Vanguard Ventures plans to raise a new $250 million fund and a $12 million annex fund to do follow-on rounds for an older vehicle.
The firm, based in Palo Alto, Calif., plans to officially begin fund-raising for the new fund, to be called Vanguard VIII LP, in the fourth quarter, says Anne Rockhold, Vanguard’s chief financial officer. No closing date has been set. The fund will likely be the same size as its predecessor, which closed at $240 million in November 2000.
The proposed annex fund would make follow-on investments in Vanguard VI, a $103 million fund raised in 1998. The management fee for the annex fund has been waived, and it sports a reduced carry. It will only be offered to previous investors, but the firm does not yet know which of its limited partners will choose to re-up and at what levels, Rockhold says.
Bill Monagle, a Vanguard LP and managing director at investment advisor CRA RogersCasey, declined to comment directly on Vanguard’s annex fund. But, he says that other funds with the same vintage year as Vanguard VI have raised annex funds. Vanguard VI’s investment pace has been consistent with other funds of that vintage, Monagle says.
Annex funds can run into murky water if LPs in the original fund choose not to participate or to participate at different levels. If not handled correctly, that action could be a sore point for any LPs in the fund that made the original investments and see their investments diluted if they don’t participate in the annex fund.
A similar conflict has already seen time in the courts in a case between the state of Connecticut and buyout shop Forstmann Little. Forstmann made a series of investments into beleaguered telecom McLeodUSA. Connecticut participated in funds that made the initial investments, but Connecticut’s stake was allegedly washed out by later investments by Forstmann Little funds in which the state did not participate.