Norwest Venture Partners will invest the money in technology startups and other growth-stage private companies based in the U.S., India, Israel and China over the next three to four years, says managing partner Promod Haque.
Wells Fargo had a rough beginning to its year, cutting its quarterly dividends by 85% to 5 cents per share in March. The move was calculated to save the company $5 billion annually, but sent its share price spiraling. Then the federal government determined that the bank, which had taken $25 billion in TARP capital, would need $13.7 billion to pass its “stress test” in May. The company went on to raise additional funds via equity sales.
It is unclear, however, how this funding commitment might be related back to the financial position of Wells Fargo or the bank’s ability to repay its TARP loans.
“Obviously that’s not something we know about or get involved in,” says Haque.
The ongoing banking crisis had little or no impact on Norwest Venture Partners’ ability to raise its $1.2 billion fund, says Haque. “We’ve had a great year,” he says. “We work hard and have made money. And have consistently made money over the years. One of the things to remember is that our firm has had a very long history, it was started in 1961 and Norwest Corp. and Wells Fargo have been involved with us ever since.” (Norwest Corp. bought Wells Fargo in 1998, but opted to keep the Wells Fargo name.)
Wells Fargo may have had a tough year, but Norwest Venture Partners has been doing just fine lately.
The firm scored one of the few initial public offerings the tech industry saw in 2008, taking computing services company Rackspace Hosting, Inc. (NYSE: RAX) public. The firm owned more than 14% of the shares outstanding after the offering and the company’s market capitalization recently topped $2.3 billion.
More recently, the Palo Alto, Calif.-based firm sold video communications company LifeSize Communications, which had raised $90 million from venture capitalists including Norwest, to Logitech (NASDAQ: LOGI) for $405 million.
Successfully finding liquidity for its startups certainly helped the firm secure a commitment from Wells Fargo nearly twice as large as the $650 million fund it raised in 2006.
The larger fund size will support two initiatives the firm only recently began experimenting with: investments abroad and in expansion-stage private companies.
Norwest Venture Partners began investing outside of the U.S. in 2006 and has since opened an office in Tel Aviv with two investors, an office in Mumbai with four investors and an office in Bangalore with one investor. It makes its investments in China from either its U.S. office or from India.
Norwest Venture Partners has invested in 10 Indian companies, two Israeli companies and one Chinese company, according to data from Thomson Reuters (publisher of PEHub.com). These figures may under-report the actual investments made abroad, but Haque declined to provide any specific information about the firm’s aggregate investing activity, citing fears of compromising young companies that want their financing activity kept secret.
The venture firm is also moving into investing in “growth” or expansion stage private companies. The move mirrors similar strategic decisions made at other early stage VC firms during the past half-decade, as a stagnant market for initial public offerings (IPOs) has forced private companies to raise additional funds to survive.
The firm defines growth companies as profitable, with $50 million to $100 million in revenue that are looking for capital to finance rapid growth. These companies may have been boot-strapped, with little or no formal financing, or they may be previously backed by venture capitalists.
Haque says the firm sees synergies between the early stage investing it has long practiced and the growth stage investing practice it is just beginning. He gives the National Stock Exchange of India Ltd. as an example. Norwest paid INR2.5 billion ($53.1 million) to acquire 2.11% of the company in a secondary sale from IL&FS Securities Services Ltd. in June. “We’ve invested in financial services companies before and seen how they can use software to grow,” says Haque. “At the same time, we’re investing in startups today that are building software in the cloud computing arena that financial services companies can use. We can use our expertise to invest in different stages.”
Norwest Venture Partners will also re-open an investing practice in medical devices and health care informatics it had moved away from more than a decade ago. The firm’s major focus areas will be on applying software to every aspect of health care from genomics to medical records and on medical devices that act as integrated systems of semiconductors and software.
“Both in the U.S. and developed countries there are interesting innovations and reforms happening,” Haque says. “Change always creates opportunities and new entrants. We believe there will be some interesting opportunities there.”
The firm is looking to hire investors to fill out its health care investing team.
Other major technology focuses for the firm’s new fund will include IT systems and infrastructure, cloud computing and online software applications for businesses, media, gaming and technology-enabled services.
Norwest Venture Partners has shied away from making investments in the alternative energy generation sector. “We wouldn’t do big solar farms because it’s too capital intensive,” says Haque. The firm remains open to financing startups supplying software to improve energy efficiency, Haque says.
Haque declined to comment when asked if he and his team mates were compensated with a fee and carry structure—as many VCs who raise money from multiple investors do. Such a structure could allow the Norwest Venture Partners team to rake in very large pay packages if their investments meet with success.