MENLO PARK, Calif. – U.S. Venture Partners (USVP) expected to hold a second and final close last month on $1 billion for on its eighth fund, the initially $900 million-targeted U.S. Venture Partners VIII, said Phil Young, a general partner at the firm.
Like the first close, which was held on approximately $750 million at the end of December, the second close will be a dry one, Young said. USVP will hold an initial capital call for the vehicle in March, he added. The firm kicked off fund raising for the vehicle at the beginning of November, he said.
USVP received nearly $1.5 billion in commitments for the fund and has decided to cap the vehicle at $1 billion, Young said. “Anything more than $1 billion is just too much for us to put to work effectively,” he explained. The new fund is nearly twice the size of the firm’s previous vehicle, last year’s $600 million U.S. Venture Partners VII, because USVP wanted to make sure Fund VIII lasts at least two years, he noted. “We wanted to increase the time between funds. One-year cycles are burdensome to both limited partners and general partners,” he said.
The new fund will employ the same investment philosophy of USVP’s previous funds, Young noted, which means the vehicle will invest in early-stage data communications infrastructure, e-commerce/Internet infrastructure, enterprise software, semiconductor, optics and medical/biotech companies.
“We make a conscious effort to figure out where the opportunities are and then focus in on that area,” Young said, adding “this means we are opportunistic in our investments depending on what comes up within an industry we’ve targeted.” He estimated that approximately 60% of the fund’s capital will go toward backing datacom and e-commerce infrastructure companies.
Fund VIII will back approximately 40 to 60 companies, Young said. The vehicle will likely not have an average initial investment size, he said, noting the size of an initial investment in a deal is dependent on each individual company’s development. The vehicle’s average deal size over the life of an investment should range from $16 million to $25 million, he added.
The majority of the vehicle’s deals will likely come from the West Coast, Young said. This is both convenient for the firm’s investment staff and because the West Coast is home to entrepreneurs and managers with the kind of talent for which USVP is looking. “If you are building companies, you want to do it where there are people with the skill sets to do it,” he said.
The new fund will have a 75%/25% carried interest structure and a slightly less than 2% management fee, Young said. The firm has yet to decide on just how much capital it will invest in the fund, he added, noting that USVP put up 6% of Fund VII’s total capital.
Young declined to identify any of the fund’s LPs, beyond saying the investor base was made up of foundations, universities and both corporate and state pension funds.