MENLO PARK, Calif. – InterWest Partners is aiming for a post-Labor day final close on $750 million for the firm’s latest vehicle, InterWest Partners VIII, said General Partner Stephen Bowsher. The fund was launched with a $600 million-to-$700 million target in May, he added. The vehicle held an initial close in early July on $690 million and a second close on an additional $46 million in mid-August, he said. The final close was pushed past Labor Day to accommodate two of the firm’s longstanding limited partners, who had asked for a little more time to get their commitments in, Bowsher added.
InterWest prefers to be the lead investor in a company’s first institutional round of financing, which means the vehicle will focus on backing early-stage businesses. The fund will back companies in the telecommunications/communications infrastructure space, medical technology and the Internet economy, Bowsher said. He estimated that approximately 40% of the fund’s capital will go to telecommunications/communications deals, 20% to 25% to medical technology investments with the remainder going to Internet economy companies.
The fund will back about 50 companies, with initial investments in the range of $5 million to $8 million. Follow-on investing should push the average deal size up to approximately $12 million to $15 million, he added.
While InterWest will scout for deals nationwide, Bowsher said the firm traditionally does the majority of its deals in Texas and on the West Coast – locations near the firm’s Menlo Park and Dallas offices. The fund’s nine general partners have put up 1% of the vehicle’s capital, he said. Bowsher declined to reveal the vehicle’s carried interest structure or management fee, beyond saying they are consistent with what other top-tier venture firms are receiving.
The current vehicle is three times as large as the firm’s previous vehicle, the $250 million InterWest Partners VII, which closed in February 1999. InterWest started investing that fund in July 1999 and ran through it so quickly that the vehicle is now fully committed to 31 companies, Bowsher said. The firm decided to raise a larger vehicle this time because InterWest wants to return to a two-to-three-year investment cycle, he added. In addition, the larger fund size has allowed the firm to bump up its average deal size, he noted. “We found with the shortened life cycle of companies these days, in order to be the lead investor and then to be able to do follow-on investments, we were struggling a little bit with an average investment of $8 million to $10 million over the life of a deal,” he said. “Now we can do $8 million in the first round and still have more left for follow-on rounds.”
InterWest’s LP’s include CalSTRS, Bank of America, Liberty Mutual Insurance Co., University of California, HarbourVest Partners LLC, J.P. Morgan & Co. Inc. and the Wellcome Trust. Bowsher said that even though InterWest launched its fund-raising campaign after the public market correction earlier this year, the process went quite smoothly. “We have a consistent history of high returns, which gave our LPs confidence and security,” he said, noting, “having a high Roman numeral next to the name of the fund really helped.”
InterWest’s currently has a team of 13 investment professionals – nine general partners and four associates. The firm is also actively engaged in a search to hire an additional partner who will focus on communications investments for its Dallas office. To date, the vehicle had made one investment for $7.2 million in Quiq, a San Mateo, Calif.-based company which provides technical platforms for e-communities.