Murphree’s Fifth Fund Targets $200 Million –

HOUSTON – Murphree Venture Partners expected to hold a second close on its newest vehicle, the $150 million to $200 million-targeted Murphree Venture Partners V, sometime in December, said Dennis Murphree, founding general partner of the firm. The fund should hold a third and final close by the middle of the first quarter of this year, Murphree said, adding he was unsure how large the second or third closes would be. In early November, the vehicle held an initial close on almost $20 million invested by high-net-worth individuals, he added. Murphree Venture Partners launched its fund-raising effort for the vehicle at the beginning of August.

Murphree Venture Partner’s latest vehicle is aiming to be 10 times the size of the firm’s previous fund, 1998’s $15 million Murphree Venture Partners IV, because that fund did not have the necessary capital to allow the firm to hold onto its full allotment of pro rata shares as portfolio companies held subsequent rounds of financing, he said. “As deals matured, other people came in and we did not have the dollars to keep up,” he explained. “We did not like having our ownership stake in a company diluted to 4% or 5%,” he said, adding “we are going to stick to our guns. We want to keep up our full pro rata share.”

The new fund will invest in approximately 25 to 30 companies, with an average deal size of $7 million to $8 million, Murphree said. Although the firm plans on supporting its portfolio companies in their additional rounds of funding, it will only enter into new deals at the seed-stage or Series A rounds, he added. “Of our 10 partners, nine are entrepreneurs themselves and the other ran an incubator, so we know early-stage companies, and how to work with them, very well,” he noted.

The firm focuses its investments in four areas: infrastructure software, life sciences, telecom/wireless and the semiconductors/optics industries. “We never got very involved in the dotcom world, because we could not make any sense of it. We like things we can see, feel and touch in the life sciences and high tech industries,” he explained. Murphree said the firm has not allocated any specific amounts of capital to any one of the sectors in which his firm invests. “What you do is stake out your areas of interest and go for the best deals available in your areas of competency. Sure there is some portfolio allocation, but you don’t say 30% goes to this and 25% to that. It is silly to do that,” he added.

The majority of the fund’s investments will be focused in the Southwest, Murphree said. The vehicle has a 2.5% management fee and a 80%/20% carried interest structure, he noted, adding Murphree Venture Partners will put up $4 million of the fund’s total capital. Murphree said it will take the fund a couple of years to become fully committed to new investments.

Murphree Venture Partners is using Memphis, Tenn.-based broker-dealer Morgan Keegan & Co. Inc. as a placement agent to market Fund V. “Time away from our portfolio companies hurts us,” he said, explaining “this saves us time, because Morgan Keegan does due diligence and pre-qualifies a lot of institutions and then tells us where to be and when for a meeting.”

Murphree declined to identify any of the fund’s potential limited partners, beyond saying Morgan Keegan had invested in the fund. He said the vehicle’s LPs will be a mix of individuals, college endowments and pension funds. “Our LPs tend to be a bit more southern in nature,” he noted.