CHEVY CHASE, Md. – For the first time in its 17-year operating history, Kinetic Ventures will open up one of its funds to institutional investors, said Todd Klein, managing director.
The fund, Kinetic Ventures II, was launched in November 1999 with a $150 million target under the name Competitive Advantage Fund II. The firm is angling to hold its first ever institutional close sometime in the beginning of 2001, Klein said. The vehicle, now targeted for $200 million, held an initial close on $85 million in December 1999 and is currently $95 million in size, he added.
The firm, which was founded as Arete Ventures in 1983, had traditionally only accepted utility companies as LPs. Kinetic decided to expand its LP ranks to include institutional investors because many of these investors had been eager to invest in Kinetic’s previous vehicles, Klein said, adding the firm also believed it was important to diversify its investor base. Initially, the firm had considered launching a separate vehicle for institutional investors. However, over this past summer Kinetic decided it was easier from an administrative point of view to raise the targeted amount for Kinetic II and let institutional players invest in that vehicle. The firm also decided to change the fund’s name at the same time as a way to set the stage for its new fund-raising effort, he explained.
The firm is just beginning to speak with institutional investors now, said Willie Heflin, another managing director at the firm. “We are new to this game and do not have a lot of experience with institutional investors,” he said. “We will have a learning curve, but our return numbers should make it easier,” he added. Heflin declined to disclose the IRR for Kinetic’s previous vehicle, beyond saying the returns were in the triple digits. He declined to identify any of the potential institutional LPs.
Fund II will back about 20 to 25 companies with an average deal size somewhere between $5 million and $10 million. Kinetic pursues a thematic investment approach centered around investing in companies that are enabling networks with more bandwidth, greater accessibility, connectivity, liability and intelligence, Klein said, adding the firm will also invest in companies offering products, applications and services that ride on top of this network. Practically, this means the firm is investing in market sectors like the optics arena and wireless space, he added.
Kinetic will invest in companies at all stages of their development, though the firm’s strong suit is in early- to middle-stage investing, Klein said. The fund will be invested nationwide, he noted. To date, the fund has done 12 deals. Heflin and Klein both declined to reveal how much capital these investments represented. Both men also declined to disclose how much Kinetic is investing in the fund or what the vehicle’s management fee and carried interest structure were. Klein described the vehicle’s terms as being at industry standard levels.