Joining the ranks of venture capital firms that managed to close new funds in 2001 while falling short of their initial target projections, BRM Capital last week capped off its third investment vehicle at $253 million, bringing its total capital under management to $350 million.
Although the fund was originally targeted at $400 million, the firm decided to stop fund-raising after a year in the market, largely because of the economic slowdown, said Mike Mers, a managing director with BRM.
“It became an opportunity cost,” he explained. “[When we asked] did we want to continue spending time raising capital or working with portfolio companies, it became obvious to us that $253 million was a ton of capital, and we didn’t need anymore. We also found that the asset class of private equity in many institutions has literally been shut down.”
That downturn in private equity allocations may have been one of the chief reasons BRM fell shy of its goal, as the firm for the first time tapped institutional investors in Fund III, which despite its shortfall, is the firm’s largest vehicle to date. BRM partners capitalized its previous two funds, both of which are fully invested but have dry powder left for follow-on activities, Mers said.
BRM’s new global limited partner roster includes such firms as IBM Corp., NTT Data Corp. and Israeli telecommunications company Bezeq, as well as senior executives from Cisco Systems Inc. and Network Associates Inc.
It’s Getting Late
Historically a seed investor, BRM has strayed from the beaten path a bit with Fund III in that, for the first time, it will be participating in some expansion stage deals. Moreover, it will also broaden its software-infrastructure-only focus to include communications plays. The average investment size will be between $1 million and $10 million.
With offices in Fort Lee, N.J., and Jerusalem, the firm intends to allocate approximately 70% of its new capital solely to Israeli transactions, with the remainder being dedicated to U.S. deals.
“If you look at the dynamics of the Israeli venture market, there’s a tremendous amount of capital flowing to seed stage deals, but few if actually any [investors are] focusing on expansion stage deals,” Mers said.
What is more, BRM’s roots are in Israel. The firm was established and operated a fund there exclusively for eight years prior to opening a U.S. office last year.
BRM put a portion of the capital to work last year after holding an initial $100 million close on the fund. As such, the Fund III has already brought seven portfolio companies into the fold, including Eventra, Kamoon Inc., Percite Information Technologies Ltd., PeopleLink Inc., ProSight Inc., Schema and Whale Communications Ltd.
With a new fund ready to go, BRM plans to add one more managing director to its eight-person investment professional staff.