Ignition Partners revs into growth investing

Ignition Partners announced last month that it has closed on two new funds—one targeting early stage companies and another for growth investments—with a combined value of $675 million.

The Bellevue, Wash.-based firm raised $400 million for early stage vehicle Ignition Ventures IV, its largest early stage fund to date. It also raised $275 million for Ignition Growth Capital Fund, which it formed to help later stage stage companies scale more rapidly. It is the firm’s first fund dedicated entirely to growth deals.

Since the firm was founded in 2000 by veterans from Microsoft Corp. and McCaw Cellular, Ignition has typically invested in early stage tech companies and has also incubated a small number of startups.

The firm plans to make about 30 investments from the early stage fund and about eight to 10 investments from the growth vehicle, focusing on the sectors of telecom, software and services for both.

“This is pretty consistent with what we were looking for,” says Jonathan Roberts, an Ignition co-founder and partner, regarding the size of the new funds. “We could have taken in more money, but these are the numbers that we thought we needed.”

LPs include the Pennsylvania State Employees’ Retirement System, which recently approved an investment of up to $25 million for the new fund.

Over the last seven years, Ignition has made more than 50 investments, with about two-thirds of the portfolio companies based in the Northwest. The firm has had a couple of exits this year, including Palo Alto, Calif.-based XenSource, a developer of system virtualization technology, which was acquired by Citrix Systems in the summer for $500 million. XenSource raised about $38 million from Ignition, Kleiner Perkins Caufield & Byers, New Enterprise Associates, Sevin Rosen Funds and Accel Partners.

Ignition also gained liquidity with the sale of Intelligent Results Inc., a Bellevue-based developer of customer analytics software. First Data purchased the company in March for an undisclosed sum. Intelligent Results had previously raised $25 from Ignition, Menlo Ventures and OVP Venture Partners.

Despite these two recent exits, the majority of the Ignition portfolio companies are far away from exit, so prospective LPs’ investments hinged on their performance, Roberts says. Roberts says the vast majority of limited partners in both new funds were previous Ignition investors.

The Ignition Growth Capital Fund will be managed by long-time Ignition Partners and co-founders Jon Anderson, Richard Tong, John Zagula and Robert Headley (who also serves as administrative partner for the early stage fund).

The firm also is currently investing from a $200 million fund managed by QiMing Venture Partners for investments in China. Tong and Zagula have been heavily involved in the Shanghai fund, and Zagula, who lives in Shanghai, will move back to the Northwest. All three funds will share back office resources and investor relationships.