Menlo closes 12th fund at $400 mln; solidifies smaller fund strategy

Menlo Ventures has raised a 12th fund at $400 million, solidifying a change in investment strategy that has led to smaller funds and a greater exposure to consumer tech.

The new fund comes as returns at the firm’s two most recent funds have spiraled upward, due in part but not entirely to the $56 million that Menlo Ventures has invested in Uber.

Managing Director Mark Siegel said the new fund, Menlo Ventures XII, will mirror the multi-stage approach Menlo followed with its 11th fund. The new fund matches the size of this previous fund and will follow the same 50/50 split between enterprise and consumer investing. Menlo Ventures X, a $1.2 billion fund raised in 2006, was weighted more toward enterprise.

“It will be very thematic,” Siegel said. “It’s a research-driven approach to investing.”

The firm expects to make 30 investments out of the fund, or 10 a year, with about half at the early stage, where Menlo is likely to be the first institutional money into a company. One-fourth of the fund will target expansion deals and the final one-fourth is slated for later-stage deals.

Menlo logo hires[1]The average size of a Series A will be $3 million to $7 million, while expansion and later deals will be closer to $10 million. A total of $15 million dollars from new fund will be allocated to the Menlo Talent Fund to back seed-stage ideas.

Siegel said the firm didn’t seek a larger fund. The types of deals the new fund permits are the ones that have produced the best returns for Menlo, he said. He added the late-stage deals appear extremely frothy.

“We don’t think that is the place to generate the best returns,” he said.

Menlo’s results have been on the rise. Menlo Ventures XI had an IRR of 81.6 percent as of September 2014, a big step up from -9.37 percent 15 months earlier, according to a LP portfolio report from the Washington State Investment Board.

Both funds have investments in Uber. Menlo Ventures XI also has exits for Check, which was acquired by Intuit, and Dropcam, which was acquired by Google-owned Nest. In addition, it has investments in Machine Zone, Betterment and Tintri.

The new fund will be run by Managing Directors Siegel, Pravin Vazirani, Venky Ganesan, Douglas Carlisle, John Jarve and Shawn Carolan. Carolan, who is spending most of his time with his startup Handle, will return to making new investments at Menlo after the product launches and achieves product market fit.

Siegel said he shares management duties at the firm with Ganesan, Vazirani and Carolan.

This story previously appeared in affiliate magazine Venture Capital Journal, which is published by Buyouts Insider. Subscribers can read the full story by clicking here. To subscribe to VCJ, click here for the Marketplace.

Photo illustration of car and money from Shutterstock.

Logo courtesy of Menlo Ventures.