instead, he said that he was simply engaging in one-off angel investing with a group of Boston-area operating executives.
Also involved in the effort, he said, was Santo Politi, a former vice president of new media with Blockbuster who joined Charles River Ventures in 2001.
It is unclear if Dagres was being overly cautious during that interview, but the end result is that he and Politi are now serving as general partners of Spark Capital, according to the private placement memoranda (PPM) obtained by VCJ. Politi will formally leave CRV at the end of June, and the duo already has hired onetime CRV CFO Paul Conway to serve in a similar position.
Additional staff will be hired shortly, while a seven-person advisory panel already has been named.
Prospective limited partners say that Dagres’ Akamai-bolstered track record should make it easy for Spark Capital to get in the door. Akamai, which was backed by Battery and other investors, went public in 1999 in a $234 million IPO.
However, questions linger as to whether Spark will be able to convince investors to accept proposed terms that include a 25% carried interest structure and a 2.5% annual management fee, according to the PPM.
Neither Dagres nor Politi returned repeated requests for comment on this story.
– Dan Primack
Origin Opens Arms for Public LPs
If you’re one of the public LPs booted from Austin Venture’s latest fund, Origin Partners wants you to know that you’re more than welcome in its next fund.
In late March, the emerging manager had commitments for about one-third of a targeted $100 million second fund, and was actively searching for new LPs, particularly state pension funds.
“They are being frozen out of a lot of larger funds, but we have no issues with reporting our returns,” says Scott Jones, a managing partner and head of Origin’s office in Bridgewater, N.J. “We’re going to need some larger investors to participate [in Fund II] to reach our goal, and we are in discussions with a number of state pension funds.”
A selling point for Origin is that it is among the minority of vintage 2000 funds that are above water. Its inaugural fund, a $55 million vehicle, boasts one exit from the 11 companies it backed. Sun Microsystems purchased Origin’s portfolio company Waveset Technologies for about $150 million in 2003, giving Fund I a return of 3.2X on its investment, Jones says.
Origin is an early stage investor that focuses on communications, information technology and medical technology. It held a first close of $18.8 million on Fund II in March, and it has commitments for about twice that amount, Jones says. He declined to name any of the LPs other than TIF Ventures, which is run by the Government of Singapore and which was the lead investor in Origin’s first fund. TIF is among the largest investors in the second.
The firm expects its second fund to have the same makeup of LPs as its first, with about one-third of the capital coming from Asia, one-third from the United States and one-third from Europe and the Middle East. The LPs in Fund I were primarily corporations, institutions, large family offices and CEOs, Jones says.
Origin hopes to hold a second close by mid-year for Fund II and a final close by year-end. Says Jones: “We have a list of over 70 investors that we’re in touch with and a fairly good number of them are in due diligence for the next close.”
In addition to Jones, the firm’s managing partners are Jim Hutchens, who heads Origin’s office in Natick, Mass.; and Marc Yagjian, who is responsible for its office in Austin, Texas. The trio is looking to bring on two senior partners. “We [the GPs] are in the 50-year-old age class, so we’re seeking people who are active investors to help with our second fund and help us raise money for Fund III and run it,” Jones says.
No strategy change is planned for Fund II. The goal of Fund I was to invest in 12 companies, putting about $1 million to $1.5 million in each, while setting aside about two to three times those amounts for follow-on. The plan for Fund II is to invest about $3 million to $5 million per deal, allowing Origin to buy a position of 20% to 30% in each company.
“Valuations are at a decade low for early stage, and it’s a perfect time because roughly half the investors in early stage have dropped out,” he says. He notes that the last two deals that Origin has funded were valued at $5 million pre-money and that two of those companies already had products and one of them had customers.
– Lawrence Aragon
Village Ventures Eyes $125M
Village Ventures has hit the fund-raising trail, as the Williamstown, Mass.-based firm hopes to assemble $125 million in the next several months.
The firm focuses on technology and life sciences companies in regions such as western Massachusetts and central Indiana, which established VC firms traditionally shun. But Village Ventures is betting that less competition and, thus, lower valuations, will equal a bigger bang for its investment buck.
Village Ventures, which was founded in 2000, works with a network of 13 regional funds, including Point Judith Capital Partners of Providence, R.I., and Borealis Venture Fund in Hanover, N.H. The firm provides back-office services for the affiliates and co-invests in their portfolio companies with the right to contribute up to 20% of the total funding. One of Village Ventures’ six general partners has a seat on each of the affiliates investment committees and approves all of the deals that they do. The firm receives a carried interest from its investments in return, though it doesn’t get any of the affiliates’ management fees.
Managing General Partner Bo Peabody, who co-founded Village Ventures, says that not all of the affiliate funds are hitting the ball out of the park. But on the plus side, he says that other firms have gained traction and Village Ventures has “tried to pile in two to three million bucks” into the successful companies.
He says that when Village Ventures raised its first, $45 million fund – which was backed by venture firms Bain Capital, Highland Capital and Sandler Capital, along with mutual fund company Janus – it was tough getting anyone to talk to the firm’s partners.
“Now, we have three exits in the pipeline, with two hard offers, and with bankers hired,” Peabody says. “We’re gaining enough traction that I think investors will take notice.”
Village Ventures’ most recently announced investment was in Biolex, based in Pittsboro, N.C. The company researches protein technology to produce mammalian-like proteins in a particular strain of plants. It has raised more than $33 million over seven rounds. Village Ventures contributed to its most recent, $6.58 million round, which closed in January, alongside co-investors Wakefield Group, Kitty Hawk Capital and Tall Oaks Capital Partners.
