Highland delays fund close

Highland Capital Partners has pushed back the first close for its eighth venture fund from the end of June to mid-July, according to multiple LP sources.

The Lexington, Mass.-based firm also has reduced the fund’s carried interest from 25% to 20 percent.

A Highland spokesman did not return calls for comment.

Highland began marketing the fund in early spring with a $400 million target, which was just half of the $800 million it raised for each of its prior two funds. The goal seemed to make sense, given the deflated fund-raising and deal-making environments. If things turn around, the firm can always return to market and raise additional funds.

Sources indicate that Highland had about $300 million in soft and hard commitments, as of early July.

Highland’s experience is just further evidence that the fund-raising market is difficult.

The firm’s recent returns aren’t exceptional, but they also aren’t horrible. Its sixth fund, raised in 2001, had an IRR of 8% as of Dec. 31, compared to a Cambridge Associates benchmark of 0.49 percent. Its fifth fund, raised in 2000, is underperforming at -2.9% compared to an industry benchmark of -1.39 percent. Its seventh fund, raised in 2006, is struggling at -16.1%, in large part due to participation in the buyout of Harrah’s Entertainment Inc., but is still less than 50% called down.

Highland has been an active investor this year. It backed 28 companies as of July 20, according to Thomson Reuters (publisher of VCJ). Most of its deals have been in the information technology space, where it invested in 14 companies, and the medical/health sector, where it backed eight companies. But it has also backed four companies that offer products or services to consumers, including Cash4Gold, which buys and refines old gold jewelry, Whole Body Inc., a chain of yoga studios, and a company with an undisclosed name that is developing pet products. —Dan Primack

DEALWATCH: Five recent investments by Highland Capital

Chrysallis Inc._A holding company.

Hangout Industries Inc._3D social networking site.

Undisclosed Company_Online communities and shows.

Undisclosed Company_Live event ticket search engine for fans.

Undisclosed Company_Pet products.

Note: Investments made in June and July 2009. Source: Thomson Reuters