Blueprint architects third fund targeting spinouts

Blueprint Ventures, which specializes in corporate intellectual property spinouts, is preparing to begin fund-raising for its third fund that could top out at $200 million, Managing Director Bart Schachter told PE Week.

The South San Francisco, Calif.-based firm expects to start fund-raising next year.

“We have been just polling LPs and making sure they’re ready for us,” Schachter says. “We’ve gotten cold calls, inbound solicitation, from LPs who asked when we’d be fund-raising because they’re looking for a different type of opportunity.”

The size of the fund is not set, but Schachter says it will likely fall between $100 million and $200 million. That’s in line with the $150 million first fund the firm raised in 1999 and significantly larger than the $50 million second fund it put together in 2001.

The firm specializes in spinning out promising intellectual property. Blueprint Ventures initially found fertile picking grounds in stagnant tech companies anxious to off-load vestigial businesses or product lines. The firm also sees a growing interest in its model from mega tech buyout firms, such as Silver Lake and TPG, which look for ways to streamline their buyout targets.

About two-thirds of Blueprint Ventures investments are based on intellectual property developed at such tech companies as Intel Corp., NEC, Fujitsu and the Palo Alto Research Center. Blueprint also does deals that come out of corporate combinations. The firm recently invested in IntelliPath, a 25-person group of engineers that had been working on network switches inside McData. Brocade Communications Systems had no interest in pursuing the business line that the IntelliPath group had been working on when it bought McData last year, so Blueprint invested in the team and the intellectual property.

“We’ve seen over the last two or three years a 10-fold increase in the number of companies trying to do these kind of intellectual property spinouts,” Schachter says. “General Electric, Symantec, Interwoven, Sony, Siemens, Sprint—they’re all signaling intent to go do IP spinouts and we find ourselves in a good position to be the only group in town to focus on it.”

The first big exit of Blueprint Ventures happened last year when portfolio company LANDesk was bought by Avocent (Nasdaq: AVCT) for $416 million in cash and stock, plus an additional $60 million if LANDesk meets financial targets.

LANDesk, which makes software to manage desktop computers in the enterprise, was launched within Intel. The chipmaker spun out the company on its own in 2002 with one round of funding totaling $17 million from Blueprint, Vector Capital and vSpring Capital.

At the time the acquisition was announced, Schachter described the deal as “a grand slam home run for the investors and for Intel, the corporate spinner.” He declined to reveal the ROI.

Schachter notes that investing in early stage corporate IP spinouts allows the firm to invest in deals for fairly cheap. The capital efficiency of such ventures makes it easier to win sizable returns. “That’s a headliner that attracts a lot of attention from LPs who are wondering how to make money in this sector,” Schachter says. “They’re looking for ways to break out of this morass.”

Lawrence Aragon contributed to this story.