Accel-KKR Readies Fund II –

The wave of convergence between private equity and hedge funds is to some reminiscent of the marriage between LBO shops and venture five years ago. At the time, venture was the hot asset class, and buyout firms looking gain access to the large returns found in the high-tech and dotcom categories were quick to pair up with the Sand Hill crowd.

J.W. Childs Associates linked up with Internet Venture Works, Texas Pacific Group paired itself with Kleiner Perkins Caufield & Byers, Hicks Muse Tate & Furst teamed with CMGI and Pacific Century Cyberworks, while Francisco Partners found itself strategizing with Sequoia Capital. Other buyout shops dabbled in venture as well, with select VC investments here and there.

But one holdover from this era is Accel-KKR, which was formed in 2000 by Kohlberg Kravis Roberts & Co. and Accel Partners. And the firm is finally looking to raise its first institutional fund.

When the joint “venture” was launched five years ago, KKR’s Marc Lipschultz told Buyouts the firm would not focus on pure dotcom business models, but instead seek out hybrid companies that wed brick-and-mortar businesses with online opportunities. According to a March 2000 Buyouts article, KKR and Accel provided equal amounts of funding for the venture, with KKR using capital on hand rather than money from its fund so as to not stray from its buyout mandate.

Firm: Accel-KKR
Fund: Accel-KKR Capital Partners II LP
Target: $400M
Placement Agent: None

A couple years later, in another interview with Buyouts, KKR head Henry Kravis described the mood that led to the formation of the buyouts/venture hybrid. “Everybody got excited about the Internet in the 1996-2001 period, and that was a real bubble. It was a period of time that was just strange, and it became more strange each year until finally something had to give. During that time, we kept our eye on what we knew best and did not invest any Fund equity in Accel-KKR or Internet start-ups,” he said.

But while the high tech bubble has come and gone, Accel-KKR has presumably beaten the odds. By its very existence, the firm has already reached a point where few of its hybrid peers have attained.

Now, almost five years after its launch, Accel-KKR is raising Accel-KKR Capital Partners II, LP. According to Form D filings submitted to the SEC at the end of January, the firm has begun raising a follow up vehicle to the pool of capital amassed by KKR and Accel in 2000. The firm submitted two filings with the Securities & Exchange Commission, each with a $200 million target, which if reached, would ostensibly give Accel-KKR $400 million of dry powder at its disposal.

The filings identified a minimum LP investment of $5 million, although that is subject to change at the discretion of the general partner, and no placement agent was named in either filing.

The firm’s previous pool of capital has been reported to range anywhere from $300 million to $400 million, and according to reports, there is still some capital left to be put to work.

Accel-KKR had a busy 2004, completing acquisitions of Alias, a 3D graphics firm, and retail software provider Apropos Retail. Other investments in the Accel-KKR portfolio include globalCOAL (a coal-trading e-marketplace), Model N (a revenue-execution software provider) and Savista (an outsourcing technology outfit). The firm also recently bolstered its staff with the appointment of Thomas Weisel Vet Robert Palumbo, who came in as a managing director.

Representatives for Accel-KKR declined comment on the fundraising.