NEW YORK – TechSpace Xchange LLC (TSX) is eyeing a $50 million to $100 million fund and expects to hold an initial close on $20 million to $25 million by the end of this year, said Stephen Nordahl, managing director. The as-of-yet-unnamed vehicle marks TSX’s first entry in the fund-raising market, he added. TSX is aiming for a second close on the vehicle in the middle of the first quarter of 2001, he noted.
Founded in February, TSX at that time received $15 million in seed funding from Safeguard Scientifics Inc. and TechSpace LLC, an accelerator in which Safeguard holds a significant ownership stake. Using its seed money, the firm has done seven deals totaling $5 million to date, Nordahl said. Having proved TSX’s concept, it seemed appropriate to raise an actual fund, Nordahl said.
TSX’s new vehicle will stick to the focus it has followed so far, early-stage Internet service and enabling technology companies, Nordahl said. The fund will also do some late-stage deals as well, he added. Approximately 20% of the fund’s investments will be late-stage/mezzanine round financing, he estimated. The vehicle will back roughly 30 companies with an initial investment of $1 million. Some $20 million of a $50 million fund will be held back for follow-on investing, he added.
TSX’s deal flow will be primarily driven by its ties to TechSpace, Nordahl explained. TSX is co-located with TechSpace, which currently has offices in New York, Boston, Toronto and San Francisco, with plans to expand into Austin,Texas, Miami, London and South America. The firm will only do deals in cities where TechSpace has offices, he said. Every company that is housed in a TechSpace facility signs a letter of agreement allowing TSX to participate, up to a level of 10%, in a subsequent round of financing, he said. This provides the firm with a source of guaranteed deal flow, he added. On a per year basis, TSX plans to fund about 10% of the companies located in TechSpace facilities, he said.
TSX will also invest in companies that are not in TechSpace facilities, but are located in the same city as the accelerator. Nordahl said that about one-quarter of the new fund’s portfolio companies would fall into this category. These companies will also be given priority access to TechSpace’s facilities, if they would like to move inside the accelerator, he added.
Safeguard, TechSpace and the management of TSX are the general partners of the new vehicle. Nordahl said the general partners would likely put up more than 1% of the fund’s total capital. He described the fund’s management fee as industry standard, though he said the vehicle’s carried interest structure might be different than the traditional 80%/20% split. “Because of the structure of the GP, the carry might be kind of higher,” he commented.
TSX is targeting service providers, high-net-worth individuals, fund-of-funds and other institutions as limited partners. Nordahl declined to identify any of the fund’s potential LPs.