HarbourVest backs Lehman VC spin-out

A management group from Lehman Brothers Venture Partners will spin-out to become Tenaya Capital, which will have $750m in capital and 45 portfolio companies. HarbourVest completed a synthetic secondary transaction as part of the spin-out.

A HarbourVest-backed management group will spin out Lehman Brothers Venture Partners and retain the majority of its limited partners.

As part of the deal, fund of funds HarbourVest is buying out a portion of Lehman’s limited partner interests in Lehman Brothers Venture Partners III, IV and V. Fund V, the most recent, closed on $365 million in 2007 and is 30 percent invested.  Financial details of the transaction were not disclosed.

HarbourVest's transaction was in part a synthetic secondary deal, according to John Toomey, a managing director with HarbourVest. “It involved a purchase of existing LP interests from Lehman and a synthetic secondary involving the purchase of other venture capital company investments held on balance sheets by Lehman,” Toomey said.

HarbourVest has completed more than 30 synthetic secondary deals, including the $1 billion Clyde Blowers transaction in September 2008. In that deal, HarbourVest and Pantheon Ventures were the lead investors in the $1 billion deal for four business units from US industrial giant Textron. A business development company called Clyde Blowers, based in Scotland, bought the business units. The company raised its own private equity fund to finance the deal, and HarbourVest and Pantheon were the lead investors in the fund.

The Lehman venture spin-out, Tenaya Capital, will be led by Tom Banahan, former managing director and global head of venture capital for Lehman Brothers. He will be joined by four other partners: Ben Boyer, Stewart Gollmer, Brian Melton and Brian Paul.

Lehman, which filed for bankruptcy in September, will receive cash and performance-related payments tied to the ongoing success of the funds.

“This transaction [ensures] that we retain the same management team that has built this business over the last decade,” Banahan said, adding that Tenaya has a strong relationship with the LPs in the funds, based on a philosophy of “like, trust and respect”. There are 13 LPs in Lehman’s fifth venture fund, including the Pennsylvania Public School Employees’ Retirement System and the North Carolina Retirement System.

“Fortunately for us, the LPs were thrilled to stay with us,” Banahan said. “With the economy the way it is, a lot of people have been running for the hills.”

The name Tenaya comes from various areas in the Yosemite Mountains, Banahan said, and was the name of a Native American Chief.

“We went through 600 names,” Banahan said. “All five partners are big fans of the Yosemite Mountains.”

Lehman’s venture business was established in 1995 and has invested in more than 95 portfolio companies. The venture arm raised a total of $1.1 billion and invested $717 million during its life.

Tenaya will have $750 million under management and 45 portfolio companies.

Lehman has been selling off its private equity, venture and real estate assets since the bank went bankrupt on 15 September. Lehman Brothers Merchant Banking, the $4.8 billion private equity arm, reached an agreement in January to spinout as an independent firm.

A Lehman management group won a bankruptcy auction in December for the bank’s investment management division, including Neuberger Berman. The investment management division included some private equity assets like secondaries, some funds of funds and co-investments, as well as start-up private equity businesses including Lehman’s debut infrastructure fund, which was targeting $1 billion.

Lehman, which is working with restructuring firm Alvarez & Marsal, is still working to sell off its $9.7 billion private equity real estate group.