IRVINE, Calif./Saddle Brook, N.J. – Innocal at press time was anticipating an early December first close on Innocal II, the group’s first fund marketed to investors beyond the single limited partner that backed the first fund.
Marketing for Innocal II commenced more than a year ago (VCJ, November 1998, page 20), but did not go very far before the firm put the effort on hold to focus on existing portfolio companies, including the initial public offering of software company SalesLogix Corp. Innocal II fund raising did not begin in earnest, therefore, until May 1999, said Managing Director Harry Lambert.
Lambert would not say how much money he thought the first close would secure, but he said it would be significant. Innocal II, which targets $100 million, will back information technology and health-care companies, primarily in Southern California and the Southwestern U.S. About one-third of the money will be invested elsewhere, mostly in the Mid-Atlantic region, as the firm has an office in New Jersey.
Innocal II will invest in early- to late-stage companies, but Innocal will avoid seed rounds. Lambert said the fund would put most of its capital to work in A and B rounds of financing and estimated initial investments will run about $2.5 million to $3 million. The fund will put roughly 60% of its capital in IT, including Internet, software and communications companies. Some 30% will go toward health-care companies, particularly those operating at the confluence of IT and health care, Lambert said. The remaining 10% will be invested opportunistically, but with a technology orientation.
The California State Teachers’ Retirement System put up the entire $75 million in 1994’s Innocal I. Lambert declined to disclose returns on that vehicle.
“We’ve had to introduce ourselves to a number of potential limited partners who obviously were not in the first fund,” Lambert said. “In general, the acceptance was very good.”
A number of institutions, however, have been approached by firms with which they have existing relationships to regarding funds coming to market earlier than the limited partners had anticipated. The rush of fund raising makes it difficult for deluged investors to make room for other firms, Lambert added.
He declined to name likely limited partners for Innocal II but said interest has come from pension funds, insurance companies, gatekeepers, corporations and chief executives of corporations and investment banks.
Lambert declined to specify the fund’s management fee or carried interest split, but he said they were in accordance with the market.