SI Ventures Eyes $350 Million Fund III –

FORT MYERS, Fla. – SI Ventures, the venture capital affiliate of Gartner, is aiming for an initial close sometime in the first quarter for its latest vehicle, the $350 million to $450 million-targeted SI Ventures III fund, said Manny Fernandez, a managing director at the firm. Fund raising for the new vehicle will be launched at the beginning of January, Fernandez said, adding he expected the first close to be on approximately $120 million. A second close on a couple of hundred million will likely take place in March, while a final close on the vehicle’s last $50 million to $100 million should occur sometime during April, he added.

The new vehicle will employ the same strategy as SI Ventures’ previous two funds, Fernandez said. This means the fund will focus on emerging information technology companies primarily in the software/infrastructure, communications and mobile technology industry sectors, he added. The fund will steer clear of deals that involve laying cable or high capital expenditures, he said. “We don’t want to pave the road. We are interested in the toll booth and the technology that runs the toll booth,” he explained.

SI will invest the fund in approximately 25 to 30 early-stage companies, with an average deal size of $6 million to $12 million over the life of a deal, he said. Right now Fernandez is not able to say how the vehicle will allocate its capital between the various sectors in which it will invest. “It should take a few years to invest the fund and the world will change while we invest it, so I cannot predict what deals we will do now,” he commented.

The fund will be invested throughout the United States, Fernandez said. However, SI Ventures does try to avoid investing in Silicon Valley, he added, explaining that the firm believes it gets the best deal flow in areas of the country where there is not such intense competition. “Right now, Silicon Valley has the lion’s share of venture capital dollars, but other parts of the country should have significant growth and we have managing directors on the ground in these areas to help grow companies,” he added. The firm, based in Fort Myers, Fla., also has offices in Stamford, Conn. and Colorado Springs, Colo., he noted.

SI Venture’s existing limited partners include Gartner, Aspen Investment Group, Caisse des Depots Group and some other small French institutions. Gartner will definitely be an investor in Fund III, he said, adding he hoped, and expected, that the firm’s other existing LPs will return for the new vehicle. SI Ventures would also like to add an additional 20 or so new investors to their LP ranks, he added. Fernandez said he hoped that one-third of these new investors would be European in origin. The reason for this is because SI Ventures realizes that many of its portfolio companies will need to expand internationally, so the firm would like to have LPs who can help its portfolio companies move into European markets, he explained.

SI Ventures will put up somewhere between 1% to 5% of the new fund’s total capital, Fernandez said. The vehicle will have a 2.5% management fee and an 80%/20% carried interest structure, he added. The firm’s previous fund, SI Ventures II, which closed on $120 million in 1999, has completed 26 investments to date and will likely do two to three more deals before it is fully committed, he noted.