SAN BRUNO, Calif. – Expanding its historically short-term investment strategy, VantagePoint Venture Partners announced in late October that it closed its fourth and largest fund at $1.6 billion. The newest addition to its investment family brings the firm’s total capital under management to $2.5 billion.
“We’ve raised all four of our funds within the past four years,” said James Marver, co-founder and managing partner with VantagePoint. “Instead of returning to the market on an annual basis as we have been, we chose to raise a larger fund this time to give us a two- to three-year time frame in which to invest. From a risk-management point of view, it’s far more intelligent.”
The investment term seems to be the only tangible difference. With Vantage- Point Venture Partners IV, the firm is sticking to what it knows best: technology. VantagePoint has been concentrating its resources in that sector since its inception, and on this go-around, it’s specifically focused on data networking, photonics, telecommunications, semiconductors and Internet infrastructure.
The fund will make about 40 investments over the next two to three years, with initial investments between $3 million and $15 million. The maximum total investment in a firm will be about $25 million to $30 million.
“Those are conservative estimates,” Marver noted. “Obviously, some companies will go public or be acquired before we invest all of the money slated for them, which may give us an opportunity to invest in other companies or provide additional funding where necessary in our existing portfolio.”
Since June, the fund has invested about $100 million in 10 companies, and VantagePoint hopes to make six more investments before the end of the year. A few of the investments made to date include Broadstorm Telecommunications Inc., Cognigine Corp., Dyntec Networks and Geyser Networks Inc.
New LPs, No Real Surprises
While the firm did add a few new limited partners to its roster for the new fund, there weren’t any surprises, Marver said. He revealed that existing strategic partners JDS Uniphase Corp., IBM, Level 3 Communications and Nortel Networks participated, but declined to divulge the names of any of VantagePoint’s executive and institutional partners. He would say only that they were the “usual suspects” – corporate pension funds and endowments, and state and other public pension funds.
The fund’s target capitalization was originally set at $1 billion, but Marver said it was difficult not to exceed that figure.
“We expanded our target capitalization to $1.6 billion because the market environment has changed so rapidly, and it became apparent that having considerable fresh capital would give us a strategic advantage,” he said.
The fund was also “wildly oversubscribed,” he added. “We wanted to satisfy our current LPs, as well as those who were locked out of previous funds and were promised a spot in this one, so we raised our limit.”
In the long run, though, having such a large cache of capital will likely be to the firm’s benefit. By investing more money over a longer time frame, VantagePoint potentially reduces its risk of hitting the markets at their lowest points and reaping poor returns for its LPs.
“It’s hard to get the market timing exactly right,” Marver noted. “By extending our investment period from one year to two or three years, there is a greater likelihood we’ll avoid the “buy high, sell low” syndrome and hit the market when it’s especially receptive to acquisitions and IPOs.”
About 90% of VantagePoint’s investments are domestic. Although the firm isn’t focused on any one area, Marver pointed out that a majority of its investments will be regionally concentrated in Silicon Valley, New England, the Mid-Atlantic and the Southeast.
The other 10% of its investments will be made internationally, with emphasis on China, Israel, Scandinavia and Europe.