Artis Capital profits from Sequoia relationship

When noted angel investor Ron Conway asks people at benefit luncheons what they know about Artis Capital Management, it’s time to dig a little deeper into the secretive firm’s business.

In fact, the San Francisco-based hedge fund is so secretive that a password is required to access its website, including the “about us” link on its homepage. Many of its investments in private companies don’t show up on the startups’ regulatory filings.

But here is what PE Week does know. David Lamond, son of Sequoia Capital Partner Pierre Lamond, is an investor at Artis, though his exact title is now known. Nor is it known how long he’s been at the hedge fund or what deals he’s been involved in.

PE Week first reported that the hedge fund invested in YouTube alongside Sequoia in the startup’s second round of financing in April 2006, when YouTube raised $8 million. It’s safe to say the firm scored a massive amount of Google stock when the Internet giant bought the video sharing website in October for about $1.6 billion. An Artis spokesperson would not discuss how much the firm made on the YouTube deal, though last month Artis Fund Manager Stuart Peterson agreed to pay $20 million to buy the former home of retired tennis stars Andre Agassi and Steffi Graf. The estate in Tiburon, Calif., covers 3.5 acres, includes two swimming pools and boasts views of the Golden Gate Bridge and the San Francisco skyline. Escrow is due to close next month.When contacted, David Lamond would not comment on the relationship between Artis and Sequoia. Artis COO John Milani also would not provide comment. And an assistant to Peterson says, “He doesn’t usually talk to the media.”

Artis isn’t alone when it comes to hedge funds crossing over to VC deals. Such hedge funds as Farallon Capital Management, Och Ziff Capital and Maverick Capital, have each invested in various venture deals. D.E. Shaw, one of the world’s largest hedge funds managing more than $20 billion in capital, hired former Apax PartnersAlex Wong to open a Silicon Valley office this year.

Meanwhile, Artis’ funds have risen to $1.3 billion under management, as of the third quarter of this year. That’s up about 570% from the $194 million Artis managed at the end of 2003, according to regulatory documents. The firm counts 148 companies in its current portfolio, compared to just 69 at the end of 2003.

The firm primarily invests in public tech companies, including Palm, eBay, and Netflix. Its top five holdings are:

  • Telecommunications software and services company Comverse Technology (Nasdaq: CMVT), in which Artis held shares worth nearly $153 million at the end of the third quarter.
  • Chipmaker Cypress Semiconductor (NYSE: CY), in which Artis held shares worth nearly $86 million.
  • RFID company I.D. Systems (Nasdaq: IDSY), in which Artis held shares worth $45.6 million.
  • Directed-energy weapon manufacturer Ionatron (Nasdaq: IOTN), in which Artis held shares worth $45.3 million.
  • And wireless broadband company Novatel Wireless (Nasdaq: NVTL), in which Artis held shares worth $36.5 million.

But Conway and other venture capitalists and angel investors may be more interested in its private investments. Artis invested in Wi-Fi access point maker Aruba Wireless’ $19.3 million Series D in September 2005, the round later expanded to more than $30 million in 2006. Artis also participated in chip designer Open Silicon Inc.’s $15 million Series C in October 2005. And the hedge fund invested in online advertising service company AdBrite’s $8 million Series B in February.

Each one of these startups have also received backing from Sequoia. And Artis has also invested in public companies that Pierre Lamond once helped launch. The firm has a $2.4 million stake in Microchip Technology (Nasdaq: MCHP), a $214,000 stake in Redback Networks (Nasdaq: RBAK) and a $86 million stake in Cypress.

Because of the connection between David and Pierre Lamond, there has been speculation that Pierre Lamond and/or his partners at Sequoia are investors in Artis, but PE Week was unable to determine if that is the case.