Lately, 'billion' seems to be the accepted figure, for creating (new) VC
Funds -:)
Four VC Firms Plan Billion-Dollar Fund
By Mark Gimein
A group of investors known for financing early-stage tech companies is
creating a pool of capital for later-stage investments. The attraction:
higher returns.
Lured by huge potential returns, four high-profile venture-capital firms
known for funding technology startups have teamed up to form a $1 billion
fund to invest in later-stage deals. The fund, called Meritech Capital, w=
ill
invest in tech companies that are either close to filing for an IPO or
already public. The new fund is led by Palo Alto, Calif.-based Accel
Partners. It also includes Brentwood Venture Capital, a Los Angeles-based
firm that was an early backer of Apple Computer and WebTV; Oak Investment
Partners, a firm with offices in Palo Alto, Minneapolis and Westport, Con=
n.,
that helped fund Compaq Computer; and Worldview Partners, a Palo Alto fun=
d
that focuses on Asian technology. All four firms specialize in early-stag=
e
investments. Meritech's charter is to provide late-stage capital to
companies that have already received funding from one of the four sponsor=
ing
firms. Meritech will make big investments =E2=80=93 most likely $20 milli=
on and up.
A few years ago, hard-core engineers in the venture world might have snif=
fed
at this kind of business. Traditionally, VCs have thought of themselves a=
s
hands-on company builders and have dismissed later-stage investment as me=
re
money management. The impetus for the fund comes from the changing econom=
ics
of technology investing. "Companies require a lot more money to get from
inception to public offering," says Paul Madera, a former investment bank=
er
who will comanage the fund with former Alex. Brown technology analyst
Michael Gordon. "Engineers cost more. Chips are infinitely more complex.
Enterprise software is more complex and lengthy. Software companies never
used to need a late round. Today, they all do." For Meritech's backers,
there's a compelling reason to stick with companies longer: Late-stage fu=
nds
have historically provided more lucrative returns. Over the last 30 years=
,
according to the newsletter Venture Capital & Information Technology,
late-stage funds have returned 17.5 percent a year, vs. 16.5 percent for
early-stage funds.
The Net is full of telling evidence of the profits possible in a late-sta=
ge
fund. The most famous quick-returning investment was the $106 million tha=
t
Softbank put into Yahoo just before the company went public. Softbank bou=
ght
shares for $12.50 apiece, shares that are now worth =E2=80=93 adjusting f=
or Yahoo
stock splits =E2=80=93 over $1,200.
full story at
http://www.thestandard.net/articles/display/0,1449,4196,00.html
Tushar J. Mehta
email: [email protected]
voicemail: (425)558-1101