What is it with venture capitalists and their funds? They raise too much, they impose caps, they give money back, they ask for more. You'd think being a venture firm was about market timing instead of long-term business building.
The latest control-freak antics in ventureland come from Sevin Rosen, a prestigious Dallas- and Silicon Valley-based firm that last month announced it would valiantly refuse the more-than $250 million it just raised from limited partners. A letter to investors noted the “unfavorable direction” of the venture environment, including the weak IPO market and abundant early stage capital.
Sevin Rosen, in fact, was among the many venture capital firms to have released limited partners from hundreds of millions in commitments amid the meltdown of the post-2000 tech market. In 2000 the firm raised a massive $875 million fund, but in 2003 LPs were informed that they could forget about the remaining $275 million in commitments owing to the weak market.
A year later, Sevin Rosen raised a $300 million fund, which means the firm gives back $275 million in 2003 but asked for $300 million in 2004. A cynic might note that additional investment from a poorly performing, 2000-vintage fund would yield no carry, while a fresh, 2004-vintage fund would at least stand a chance.
There are precious few examples of venture firms flat-out canceling fundraises. In 2000, New Jersey-based Geocapital Partners pulled the plug on a $500 million fundraise, citing an “irresponsible frenzy” in the tech market. The firm has since ceased managing funds, although the principals invest selectively on their own.
It is unclear if Sevin Rosen will eventually raise another fund. The demand for experienced venture GPs is such that this firm can raise capital any time it chooses. And yet the stated reasoning for Sevin Rosen's time-out is peculiar – the principals cite current venture returns and exit opportunities among the reasons to not invest. But venture investing is about building for the future, about teaming with the best entrepreneurs and innovators on disruptive technologies that will succeed in any market. Sevin Rosen partner Steve Dow told the New York Times: “The traditional venture model seems to us to be broken.”
Perhaps, but in venture capital, the traditional models are supposed to be broken.
OREGON ISSUES RFP FOR ALTERNATIVES ADVISOR
The Oregon Public Employees Retirement System has issued a request for proposal for an alternative equity investment advisor on the heels of resignations by key staff from La Jolla, California-based Pacific Corporate Group, which advises the pension firm. The pension fund announced that the “scope of the assignment is to provide the Council with full service alternative equity advisory services,” including overview presentations, market updates, investment opportunity evaluations and due diligence reviews. Responses are due by November 8, and finalists will be selected by November 27.
NINTH GTCR FUND CLOSES ON $2.75BN
GTCR Golder Rauner has closed its ninth and largest fund to date, GTCR Fund IX, at $2.75 billion (€2.2 billion). The Chicago-based firm will continue with its strategy of investing in a range of high-growth industries including business services, consumer products and services, healthcare, technology and transaction processing. GTCR, led by Bruce Rauner, tends to partner with strong managers and give them a great deal of authority. The firm manages more than $8 billion in capital and has invested in 150 companies over the last 25 years.
AMERICAN CAPITAL RAISES FIRST LP FUND AT $1BN
American Capital Strategies, a publicly listed buyout firm based in Bethesda, Maryland, has raised a $1 billion (€789 million) private equity fund.
Investors in the new fund were led by HarbourVest Partners, a Boston-based global fund of funds group. Lexington Partners, a New York-headquartered global secondaries investor, and Partners Group, a Swiss Alternatives investment group, also committed capital to the new fund. American Capital is selling $670 million of equity to the new fund, in addition to raising $330 million of undrawn commitments for future equity investments. The new fund will acquire roughly 30 percent of American Capital's equity stakes in 96 portfolio companies.
CREDIT SUISSE CLOSES BUYOUT FUND ON $2.1BN
DLJ Merchant Banking Partners, the private equity arm of Credit Suisse, has closed its most recent fund, DLJ Merchant Banking Partners IV, with $2.1 billion (€1.67 billion) in commitments. This figure includes $225 million committed by Credit Suisse to a side-car vehicle that the team can utilize as necessary to fund larger transactions. The fund has already invested or committed to invest approximately $500 million in six portfolio companies since July 2005. With the closing of the new fund, DLJMB now has $6.8 billion in assets under management.
BERKSHIRE CLOSES SEVENTH FUND AT $3.1BN
Berkshire Partners has closed its seventh investment fund at $3.1 billion (€2.4 billion). The firm said Berkshire Fund VII is expected to consist largely of North American-based investments in the retail, manufacturing and transportation sectors. Many of the North American acquisitions are expected to have significant overseas operations. Berkshire typically makes equity investments of $50 million to $350 million. The firm said it will target companies with acquisition values between $200 million and $1.5 billion.
MASSIVE DEBUT FOR CENTERBRIDGE FUND
A new multi-strategy fund from former Blackstone and Angelo Gordon vets has reached a final close on $3 billion, making it among the largest first-time funds ever raised. The fund is led by Mark Gallogly, the former head of The Blackstone Group's private equity programme, and by Jeffrey Aronson, a former distressed securities expert from hedge fund Angelo Gordon. The new fund will pursue a hybrid strategy of investing in both traditional private equity situations and in distressed debt plays. In marketing the fund, which had a target of $2.5 billion, Gallogly and Aronson argued to potential investors that its flexible strategy would make it immune to market cycles.