MENLO PARK, Calif. – Strapped for cash and burdened by a portfolio of companies demanding greater follow-on commitments than originally anticipated, New Enterprise Associates is in the market for a $150 million annex fund to its 1998 early-stage investment vehicle, the $565.7 million-strong NEA VIII.
Closed in the heady days of the dotcom craze, NEA VIII stuffed its portfolio with Internet, software and communications plays. In the last six months of 1998 – just after its close – the fund poured $50.77 million into 24 companies. NEA VIII ramped up investment to a frenetic pace throughout 1999, investing another $277.91 million in 78 new companies. Of the 153 companies now held in NEA VIII, 16 went public and eight were acquired. Only one, according to Thomson Financial/Venture Economics, filed for Chapter 11 bankruptcy protection. The remainder remain privately held, and are seeking for additional rounds of venture financing.
Although the NEA VIII had reserved almost 50% of its total pool of investment capital for follow-on investment, the fund will have to sell off certain existing equity stakes and recycle that cash into other portfolio companies.
“Anticipating an adequate reserve level is very difficult. At the time, reserving 50% seemed very conservative,” said Nancy Dorman, an administrative general partner in the firm’s Baltimore office. Once the IPO window closed last fall, the fund was entrenched in capital-intensive communications networking deals, she said. The fund realized a need for additional capital in the first quarter of this year.
The annex fund will share follow-on investments at a 50-50 ratio with NEA VIII. Even though it is structured as a stand-alone fund, the annex fund will not scout new deals.
NEA, for its part, has reduced its carry on the annex fund to 15% from 20% and will charge a minimal management fee.
Announced at the firm’s annual meeting on May 2, the firm expected to hold a final close on June 29 – drawing on commitments from NEA VIII’s existing limited partners and others that have invested with NEA in the past.
Meanwhile, the firm is closely monitoring the availability of follow-on capital for NEA IX, an $879.9 million fund raised in 1999 also heavily laden with Internet and software deals. Approximately 85% of that fund already has been committed.