BOULDER, Colo. – Sequel Venture Partners expected a late July final wrap on Sequel Limited Partnership II.
Targeted at $150 million, the fund was launched earlier this year and notched a first close on $112 million in March, said Partner John Greff.
A lucrative exit from Internet advertising monitor MatchLogic Inc., a portfolio company from Sequel’s first funds, made raising Sequel II much easier. “With the MatchLogic success, the numbers were great,” Mr. Greff said. Additionally, investors are starting to believe that Colorado has good investment opportunities, he added.
Gatekeepers, for example, did not invest in the first fund, but Sequel II attracted FLAG Venture Management and The Crossroads Group into the fold. California Emerging Ventures, the $350 million pool of capital from the California Public Employees’ Retirement System , which is managed by Grove Street Advisors L.L.C. (VCJ, December 1998, page 5), also backed the second fund, as did the John D. and Catherine T. MacArthur Foundation.
Returning limited partners include American Family Mutual Insurance, Sumitomo Trading Corp., Montgomery Ward Life Insurance, Colorado Public Employees Retirement Association and the endowments of the University of Colorado and the University of Richmond , Mr. Greff said. About 60% of Sequel II’s capital came from new investors.
The firm chose to raise a larger second fund in part to avoid the dilution that smaller funds often face when they have to bring in bigger groups to supply later rounds of funding for portfolio companies.
“We wanted to be able to do about as many deals as we did in the first fund, but we wanted to be able to do about twice as much in terms of dollars into each deal,” Mr. Greff explained.
“It doesn’t really do a whole lot to our approach,” he added, noting that Sequel would maintain its early-stage focus. After all, Sequel was the sole early-stage firm based in Colorado; which allowed the firm to remain selective because of the dearth of local competition, Mr. Greff observed. In at least 80% of its deals, Sequel was the first institutional money or the lead investor. The average Sequel investment will grow with the new fund to about $3.5 million to $4 million, an increase from about $2 million each, Mr. Greff estimated.
Sequel’s partners – Tom Washing, Kinney Johnson, Dan Mitchell, Rick Patch and Mr. Greff – are not carrying with them much work from previous funds. Each oversaw some three to four deals from the first funds, a figure Mr. Greff expects will double for Sequel II but still remain manageable.
Bart Richardson, alternative investments director for American Family Mutual Insurance, said his company returned for Sequel II because of its talented partners and the fact that the firm operated from Colorado, an area underserved by technology funding.
Sequel L.P., the firm’s first vehicle, wrapped in late 1998, in conjunction with Sequel Euro, a separate fund created for a Western European family that put up $20 million. The twin funds, which invested side-by-side and totaled $66 million, are now fully invested (VCJ, February 1998, page 15), Mr. Greff said.
Sequel focuses on early-stage companies in the Rocky Mountain region, mainly in Colorado. About one-third of the first vehicles’ capital was committed to health-care and the remainder went to information technology companies, Mr. Greff said. The fund made one telecommunications investment.
Together, the twin funds have 16 companies in their portfolios. MatchLogic Inc. was purchased in 1998 by search engine Excite Inc. Last spring, Internet-service provider At Home Corp. merged with Excite.
Sequel invested $2.4 million in MatchLogic in 1997 and at press time either held or distributed stock worth $55 million, Mr. Greff said. The company’s success had pushed the first funds’ IRR into “the low 100s” percentage, the partner added.