PALO ALTO, Calif. – Summit Partners at press time was preparing the late spring launch of a $150 million fund that will invest smaller amounts of capital than are usual for the firm, said General Partner Walter Kortschak.
Summit in May hired Kip Sheeline, an 11-year veteran of Hambrecht & Quist, to manage the vehicle, and the firm likely will hire two more general partners to help oversee the still- unnamed fund, Mr. Kortschak said. Mr. Sheeline and one other principal are to be stationed in Silicon Valley, the third G.P. in Boston.
Summit generally invests $10 million to $100 million in profitable, growth-stage companies, and the firm’s average deal size has grown as the size of its funds have increased since the mid-1980s, Mr. Kortschak said. But Summit has had huge sucesses with smaller deals in the $2 million to $10 million range, such as anti-computer-virus software maker McAfee Associates.
Nevertheless, the firm had to find an alternative to investing in smaller deals from its current sizeable funds. The firm’s latest vehicle, Summit V, closed on $1.1 billion in March 1998 (VCJ, April 1998, page 10).
“It’s frankly hard to do [smaller deals] under the umbrella of the Summit V investment kind of guidelines,” Mr. Kortschak said.
Therefore, Summit opted to create a fund whose focus would be on the smaller deals; Mr. Kortschak thinks the new fund will invest an average of $5 million in each company and will focus on the U.S. technology sector but also will look abroad.
The majority of Summit Partners’ investment activity is in IT, but the firm makes investments in other industries, including health care.
Mr. Sheeline and the two G.P.s will be in charge of the new fund, but Summit will be active in both the investment committee and in helping form the vehicle.
Summit has known Mr. Sheeline, who ran H&Q’s communications investment-banking practice, for more than 10 years. He helped take many of the firm’s communications companies public. As Summit was contemplating raising an earlier-stage fund, Mr. Sheeline approached the group about his interest in private equity, a coincidence that Mr. Kortschak characterized as “serendipitous.”
Summit wants the new fund’s G.P.s, likely those with operating experience, to complement Mr. Sheeline’s investment banking background.
By press time, Summit had begun talking to its limited partners about the new vehicle.