PALO ALTO, Calif. – Technology Crossover Ventures expected a March final close on about $1.4 billion for Technology Crossover Ventures IV, said Jay Hoag, the firm’s general partner.
Targeted at $1.25 billion at the time of its launch in November 1999, the fund held a first close in December on about $600 million, followed by a second close in January on $900 million.
Judging by the quick pace of fund raising, the fund’s new and existing limited partners were eager to invest in the vehicle, but TCV was careful about keeping the size manageable. “On one hand, you want the money, but on the other hand you don’t want to be seen as being piggish and taking too much,” Hoag said.
The fund will back 40 to 45 Internet companies across the United States at various stages of development, with typical investments ranging between $15 million to $20 million over several rounds of financing, he said.
The firm’s decision to back e-commerce, Internet infrastructure and application companies at various stages of development is a reflection of the fact that VCs are now more specialized in specific sectors regardless of stage. Fund IV has made nine investments to date and has several in the pipeline.
Public vs. Private Investments
Unlike prior TCV funds, which have invested in both public and private companies, TCV IV will strictly back private Internet companies. Prior to launching its latest fund, the firm decided it was best to divide public and private investments into separate vehicles, Hoag said.
“Now, as we are managing more money that requires a greater focus on the private companies, it is difficult to also have the money invested in public companies also inside that same fund,” General Partner Chris Nawn said. “This keeps the public money from sort of getting lost.” As a result, TCV launched Fund IV one month before the December unveiling of the TCV Franchise Fund, which will seek to invest in the top 30 public Internet companies, Nawn said.
The Franchise Fund is structured as an evergreen vehicle and at press time had some $100 million in capital, although it is expected to grow to $500 million in the next one or two years, Nawn said. “Our goal is to identify the top new companies of the Internet age and buy their stock and hold it,” he said, adding they would be in the business-to-business, business-to-consumer, infrastructure, services and e-business application sectors.
Nawn said TCV already had identified the 30 companies in which the fund would invest, but refused to name all but one, iVillage Inc., a TCV portfolio company before it went public in March 1999.
The Franchise Fund will invest about 3% of the fund’s total value per company in businesses that target a large market, have solid management teams and have a stable business model, and it will devote 1% to enterprises that are not quite as developed.
To date, TCV’s general partners have collectively put up some 5% of the Franchise Fund’s total capital, said Nawn, declining to name any limited partners. The fund has a 1% management fee and an 80%/20% carried interest structure.
TCV IV has a wide range of limited partners, including over 130 individuals from the technology industry and corporations like General Motors Corp., Hewlett-Packard Co. and Rho Management Co. Inc., Hoag said. The firm also targeted foundations, private and public pension funds and university endowments as new investors, he added.
Beefing Up Staff
Because of the growth in the size of TCV’s funds, the firm in February added Brooke Seawell and Carla Newall as general partners, Hoag said. Seawell had been a director at Petopia.com until June 1999. Prior to that, he was executive vice president at NetDynamics Inc. Newall had been a partner at Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP, a Silicon Valley law firm. In January, TCV hired Rick Friedman as an associate. Previously, Friedman had been a principal at Weston Presidio Capital. The firm now numbers 16 professionals, including 12 partners, one associate and three analysts, Hoag noted.