Highland Capital Partners last month closed its eighth fund with $400 million in capital commitments, meeting the target it had set.
Lexington, Mass.-based Highland began fund-raising in early spring with the intention of seeking half of the $800 million it raised in 2006 for fund VII, due to LP liquidity issues and overall malaise in the venture market.
Even with the smaller fund size, some of Highland’s investors balked, which caused the firm to delay its first close, reduce its carried interest from 25% to 20% and make its “expense put” more LP-friendly.
VentureWire reported on Nov. 12 that Highland “agreed to return 100% of capital contributions before collecting a 20% carry, instead of distributing on a deal-by-deal basis. Once investors get back two times their capital, the carry jumps to 25%.”
Bob Higgins, general partner of Highland, says that institutional fund-raising all but closed by August.
“The fund size was really just math that takes three factors into account: The time it takes to raise the fund, the number of deals per year and the average dollar size per deal,” Higgins says. “We’re projecting a slightly lower number of deals per year, and will be more cautious on deals with high capital requirements.”
Higgins expects to make a few more new investments out of fund VII, and then start to invest from fund VIII in Q1 2010.
Highland may shy away from certain pharmaceutical or industry-heavy cleantech opportunities, and lean more toward lower-cost IT plays. When it does do a capital-intensive deal, the strategy would be to sign outside partnerships earlier than Highland has traditionally done. Case in point is Generation Health, which Highland helped to launch in November 2008. In early November, Generation Health signed a contract with, and sold a minority stake to, CVS Caremark.
We’re projecting a slightly lower number of deals per year, and will be more cautious on deals with high capital requirements.
Higgins also says that the smaller fund size is not being married with a reduction in the size of Highland’s partnership. In fact, he says that the firm is slowly considering the addition of up to three new partners, he says.
The best-case scenario would be for one additional partner in each of Highland’s three offices—Boston, Menlo Park, Calif., and China—but Higgins admits that such an even split may be easier said than done. —Dan PrimackDEALWATCH: Five recent investments by Highland Capital Partners
Beijing NetentSec Inc._Secure content management solutions in China.
Helicos Biosciences Corp._Genetic technologies.
Pervasis Therapeutics Inc._Cell-based therapy solutions.
Tri-Us LLC_All-natural beverages.
Zoove Corp._Mobile solutions for media firms to reach consumers.
Note: Investments made in August and September 2009. Source: Thomson Reuters