Benchmark Pulls Down $400M

After years of watching pitches, Andy Rachleff will try his hand at throwing them.

A co-founder of Benchmark Capital, Rachleff will go part-time with the firm’s new $400 million fund, giving him more time to do things with his family, such as pitching for his 9-year-old son’s little league team.

Benchmark will hold a first and final close on the 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.

Rachleff will take on the title of “partner,” and David Beirne, who went part-time last year, also will not be a GP. Rachleff will maintain his board seats and 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. The five GPs are Alex Balkanski, Bruce Dunlevie, Bill Gurley, Kevin Harvey and Bob Kagle.

“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, except to undergo shoulder surgery that he’s been putting off for over a year. That will allow him to start playing tennis again and pitch without pain to his son’s baseball team.

Rachleff earned his venture stripes at Merrill, Pickard, Anderson & Eyre. He then co-founded the firm in 1995 along with Dunlevie, Harvey, Kagle and Val Vaden (who later moved on to Vector Capital).

He has been a top performer for Benchmark, specializing in networking and communications. His investments for the firm have included C-Port (acquired by Motorola), Juniper Networks and Shasta Networks (acquired by Nortel Networks). While he was at Merill Pickard, Rachleff invested in such hits as America Online (acquired by Time Warner) and Legato Systems (acquired by EMC).

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. The firm won’t take money from public LPs, such as 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 high-flying 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 GPs.

Benchmark has a total of 14 investment partners and two operating partners, one in the United States and one in England. Seven GPs manage the firm’s U.S. investments, while four GPs invest its European fund and its Israeli fund is invested by three GPs.

Since the firm doesn’t have any direct public investors, Benchmark’s performance has not been available for public scrutiny the same way as other top-tier firms. But judging from its past deals, 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, and notes 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.