Benchmark Capital Raises New Fund

Benchmark Capital will hold a first and final close on a new $400 million fund in June.

The fund, the fifth for the Menlo Park, Calif.-based firm, is oversubscribed and will not accept any money from new investors, Benchmark co-founder Andy Rachleff said in an exclusive interview with PE Week. Rachleff will scale back his work hours to spend more time with his family and won’t be a general partner in the new fund.

As has been the case with all of Benchmark’s funds, almost all of the LPs in the new fund are charitable foundations and university endowments and it won’t take money from public limited partners like state pension funds. Among the returning investors are fund-of-funds Horsley Bridge, Yale University, the Ford Foundation and the Hewlett Foundation, according to a source close to the firm. The LPs will put up about $325 million of the total, with the remainder coming from Benchmark’s partners and individuals.

The new fund will make about 40 deals at about $10 million apiece. That’s a change from the dot-com days, when a single deal was in the ?high teens,? Rachleff says.

The reduced size of the new fund mirrors moves by most venture firms to scale back. Benchmark’s last fund, raised in 1999, totaled $1 billion. The new fund also will feature a slightly different lineup of general partners: Rachleff will go part-time and take on the new title of ?partner,? and David Beirne, who went part-time last year, also will not be a GP. The five general partners are Alex Balkanski, Bruce Dunlevie, Bill Gurley, Kevin Harvey and Bob Kagle.

Benchmark has a total of 14 investment partners and two operating partners, one in the United States and one in England. Its U.S. funds are invested by seven general partners, while its European fund is invested by four general partners and its Israeli fund is invested by three GPs.

Rachleff will maintain his board seats and will continue to be involved with the firm, but he won’t be as active in making new investments since he won’t be a GP.

?I feel like I’ve earned the right to play,? Rachleff says with his trademark baritone laugh. The 45-year-old has no grand plans for his increased personal time, except for shoulder surgery that he’s been putting off for about 1 1/2 years. That will allow him to start playing tennis again and pitch without pain to his 9-year-old son’s Little League team.

Rachleff, who earned his venture stripes at Merrill, Pickard, Anderson & Eyre, has been a top performer for Benchmark. He specializes in networking and communications and his investments for the firm include America Online, Juniper Networks, Legato Systems (acquired by EMC) and Shasta Networks (acquired by Nortel Networks).

Rachleff founded the firm in 1995 along with Dunlevie, Harvey, Kagle and Val Vaden (who later moved on to another firm).

Since it doesn’t have any direct public investors, Benchmark’s performance has not been available for public scrutiny like other top-tier firms. But judging from its investments, the firm had its biggest year with its inaugural fund, an $85.9 million vehicle that invested in monster hit eBay, along with moon shots Ariba, Juniper Networks and Shasta Networks. A Benchmark investor who asked not to be named says the 1995 fund is among the best-performing venture funds in history, noting that its $6 million investment in eBay was valued in excess of $4 billion at distribution.

Benchmark’s second fund, raised in 1997, also posted an internal rate of return well in excess of 100%, the investor says.

As poorly as dot-com funds have performed to date, Benchmark’s third and fourth funds, which were raised in 1998 and 1999, respectively, are ?shaping up to be top-performers for their vintage and will post positive returns,? the investor says.