Reloading Zone

Zone Ventures recently re-launched the fund-raising effort it started more than 18 months ago, having cut its target in half to $100 million and restructuring its partnership, Managing Director Frank Creer tells VCJ.

The Los Angeles-based firm has not closed any commitments for its third fund, Zone Ventures III, but it expects to hold its first close within the next six months, says Creer.

“We’re having good follow-on meetings with a handful of large institutions,” he says.

Previously, the firm raised $100 million in 1999 as part of the Draper Fisher Jurvetson affiliate network, a relationship it is not pursuing for its ongoing fund-raising.

Zone might have had trouble fund-raising during normal times, but it is finding it doubly hard in the poor economic environment. “I raised my last fund with [Tim] Draper and I don’t think I really honed in on the fund-raising skills I need for this type of market,” says Creer.

The firm did not have a solid base of existing investors to return to either.

“It’s all about LP relationships right now,” Creer says. “Either you have people who follow you or you don’t. I didn’t. I had a lot of people who came in during the boom and didn’t have the stomach for it. There’s a lot of people who like venture during the boom, when it’s doing well, and don’t like it when it’s not.”

Still, Creer is optimistic that another major exit will buoy Zone’s rebooted fund-raising efforts. The firm initially launched fund-raising in November 2006.

Creer specifically mentioned two portfolio companies as most promising: Siimpel Corp., an optical switching component maker that has raised $78 million since 2000, and Lumexis, a fiber-optic company that has raised an undisclosed amount from VCs since 2003.

“Both are really making headway,” Creer says. “I’m hoping to get one of those out the door in the next little bit, which should give us a boost on the fund-raising side.”

Zone is not currently making new investments from its previous fund, but continues to support and invest in its portfolio companies, Creer says.

Zone has had one IPO to date: DivX (Nasdaq: DIVX). The company offered at $16 per share on Sept. 22, 2006 and quickly rose to nearly $30 a share at the same time Zone launched its fund-raising efforts. The stock now trades just above $5 per share.

I had a lot of [LPs] who came in during the boom and didn’t have the stomach for it. There’s a lot of people who like venture during the boom, when it’s doing well, and don’t like it when it’s not.

Frank Creer

DivX raised $47 million from its venture investors, starting in 2000, and now has a market capitalization of $970 million. Zone participated in the first three rounds along with Argus Capital Group, Cardinal Venture Capital, Draper Atlantic Ventures, Draper Richards, Wasatch Ventures and WI Harper. Insight Venture Partners was the only investor in the $17 million Series D for DivX.

DivX is Zone’s only major hit. The firm has seen four of its portfolio companies get acquired since it was founded in 1998.

It sold facial recognition startup Neven Vision, which had raised $5 million, to Google for an undisclosed amount in August. It sold online catalogue company, which had raised $1.3 million, to PetQuarters for $8.6 million in May 2000. It sold productivity software maker Advanced Software Technologies Inc., which had raised $5.5 million, to Embarcadero Technologies for $15 million in November 2000. And it sold engineering software startup 3GA, which had raised $4 million, to Kubota for an undisclosed amount.

PROFILE: Zone Ventures

Locations: Los Angeles

Founded: 1998

Team: Managing Director Frank Creer and Partners Darius Sankey, William Lewis and Richard Barry

Focus: Early stage software, Internet and semiconductor companies.

New Fund: Targeting $100M for third fund.

Previous Fund: Raised $100M for second fund in 1999 as an affiliate of Draper Fisher Jurvetson.

Did you know? A total of 28 of Zone’s 34 portfolio companies are based in California, but the firm says that its investments are not geographic specific. Its website reads: “We have and will continue to make investments outside of California.”

Source: Thomson Reuters and VCJ research