After riding on the buyout bandwagon for so long, Credit Suisse First Boston (CSFB) is starting to look at venture capital secondary grabs.
The firm announced in late May that later this year it plans to raise CSFB Strategic Partners III, a group of three secondary funds totaling $1.85 billion.
The triumvirate of funds will be anchored by an LBO focused fund targeted at $1.5 billion. This will be supplemented with a real estate secondaries fund with a target of $200 million that CSFB hopes to meet or exceed. And CSFB will raise a secondary fund focused on venture assets that it hopes to close between $150 million and $200 million.
While CSFB was not forbidden to invest in venture secondary deals, almost all of its venture exposure in its current fund comes from portfolios it picked up with larger transactions. Generally, CSFB avoided venture assets, which follows the conventional wisdom that they do not provide as stable returns as buyout funds and are more difficult to evaluate.
But the proclivity for venture appears to have changed as deal flow picks up.
“We have seen good deal flow in venture over the last four years now,” says Stephen Can, managing director of CSFB Strategic Partners. “The last six months we have started to get interested again for a couple of reasons. A lot of these venture companies are now at the point where they’re break even cash flow. You can evaluate them and you can see the potential in these companies with a public market that’s accepting of realizations and public valuations.”
In the last six months, the secondary buyer has bought two stand-alone venture capital fund positions and executed a “synthetic” transaction in purchasing a portfolio of direct assets.
Can says that his group will begin going to its current limited partners by the fourth quarter. If there’s still room after the current LPs have a chance to invest, then CSFB will seek new limited partners. The group may expand the size of the fund, depending on investor interest.
“It could evolve into a bigger fund,” says Can. “Will it be a huge fund? No. Does it have the opportunity to grow? It could. It depends on the product quality and the velocity of the market. It’s a very interesting space right now.”
In addition to raising the new fund, CSFB’s secondary group will bring on three additional investment professionals this year, expanding its staff to 16.