ATLANTA/CHEVY CHASE, Md. – Kinetic Ventures in November launched its Utility Competitive Advantage Fund II, targeted at $150 million.
The firm focuses on segments of the market that are critical to the once monopolistic utility industry as it goes through government deregulation and is forced to face the challenges of an open and competitive marketplace, Managing Partner George Levert said.
The firm plans to invest the new fund in some 20 to 25 communications, Internet and customer service companies throughout the United States. Typical investments will range between $3 million and $5 million over several rounds of financing.
The $90 million Utility Competitive Advantage Fund, launched in early 1997, was the firm’s first vehicle dedicated to companies that combine utility deregulation with the explosion of the Internet and telecommunication industries. The fund, which held a final close in December 1998, backed 14 companies and will invest in another three in the coming months before it is completely invested.
Founded in 1983 as Arete Ventures, Kinetic changed its name in June to signal a significant change in its investment strategy and to create a new brand identity, said William Heflin, a managing partner at the firm. Before the name change, the firm raised five funds totaling $95 million.
Kinetic’s limited partners are mid-size to large utility companies in the U.S. and Europe. After recently announcing the launch of the latest fund to current limited partners, there was great enthusiasm by L.P.s to reinvest, Levert said. The firm was approached by a variety of new institutional investors and is considering welcoming them as newcomers, Heflin said.
To keep a pulse on the utilities market, the firm meets twice annually with two advisory boards. The first, an executive advisory board, consists of chief executives and chief financial officers of the utility companies that invest with Kinetic who provide the firm with general policy direction and strategies. The second board is the business development group, which consists of vice presidents and senior vice presidents at the utility companies. This committee carries out the ideas developed by the advisory board throughout their respective companies.
Some highlights of the Utility Competitive Advantage Fund include Cisco System Inc.’s recent $6.9 billion purchase of portfolio company Cerent Corp., which is expected to return more than $100 million to the fund in less than a year; the acquisition of portfolio company NetCore Systems Inc. by Tellabs Operations Inc.; the IPO of portfolio company Ramp Networks Inc. in June; and the acquisition of VerticalOne Corp. by Security First Technologies.
Kinetic is the lead investor in about one-third to one-half of its deals and rarely invests alone.
The firm is led by a five-person management team that is diversified by age as well as industry, and include managing directors Jake Tarr, Levert and Heflin, Principal Todd Klein and Senior Associate Nelson Chu.