Insight’s IPO Machine Attracts New Base of LPs –

When Insight Venture Partners set out to raise its fifth fund, the firm intentionally aimed to diversify its base of limited partners. Its previous four funds, and other smaller vehicles, were tilted toward funds of funds. “But we wanted to raise funds from more endowments and pension funds,” says Managing Director Deven Parekh.

Mission accomplished.

Insight, a late-stage investor based in New York, added 25 new names to its LP base as it raised $675 million for fund V, which had a target of $550 million. The firm’s previous fund, raised in 2000, totaled $740 million.

“We had enough interest to raise more than $1.3 billion,” Parekh says. He notes that most of the firm’s LPs reinvested, such as Goldman Sachs, HarbourVest and Pantheon Ventures. He declines to name other LPs, but says that 25 new investors came aboard for fund V.

Investors without doubt were attracted by the fact that the firm has a great track record for exits. Founded in 1995, Insight has seen 29 of its portfolio companies get acquired and another 14 go public. It currently has two more in registration: Capella Education Co. and Website Pros Inc., both of which were backed by fund IV.

Two of Insight’s portfolio companies went public last year. The first was Greenfield Online (Nasdaq: SRVY), which raised $65 million in its July 2004 IPO, after having raised more than $35 million from Insight and other investors. Insight banked $9.25 million by selling some of its shares in the IPO, but it was still Greenfield’s largest shareholder after the offering, with 4.3 million shares, according to an SEC filing. The company’s stock closed at $13.42 on June 16, slightly above its $13 IPO price, valuing Insight’s post-IPO shares at more than $58 million.

Insight cashed in again in September 2004 with an IPO from CallWave Inc. (Nasdaq: CALL), a VoIP services provider. CallWave raised $40 million in its public offering, after raising $28 million in venture capital from Insight and other investors, according to The MoneyTree Survey from PricewaterhouseCoopers, Thomson Venture Economics (publisher of VCJ) and the National Venture Capital Association. Insight is CallWave’s second-largest shareholder, with about 3 million shares valued at about $16 million, according to an SEC filing. CallWave’s stock price closed at $5.39 on June 16, down from its IPO price of $10.

Says Parekh of his firm’s uncanny knack for investing in companies that later go public: “I wouldn’t say it’s luck. We just go after the best companies.”

Sometimes the firm wins more than once with an IPO, as it has with Quest Software (Nasdaq: QSFT). Not only did Insight make money from Quest’s public offering in 1999, Quest has acquired two of Insight’s portfolio companies since then.

Typically, Insight invests in growth-stage companies that have not raised any prior institutional funding. The firm doesn’t do early stage deals. Instead, it eyes companies with at least $5 million in revenue. And, in a sign of the economic times, Parekh says that the firm is seeing more and more companies that are profitable.

As a result, Insight has bulked up its roster, promoting Michael Triplett and Jeffrey Lieberman to managing directors. Triplett has worked at Insight for six years and was previously an investment professional at Summit Partners. Lieberman, who has also been with Insight for six years, was previously a management consultant at McKinsey & Co., where he focused on strategic and operating issues in financial services and technology. Triplett and Lieberman have been active with the firm since fund III.

Insight will invest about three-fourths of its new fund domestically, with the remaining 25% going toward international deals. Parekh expects fund V to be invested over three years. Fund V has not announced any investments yet.

The firm, meanwhile, is still investing from fund IV. In mid-June, that fund invested in SWsoft, a Herndon, Va.-based provider of server automation and virtualization software. Insight co-invested in the $12.4 million round with Bessemer Venture Partners and Intel Capital.

Insight’s Triplett will join SWsoft’s board. It was Insight’s first investment in the company, which was previously bankrolled by its founders.

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