NEW YORK – Spencer Trask in early January launched its freshman vehicle, the $100 million-targeted Spencer Trask Private Equity Fund I, said George Egan, managing director. The firm expects the vehicle to hold an initial close on $15 million by the end of March, he added. The fund will hold a final close either nine months from its launch date or when it hits $100 million in size, depending on which event comes first.
The firm is raising the new vehicle because its current method of investing – raising funds on a deal-by-deal basis from individual angel investors – is time intensive, Egan explained. “We are trying to make our process a more efficient distribution system,” he said, adding “this will also allow us more time to focus on helping our companies, because we will spend less time on raising capital.”
Raising the new fund does not signal that Spencer Trask is abandoning its network of individual angel investors, Egan said. The firm will still present individual deals to members of its angel network, he added. “We just wanted to tap into those angels who want access to deals, but don’t have the time to look at every individual deal we bring to our network,” he explained. The firm’s fund would likely act mainly as a co-investment vehicle, he said, by putting capital to work in deals in which individual angels from the firm’s network are also investing. The fund will also back some deals that Spencer Trask as a firm does as a principal investor, such as bridge loans to portfolio companies, he added.
Fund I will invest opportunistically in early-stage companies that represent huge opportunities, Egan said. “We want to invest in businesses in large and growing sectors,” he said. Industry sectors the vehicle will likely invest in include the Internet, health care, biotech and consumer products, he added. Spencer Trask will invest the fund nationwide in around 30 to 40 companies with an average investment equal to 3% of the fund’s total capitalization, he said. Provided the fund hits its $100 million target, this would translate into an average size of $3 million per deal, he noted.
The fund is targeting angel investors as limited partners, although Egan said the firm is not opposed to including some institutional investors among its LP ranks. “But as a first time fund with a sort of weird business model, we may have to many moving parts for large institutions,” he added. The current market conditions also make raising a first-time fund a bit trickier than usual, Egan said. “When the initial public offering market is not active, it is harder to raise money, but that can change in a month,” he noted.
Trask Partners LLC, the parent company of Spencer Trask and the general partner of the new vehicle, is putting up 1% of the fund’s total capital, Egan said. The vehicle’s management fee is 60 basis points on committed capital, he added. The fund also has a hurdle rate of 200% return to its LPs, which means the LPs get their initial investment back, plus 100% on top of that, he explained. After the vehicle has hit this benchmark, Spencer Trask will take a 10% cut of Fund I’s carry, he noted.