Galileo side fund oversubscribed

The French venture capitalist has raised E12.6m from existing limited partners for follow-on investments in ten of Galileo II’s portfolio companies.

Paris-based Galileo Partners has raised E12.6m from existing investors in Galileo II, a E76m early stage venture capital fund, to inject additional capital into ten of the fund’s 20 portfolio companies.

Galileo II B, Europe's first side fund, was launched in September 2001 as the firm’s general partners realised there would not be enough capital remaining in Galileo II to see the ten portfolio companies through to a liquidity event. “We had kept around 25 per cent of the fund for follow-on investment, but it appeared that wasn’t enough. We hadn’t anticipated such a significant paradigm shift in the market”, said Bernard Maitre, a partner at Galileo.

To be able to raise the fund, the firm needed permission by the Commission des Opérations de Bourse, the French regulatory body, which was granted in November 2000. Discussions with limited partners in Galileo II for an E8m add-on vehicle began the following month, and in March 2002 the side fund closed with E12.6m in commitments.

Galileo Partners has secured E12.6m for Galileo IIB from the current limited partners of Galileo II, including Finama and Fondinvest in France, HarbourVest Partners, LGT and NIB. These investors are also participating in Galileo III, a E250m fund closed by Galileo Partners in mid-2000.

According to Maitre, the limited partners responded very positively to the proposition. “They knew the portfolio very well and realised that Galileo II B would only invest in companies that are well known, more mature than start-ups and closer to an exit, so they understood that the fund was likely to perform well.”

All of Galileo II’s limited partners committed to the side fund, allowing the firm to invest it without having to worry about potential conflicts of interest between the two vehicles.

Maitre said that had the fundraising for the side fund not been successful, an alternative for Galileo would have been to use capital from its third fund, the E250m Galileo III that was raised in 2000, to plug funding gaps facing Galileo II investment companies. However investors in the third fund would not have liked to see that, he added.

Up to 10 Galileo II portfolio companies will receive follow-on financing from Galileo IIB. According to Galileo’s Joël Flichy, these investments will allow the firms to arrange follow-on rounds with foreign investors and to bring new investors on board.

Galileo has already provided two of its firms with financing from the Galileo IIB fund. Kaidara, a provider of global advisory software solutions, recently completed a E8.1m second round of funding. In January 2002, Wokup! closed a  E13.25m second financial round led by Sofinov, Crédit Lyonnais and CIC. Galileo Partners and Innovacom, original investors in June 2000, also participated in this new round of financing.

To date the Galileo II fund has completed three successful exits for a capital gain of E9.8m. A further four companies from the fund have failed, representing a loss of E9.7m.