Its most recent exit occurred in November when Decision Resources Inc. paid an undisclosed amount for HealthLeaders Inc., a Nashville, Tenn.-based provider of health care news and data. Village Ventures was the sole investor in HealthLeaders, according to The MoneyTree Survey from PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. But the amount invested in HealthLeaders was undisclosed.
– Constance Loizos
Ironside Halts Fund-Raising
Ironside Ventures tabled its fund-raising effort, following the resignation of general partner Tony Abate. The Waltham, Mass.-based firm may still restart the process sometime next month, but after it explores various strategic opportunities.
Abate joined Ironside in early 2003, after he was “downsized” from his general partner position with Battery Ventures. The firm was still finding its legs after its 2000 spinout from Canadian insurer Manulife Financial Corp., and it was believed that the addition of Abate would help secure outside institutional capital for a $150 million-targeted third fund. Its first fund consisted of $135 million from Manulife, while it raised another $25 million from individuals and small institutions as part of the spinout.
The investment strategy would continue to focus on seed deals and early stage opportunities on the East Coast.
“This is a good time to be putting money to work, and we’ve aligned the amount of capital we’re looking for with the team size and industry focus,” said Abate, in a November 2003 interview with VCJ’s sister publication PE Week.
Prospective limited partners, however, weren’t nearly so positive.
Ironside secured several commitments from reputable institutions, but still hadn’t reached the $150 million mark after a year of fund-raising. By early February, rumors began that Abate was thinking of leaving, which did little to entice new investors.
The decision to postpone – or possibly cancel – fund-raising wasn’t directly tied to Abate’s resignation, although it certainly would have made immediate continuation quite cumbersome. Not only would Ironside have been required to draw up new paperwork, but it also would have needed to soothe LP concerns related to the departure of one-quarter of the Ironside general partnership.
Bill Sheehan, a co-founder and general partner with Ironside, says that the firm currently is looking at a number of strategic options, but declined to provide further detail. A final decision, he said, likely would be forthcoming in the next several weeks. Abate says that the split is amicable, but declined formal comment on his “personal reasons” for leaving.
– Dan Primack
Genesis Forms Third Fund
The Israeli IT investment firm Genesis Partners held a first close in March of more than $100 million on its third fund. The fund is targeted at $150 million. The firm’s previous fund, Genesis II, raised $260 million and closed in 2000.
Genesis III, like its predecessor, will focus on seed and early stage investments in communications, enterprise software and semiconductors. The new fund plans to invest in about 20 startups, with investments ranging between $6 million and $8 million.
The firm says that some of the LPs in its third fund include past investors. Previous investors in Genesis include the pension funds of IBM and General Electric, the Singapore government’s investment fund and CIBC.
Among the firm’s recent exits, its portfolio company Modem-Art Ltd was bought in early March by Agere Systems for $145 million in cash and stock. Genesis says it was the first and largest investor in Modem-Art, an Israeli developer of semiconductor processor.
The Genesis team includes co-founders Eddy Shalev and Eyal Kishon as well as partners Yair Shoham, Ron Yachini, Mark Ziering, Yaron Polak and Gary Gannot.
– Alastair Goldfisher
Edison Calling on Foreign LPs
The Edison Venture Fund is looking outside the United States for new limited partners for the first time as it prepares to raise Edison Venture Fund VI. Edison plans to focus on European fund-of-funds that have offices in the United States.
Limited partners in previous Edison Venture funds include MBL Life Assurance Corp., Maryland Venture Capital Trust, MetLife, PSEG Resources Corp. and Zurich Scudder Investments, according to Thomson Venture Economics.
Edison, which invests in venture and buyout deals, is aiming to raise at least $200 million and hopes to have a final close in early 2006. Its fee and carry structure will mirror the structure in its previous three funds: a 20% carry with a 2% management fee with limited partners guaranteed a return of 125%.
Edison is a late and expansion stage investor focused on IT or business services companies that serve major industries. It prefers companies with between $5 million and $20 million in revenue and takes ownership stakes between 20% and 80 percent. The Lawrenceville, N.J.-based private equity firm invests mostly within the area stretching from New York State to Virginia.
The firm-based in Bala Cynwyd, Pa. and McLean, Va.-has 19 investment professionals and expects to promote three new partners with its new fund.
Edison closed on Edison Venture Fund V in 2002 with $142 million. The firm has invested in 21 companies from that fund and is the sole or lead investor in all 21 companies.
Fund V will likely be fully invested with 25 companies by the third quarter. Last week, the firm announced a follow-on investment of $1.75 million (from fund V) in New Haven, Conn.-based Tangoe, which provides expense management software and telecom services.
The firm has recently achieved some exits from its fourth fund, which closed in 1998 with $116 million.
Earlier this year, Derivatives Portfolio Management (DPM), a Somerset, N.J.-based business services provider, was acquired by Mellon Financial. No financial terms were disclosed, but DPM had raised $4 million from Edison and other investors.
In January Edison announced that Parsippany, N.J.-based online customer service provider Incurrent Solutions was acquired by Online Resources (NASDAQ: ORCC) for $15 million in cash and stock. Incurrent had raised about $8 million from Edison and other investors.
In September, Thermo Electron (NYSE: TMO) acquired Edison portfolio company InnaPhase, a provider of Laboratory Information management Systems (LIMS), for about $65 million in cash. InnaPhase had raised about $25 million from Edison and others.
– Matthew Sheahan