MENLO PARK, Calif. – Menlo Ventures plans to raise and wrap its eighth fund in the second quarter of this year.
Menlo VIII will target $400 million and be capped at $500 million, said General Partner DuBose Montgomery, who added that most of the capital would likely come from existing limited partners. The new vehicle follows the $250 million Menlo VII, which closed at the end of 1996.
Menlo will raise a side vehicle of about $6 million to $7 million for entrepreneurs, because the firm only accepts institutional investors in its main funds, Mr. Montgomery said.
The larger vehicle will allow Menlo to hold off on fund raising for four years instead of returning to market in three years, he added.
The firm’s strategy of backing earlier-stage information technology/communications companies and health-care enterprises will remain the same.
Menlo VIII will make investments of about $8 million to $9 million per company over time, compared to the $6 million to $7 million made by previous funds.
The new vehicle will feature a 75%/25% carried interest split, as did the seventh fund. The venture firm will take a 2.5% management fee.
Mr. Montgomery would not specify returns from previous funds, but he said Menlo IV through VII ranked in the top quartile for their vintage years. General partners will put up 1% of Menlo VIII and an undetermined amount to the side vehicle.
Previous backers include the Iowa Public Employees Retirement System, Michigan State Treasury, Nevada Public Employees’ Retirement System, Virginia Retirement System, Washington State Investment Board, Dartmouth College, Stanford Management Co., Liberty Mutual Group, Pacific Mutual Life Insurance Co. and funds-of-funds managed by Brinson Partners, HarbourVest Partners, L.L.C. and Pathway Capital Management Inc.
Washington State Senior Investment Officer Ashu Rajbhandari spoke highly of Menlo Ventures’ “good pedigree,” calling its team consistent, disciplined and thoughtful investors.
Washington State has participated in every Menlo fund raised since 1981, and Menlo V is composed of $25 million entirely from the state fund. That vehicle closed in mid-1988 and as of last June posted a net IRR of 33%. Menlo funds backed by Washington State have all had returns in the top quartile, said Mr. Rajbhandari, who has been impressed with the quality and frequency of Menlo’s reports to limited partners, the firm’s staff development and its entrepreneur-in-residence program.