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AllianceBernstein backs Hillcrest

Hedge fund AllianceBernstein did so many VC deals last year, it is in the market to raise a new venture fund.

Most recently, in December, it led a $25 million venture round raised by Hillcrest Laboratories, a Rockville, Md.-based home media company. New Enterprise Associates, Columbia Capital and Grotech Capital Group also took part in the round, which was roughly the 12th venture-style investment by AllianceBernstein over the past year.

AllianceBernstein administers more than 100 mutual funds which make up the bulk of its portfolio. The firm launched a $200 million VC fund in 2006. Its investment focus has been sector agnostic. In 2007, it backed medical company Artificial Muscle; Internet TV company Brightcove; RFID chip maker Impinj; mobile phone payment service company Obopay; biofuel feed stock company Targeted Growth; and data mapping company Exeros.

AllianceBernstein got a taste of the IPO market last year when 3PAR (NYSE: PAR) went public in mid-November 2007, raising $105 million. AllianceBernstein participated in the enterprise storage maker’s $30 million investment round in March 2006, but did not own enough stock to be considered a 5% shareholder. The stock opened at $14 per share, above its $11 to $13 offering range. It climbed nearly to $16 on its opening day. RBC Capital Markets has given the stock an “outperform” rating, but the stock was trading below $10 per share last week as analysts await the company’s first quarter results.

AllianceBernstein has already invested all of its $200 million first fund and is working toward raising a $1 billion venture fund.

The financial megalith has turned its eye to venture not to bag a 10X return on its investment, but primarily for market intelligence. “The point of the VC effort is to make us better investors across the board,” AllianceBernstein Chairman and CEO Lewis Sanders told attendees of a Merrill Lynch investor conference in 2006 to correspond with the fund launch. “While our research analysts are supposed to be on the lookout for game-changing developments in their industries, as a practical matter they are often consumed with incumbent coverage and don’t have the time to pursue new developments comprehensively.”

The entrance of hedge funds in the venture space has some VCs spooked. Others look at these big players as a welcome addition. Susan Mason, a general partner with early stage investor ONSET Ventures, worked alongside AllianceBernstein on Obopay. “I was surprised at how much they worked with the company,” she says. “To get into this round, they produced an analysis booklet for us on what they thought Obopay could be, what it needed to do and how they could add value. They really pitched themselves.” —Alexander Haislip