Cracking into the European venture market has taken longer than Benchmark Capital expected, but the Silicon Valley venture firm is committed to succeeding. It is expected to announce today that it has held a first and final close on its second European fund, an oversubscribed $375 million vehicle that will target early stage technology companies.
Benchmark Europe II is smaller than the firm’s inaugural 2000 fund — a $750 million vehicle that later was trimmed to $500 million. But that is simply a reflection of a slower market, not the firm¹s commitment. In fact, the European operation, which has its headquarters in London, plans to add one or two new investment partners over the next year or two, says Steve Spurlock, the operating partner of Benchmark Capital’s U.S. business.
The European team has one operating partner (Jerome Misso) and four investment partners: Johan Brenner, George Coelho, Mark Evans and Barry Maloney. It experienced a hiccup in late 2002 when Eric Archambeau, one of the founding general partners of the London-based fund, left to start angel investing in his native France. That opening was filled in January of this year by Brenner, founder and former and chairman of TIME Vision.
How quickly the European fund brings on new partners depends solely on finding just the right person. “We’re not saying that we¹ve got to have someone with X background from Y geography,” Spurlock says. “Given the team approach that we take, chemistry is everything.
Benchmark could have easily raised more money for its second fund, in excess of $500 million, Spurlock says. But given the pace of deal making and its targeted investment cycle of 3 1/2 years, it chose not to raise a larger vehicle. It will invest about $10 million to $15 million per portfolio company, with first rounds ranging anywhere from $2 million to $10 million.
Because the LPs from Benchmark¹s first European fund showed such strong interest — many of them asking for larger positions‹it didn¹t need to seek out any new LPs. Per Benchmark’s policy of not naming its LPs, Spurlock declined to say who invested in the new fund. He notes, however, that the LPs are primarily foundations and endowments, followed by funds-of-funds. The firm has historically avoided commitments from public LPs and those sorts of dollars were “not a meaningful component” of the new fund, Spurlock says.
Spurlock adds that there is significant overlap between the LPs in its European funds and those in its U.S. funds. LPs in its most recent U.S. fund include Horsley Bridge Partners and The Ford Foundation.
The European market has been slow, compared to the United States. While Benchmark’s fourth U.S. fund (raised in 2000) has seen five portfolio companies acquired, three go public and at least three more file to go public, its European fund is still waiting for its first exit. None of that fund’s investments is even in registration.
Benchmark has found that “cultural issues than we thought² and the various European markets are more dispersed than it realized, Spurlock says. The cultural issues generate obstacles, but you negotiate them successfully and that will give us a competitive advantage and enable us to generate superior returns,” he says.
To date, the first European fund has invested in about 25 companies. It will invest in a total of about 30 and will likely be fully invested by the fourth quarter. Among the companies it has invested in are Betfair, Kalido, Orchestria, Yoox.com, Alphyra and Openet Telecoms.
Benchmark¹s areas of interest include enterprise software and services; communications and security; semiconductors; mobile computing; e commerce; and financial services.