Austin Ventures last night sent a letter to portfolio company CEOs and others detailing plans to pare capital commitments in its $1.5 billion Fund VIII down to $830 million.
The decision to reduce its fund size by approximately 45% came after concluding that current market conditions did not justify a $1.5 billion fund devoted to early-stage software, communications and semiconductor investments. Moreover, up to 75% of the fund’s capital was dedicated to Texas-based companies, which have seen a significant slowdown in growth over the past three years.
;Investment activity in Texas is down by about the same proportion as it is nationwide, to roughly 1997-1998 levels,” the letter says. “A $1.5 billion, primarily regional fund simply doesn’t make sense in the current environment, nor in any environment we can foresee in the immediate future.
Austin Ventures closed Fund VIII at the end of 2000, but didn’t really begin investing it until last July. As such, it still has approximately $700 million in dry powder after the reduction. The fund’s 75%/25% carried interest structure was not addressed, nor was its management fee percentage.
In order for the reduction to go into effect, Austin Ventures will need to get formal investor approval later this month. John Thornton, a general partner with the firm, reports that the firm has discussed the situation with all of its investors and that he believes the vote will be “a formality.
Limited partners in Austin Ventures VIII include: AT&T Corp., California Public Employees’ Retirement System, Cornell University; Dartmouth College, General Motors Corp., Harbourvest Partners LLC, Hamilton Lane Advisors Inc., Harvard University, Lucent Technologies Inc., Nationwide Insurance Co., Virginia Retirement System and Texas Teachers’ Association, The Washington State Investment Board.
In conjunction with the fund size reduction, Austin Ventures also said in its letter that it plans to re-integrate its AVLabs software incubator into the general practice. The incubator’s investment staff – Rob Adams and Mike Rovner — will be integrated into Austin Ventures, and will continue making similar investments.
Contact Dan Primack at: Daniel.Primack@tfn.com
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