CLEVELAND – Morgenthaler held a final close on its $570 million Morgenthaler Partners VI fund at the end of March, said Theodore Laufik, the firm’s chief financial officer. The vehicle was launched in January with a target of $450 million (VCJ, March, page 36).
Commitments from the firm’s existing limited partners accounted for the $450 million target, with several new LPs providing the additional capital. Laufik said the fund’s size was initially created with the idea that Morgenthaler would invest approximately $150 million per year over a three-year period.
“However, when we looked at our pace over the last few years, we saw we had been investing faster than that. So we thought something around $600 million would be a good idea, because we want this fund to last three years,” he said. The firm’s fifth fund closed on $300 million in the summer of 1998 and only lasted about a year and a half, Laufik added.
The vehicle’s investments will be divided into three groups: early-stage deals, late-stage and buyout transactions, and health-care deals. Early-stage deals will focus on communications, Internet infrastructure and e-commerce companies, Laufik said. Late-stage and buyout deals will target companies that have between $100 million and $500 million in revenue and operate in the industrial technology and service sectors. The fund will invest nationwide.
Laufik said the vehicle will back between 35 and 40 companies, with typical early-stage deals averaging $12 million spread over several rounds and late-stage deals weighing in at about $25 million. Approximately 50% of the vehicle’s funds will back early-stage deals, 40% will go to late-stage transactions and 10% to health-care. There will be no changes to the firm’s management fee and carried interest split for this fund, Laufik said.
New LPs for this fund include Fairview Capital, the University of Minnesota, the MacArthur Foundation, Forstmann-Leff International Inc., Temasek Holdings and the Government Investment Corp. of Singapore. Existing LPs include AT&T Investment Management, the University of Texas, Denver Public School Employees Pension & Benefit Association and the University of Chicago.
Morgenthaler’s general partners put up 3% of the fund’s total capital, Laufik said. In addition, the firm actively continues to seek a new partner who will focus on communications investments.