July 3rd, 2012 8:00am EST New York, NY – After investing in over 300 companies, 90 of which have gone public, top-tier venture capital firm Institutional Venture Partners (IVP) has achieved a new milestone: raising a $1 billion venture capital fund. In IVP’s 32 years of investing, Fund XIV is the firm's largest, following a $750 million VC fund that closed in January 2010. The $1 billion fund comes in the wake of successful investments in companies such as Buddy Media (PrivCo Ticker: BUDDMP), Zynga (Nasdaq: ZNGA), HomeAway (Nasdaq:AWAY), comScore (Nasdaq:SCOR) and CafePress (Nasdaq:PRSS).
Fund XIV will continue the company’s strategy of late stage investing in Internet and Digital Media, Enterprise IT and Mobile/Communications, but will increasingly focus on enterprise companies, according to Gina Bauman, IVP's Director of Marketing, in an exclusive interview with PrivCo.
“We look for companies that grow at least at a 30% CAGR, with an average of a 65% CAGR. It just so happens to be that in recent years, the consumer internet sphere was able to show that growth. Now, with the need for cloud storage and enterprise security, we are seeing Enterprise IT becoming a huge part again and showing these characteristics.”
Investments will range in size from $10 to $100 million, spread selectively over 10-12 companies annually. Over the fund’s 10 year life cycle, with a 3-4 year investment period, IVP plans to target between 25-32 companies to invest in. Bauman confirmed exclusively to PrivCo that the average initial investment has historically been around $25 - $30 million.
While Facebook’s (Nasdaq:FB) IPO has knocked the wind out of the public markets, IVP does not see this as an imminent concern, and expects an undervalued IPO market to play to their strategy of focusing on late stage investments.
“What we are seeing is that companies are staying private longer, and that is why we are seeing bigger raises. Our goal is to build these companies to profitability, with high growth and consistent quarters that are predictable. When it comes to going public, our companies can go public regardless of the market because of their predictable revenue models,” said Bauman.
According to the Kauffman Foundation, an entrepreneurship foundation that invests an endowment of $1.83 billion, venture capital firms such as IVP most likely use the industry standard of “2 and 20” in order to calculate management fees. “2 and 20” refers to a 2% annual management fee on the total fund size (until funds have been allocated), and a 20% profit sharing agreement.
Under such considerations, PrivCo estimates that IVP will collect a $20 million annual management fee through the three to four year investment period, and share in 20% of all profits made on the fund. This would imply that IVP has the potential to profit $80 million on the management of the fund alone, before ever making a successful exit.
IVP’s numerous successful exits have more than made up for the occasional investments in companies that have not - yet - paid off, including companies such as LivingSocial (PrivCo Private Company Ticker: LIVINGP), which in retrospect suffered from an overly high VC-Round valuation, and an increasingly out of favor daily-deals sector.
“The massive size of IVP's new fund is a testament to the firm's recent successful investments, including impressive portfolio company exits like Buddy Media,” said PrivCo Founder and CEO Sam Hamadeh in a statement.
Institutional Venture Partners Notable Portfolio Companies
Twitter Inc. (PrivCo Ticker: TWEETP)
- Latest Funding Round: $800 million
- Valuation: $8 billion
- IVP Round Participation: Series D, Series E and Series F
DropBox (PrivCo Ticker: DROPBP)
- Latest Funding Round: $250 million
- Valuation: $4 billion
- IVP Round Participation: Series B
Buddy Media (PrivCo Ticker: BUDDMP)
- Acquired: June 2012 by Salesforce.com
- Purchase Price: $689 million
- EV/Revenue: 9.8x
- Total Funding: $90 million
- IVP Round Participation: Series C and Series D
Living Social (PrivCo Ticker: LIVINGP)
- Latest Funding Round: $176 million
- Valuation: $5.7 billion
- IVP Round Participation: Series E
LegalZoom.com Inc. (PrivCo Ticker: LEGAP)
- IPO Filing: May 2012
- Total Funding: $114 million
- IVP Ownership: 14.7% or 4,533,690 shares of common stock and 3,508,941 shares of common stock issuable upon conversion of Series A
- IVP Round Participation: Series B
Kayak Software Corporation (PrivCo Ticker: KAYAP)
- IPO Filing: November 2010
- Total Funding: $222 million
LifeLock (PrivCo Ticker: LIFELKP)
- Latest Funding Round: $170 million
- Valuation: $944 million
- IVP Round Participation: Series E
