Kagle to Step Back as Benchmark Raises $425M Seventh Fund

Benchmark Capital, the Menlo Park, Calif.-based firm that has enjoyed a succession of exits since its 1995 founding—including eBay, Juniper Networks, Red Hat and, more recently, OpenTable—has raised $425 million for its seventh fund.

However, General Partners Bob Kagle, who led Benchmark’s investment in eBay, and Alex Balkanski, won’t serve as GPs in the fund, as first reported by peHUB.com, the online affiliate of VCJ.

Benchmark raised $500 million for its sixth fund in 2008 and $400 million for its fifth fund in 2004, according to Thomson Reuters (publisher of VCJ).

Says an institutional LP in fund VII who declined to be named: “Benchmark is really differentiating itself by focusing in on early stage venture and keeping the fund size at a very reasonable level—especially given the talent on the team and the number of partners at the firm.”

When other firms are expanding into various other directions and stages and generally raising much larger funds, said this person, “Benchmark—whose new fund was oversubscribed—decided to maintain its fund size and focus on what they do best.”

However, a regulatory filing indicates that fund VII has seven managing general partners and Kagle and Balkanski are not listed among them. The roster includes current GPs Matt Cohler, Bruce Dunlevie, Peter Fenton, J. William “Bill” Gurley, Kevin Harvey, Steven Spurlock and Mitchell Lasky.

Kagle says that he will invest on a part-time basis for Benchmark, giving him time to travel, learn to sail (he bought a 33-foot boat last year), and try to match his wife’s golf handicap, which he says is three strokes better than his.

He also plans to spend more time working on a mentoring program he launched at Flint, Mich.-based Kettering University, his alma mater, about a decade ago. Under the program, students get scholarships in return for mentoring at-risk high school students four hours a week.

“I just want to have more flexibility than the role of a managing general partner would provide,” says Kagle, 55, who helped found Benchmark in 1995 and is best known for leading its highly successful investment in eBay. “There are lots of things I’m interested in making more time for that I haven’t had time for.”

Even though he won’t be a managing GP, Kagle will be a limited partner in fund VII and “will probably have some economic interest, but it will be commensurate with my participation,” he says. “It’s inappropriate for very senior people to have a big economic interest in the partnership if they’re not fully committed to that being their main activity, if not their only activity.”

He plans to continue to do deals selectively, he says. He is “particularly interested in the principal of empowerment and how the Web empowers people. If I see a company I think I can help that will leave the world a better place, I will probably lend an ear … and maybe a hand.”

Kagle has been in the venture business for 28 years. He got his start in 1984 at Technology Venture Investors, where he was mentored by VC legend Burt McMurtry. “It was Burt’s mentoring of me that inspired me to start the mentoring program at Kettering,” he says.

Balkanski, who VCJ was unable to reach, joined the firm in 2000. He currently sits on the boards of Ambarella, D2S, Mu Dynamics, Newport Media, Picarro and Twin Creeks. Previously he was a board member of Infinera (INFN), Decru (acquired by Network Appliance), and Entrisphere (acquired by Ericsson), according to Benchmark’s website.

Kagle sits on six boards. He is a director at Art.com, an online art retailer; Axiom Law, which provides outsourced legal services; eBags, an onliner retailer of purses and luggage; Sticher, a mobile audio company; uShip, an online shipping marketplace; and Zipcar, a car-sharing service.

Certainly, Benchmark’s success in recent years—amid troubled economic times—has been stunning. The firm had more than a dozen exits in 2009, including the sale of Pure Digital to Cisco Systems for $590 million and the public offering of OpenTable. In 2009, it also sold feed aggregator FriendFeed to Facebook for $50 million in cash and stock.

Last year, Benchmark’s exit streak slowed somewhat. One of its few outcomes was the sale of the 5-year-old semantic search startup MetaWeb to Google. Terms of the deal weren’t disclosed.

But Benchmark’s attractive portfolio could wring out huge returns for its investors. Among Benchmark’s most promising companies are Twitter, Yelp and Zillow, along with a number of other companies that have publicly disclosed enough revenue to presumably go public in the not-too-distant future. One of those is LiveOps, which told the Wall Street Journal last year that it had generated more than $125 million in revenue in 2009 and is exceedingly profitable.

Lawrence Aragon contributed to this report.