REDWOOD CITY, Calif. – Labrador Ventures expects a September launch for Labrador Ventures VI, the firm’s first vehicle targeting institutional investors as well as individuals.
Previous Labrador funds were raised mainly from high-net-worth individuals, however the firm expects about half of Fund VI’s $60 million target to come from institutions, said Managing Director Larry Kubal.
The new vehicle also will be considerably larger than its predecessors, 1989’s $1 million Labrador I, 1995’s $8 million Labrador II and 1998’s $27 million Labrador III.
Labrador will not change its investment strategy despite the larger size of its latest fund. The firm initially intended to back 20 companies from the Labrador III fund, but its $27 million total would only cover 15 deals and the group could not provide as much follow-on financing as it wished, Mr. Kubal said.
The firm, which has three investment professionals – Mr. Kubal, Managing Director Stuart Davidson and Director Sean Foote – concentrates on seed- and very-early-stage technology and communications companies throughout the United States.
Labrador, which shares an office with Draper Fisher Jurvetson, also shares deal flow with DFJ. At the same time, Messrs. Kubal and Davidson are DFJ venture partners and Mr. Kubal was a general partner in three of DFJ’s funds. Labrador hired Mr. Foote to participate in Labrador III and to have him in place for Labrador IV, he said. The group expects each partner to manage $25 million .
Labrador came into existence while Mr. Kubal was still a G.P. at DFJ. The firm, which typically invests $500 million to $1 million in a company, ended up filling a niche for early-stage investments as DFJ and other firms also grew larger and began focusing on larger deals. Labrador targets deals that are too large for angels but too small for early-stage VCs, he explained.
Labrador has formed relationships with many larger VC firms, including Advanced Technology Ventures, Sofinnova and Scripps Ventures, Mr. Foote’s former employer. Labrador brings its deals to those venture firms when the companies need follow-on financing. In return, the venture firms sometimes include Labrador in a company’s later round of financing.
Labrador’s late-stage investments allow later-stage companies and their VCs to take advantage of Labrador’s “mindshare” for a relatively small chunk of equity, Mr. Kubal explained. For example, Labrador would invest $1 million of a $15 million round. DFJ brought Labrador into the financing of Internet directory company Four11 Corp. and free e-mail service Hotmail.
Labrador looks to its individual L.P.s, many of whom are entrepreneurs, to gain deal flow, Mr. Foote said. The firm has about 40 companies in the portfolio of its three funds. About three-quarters of Fund III’s investments were Internet deals and about one-fifth were tech deals outside the Internet space. The remaining 5% of deals would fit into the non-technology category, Mr. Foote added. Labrador does not invest in consumer, retail, agriculture or natural resources deals. Given the firm’s emphasis on early-stage deals, Labrador prefers to invest in businesses that are not capital intensive to avoid dilution in later rounds.