JPMorgan Partners in March said that it would split up its venture capital and leveraged buyout activities. Senior Editor Jerry Borrell managed to pry some additional details out of JPMP Partner Shahan Soghikian, who is head of the firm’s West Coast investment activities.
Q How big is your current fund?
A JPMorgan Global Investors LP I closed in 2001 at $6.5 billion. We have outside investors in that fund, but J.P. Morgan is the primary LP. About $750 million of that is allocated to our current VC activities … of which $250 million is uncommitted. Of our current investments in around 40 portfolio companies, we are about equally split 50/50 between technology and life sciences. We have another group of [about 18] people in operations and support as well.
What will be the size of the new fund?
We have not yet determined the fund size, but it will be smaller than the current $750. We are comfortable at an annual investment pace of $100 million to $150 million, so for now, we are saying not less than $400 million’ and will size that as we get closer to our fund-raising.
What will be the structure of the new VC firm?
We’ll have five GPs: Damion Wicker, Chris Albinson, Srini Akkaraju, Rodney Ferguson and myself. We haven’t reached the stage of working out exact titles yet or functional roles, but we’re going in as five equal partners as we start the new firm. It’s likely that I’ll take a significant role in managing the overall fund, but we’ll have five initial general partners.
Any discussion about expanding the team? What sorts of expertise would you like to add?
We may add one more GP in technology, with a background in systems and enterprise infrastructure. We are also thinking long-term about adding expertise in Asia.
What will happen with your operations and support people?
The 18 professionals and the infrastructure team members mentioned earlier will all make the transition. The unique aspect of what we’re doing in starting this new firm is that as a team working in this asset class we’ll have been together for six to seven years, some quite a bit longer from a track record point of view.
What is your investment profile?
We concentrate on B and C round financings. About 60% of our work is there. I’d say another 20% is in A rounds and 20% is in late-stage financings.
Will that change in the new fund?
No, we plan to pursue a strategy consistent with what we have done for many years as a team in technology and life sciences.
Where do you invest?
We’re not geography constrained. We have Texas deals, we have Ottawa deals [and] Eastern Seaboard deals. We have an eye for India and China investments and we’re spending a fair amount of time building relationships. There are huge opportunities there, given preparation, to build independent companies, but as we raise a new fund we’re going to stay focused on the U.S. and execute on our strategy very carefully.
Will J.P. Morgan continue to invest in the new VC fund?
The bank will be a significant LP in the next fund, but the majority of our capital will be raised from external sources.
How long will the transition take?
We’re working on the transition over the next six to 12 months, but we’ve no firm time line. Our first responsibility is to invest the remaining capital in our first fund. We think in late 2005 to early 2006 we’ll be in a position to start fund-raising. The buyouts group may be a bit behind that. It’s a bigger effort. We’re at 60% commitments from the current fund.
Who are your LPs other than the bank and what do they think of the change?
CalPERS, CPPIB and the State of Michigan are examples. They’re all on our advisory committee. We’ve had discussions with them about the transition and they have been supportive.
What sorts of LPs will you target for the new fund? Will you accept money from public LPs like pension funds or individuals?
It is too early to talk about that. We have public pension funds and individuals in our fund today, and have good relationships there. We have been part of a regulated, publicly traded entity with strict disclosure and reporting guidelines, so from our perspective some of the hoopla over public pensions investing in venture funds is overblown.
This seems like an opportune time for the split after last years’ achievements.
Nine IPOs in both IT and life sciences investments. It was one of the best records in the industry in 2004. We still have around 40 portfolio companies. Over time we’ve made over 100 investments as a team, and we are making several now that we can’t disclose. And there are others outside of the venture realm that I’m still involved in, like Aecom, a billion-dollar private engineering consulting and construction firm. As we exit from investments like that, the team and I will be focusing entirely on venture capital.
We’re at the front end of a very long-term business as we move forward in venture capital. We look forward to building a lasting, profitable franchise with the new fund.