Shasta Ventures to Brave Tough Market in Hopes of Raising $250M for Third Fund

Shasta Ventures is preparing to raise a $250 million early stage fund, its third, according to two sources with knowledge of the matter.

The firm is not officially in the market yet, but its general partners have been meeting with LPs to gauge interest and could kick off fund-raising early next year, according to the sources. Shasta may announce its plans at a Nov. 17 annual meeting, one of the sources said.

Shasta faces a tough environment. Fund-raising is at a low, with just over $9 billion raised so far this year. Also, Shasta’s first two funds haven’t produced stellar returns. Its first fund, raised in 2004, has an IRR of 1.55, as of March 31, according to the California State Teachers’ Retirement System (CalSTRS), a limited partner in the fund. The IRR for Shasta’s second fund (vintagte 2007) is negative 2.54, according to CalSTRS.

Shasta raised a $210 million fund in 2004 and a $247.50 fund in 2007, according to Thomson Reuters, publisher of this blog.

Over the years, Shasta has shown an investment focus on Internet and software startups. Its portfolio includes Blue Nile Inc., Spiceworks, Smule Inc., ResponseLogix, Recurve Inc., Pixazza Inc. and Gowalla Inc.

Thomson Reuters reports that Shasta’s first fund backed at least 22 companies, of which five have been acquired: Arch Rock Corp., Arteis Inc. (aka LogoWorks), iConclude Co., LaGarde, Inc. (dba StoreFront) and Mint Software Inc.

Purchase amounts were disclosed for only two of the deals: and iConclude.

Mint, a provider of online personal finance services,  was bought by Intuit Inc. (Nasdaq: INTU) for $170 million in cash in September 2009.  Mint had had previously raised about $32 million from Shasta, Benchmark Capital, DAG Ventures, Felicis Ventures, First Round Capital, Founders Fund and Sherpalo Ventures.

IConclude, which developed automation software for IT processes, was bought by Opsware in April 2007 for a reported $54 million. It had previously raised $12 million from Shasta, Cronus Ventures, Greylock Partners and Madrona Venture Group.

Purchase amounts were unavailable for Arteis, which provided logo design services for small businesses and was bought by Hewlett-Packard in 2007; and Arch Rock, which made products that support wireless sensing and control networks and was bought by Cisco in September.

LaGarde was reportedly bought for $2.8 million in January 2009 by Dynacomp. It had previously raised $8.5 million from Shasta and Kansas Technology Enterprise Corp.

Shasta’s second fund has invested in at least 10 companies, two of which have been acquired, Mochi Media and LaGarde, according to Thomson Reuters. Mochi, an online gaming ad network, was bought by Shanda Games Ltd. in January for $80 million. Mochi had previously raised $14 million from Shasta and Accel Partners.
Shasta Managing Director Rob Coneybeer declined comment on fundraising plans in an e-mail last week.