Frazier Tech goes down in latest VC shakeout

The “Great VC Shakeout” has claimed another victim: Frazier Technology Ventures.

After months of discussions with limited partners, 9-year-old Frazier Technology Ventures (FTV) has decided not to raise a third fund. The Seattle-based firm’s three remaining general partners will continue to manage the 13 companies that remain in the portfolio in hopes of extracting as much value as possible from each.

“The fund-raising environment was just very difficult, and I don’t think we foresaw it getting much better anytime soon,” says FTV General Partner Len Jordan. “We’re a relatively new group, so we drew the conclusion that we should suspend.”

To be clear, the move by FTV has no impact on Frazier Healthcare Ventures, an affiliated firm that raised a $615 million sixth fund in 2007.

“Although we share back office operations and have helped each other with due diligence over the years, we really are separate investment teams and pools of capital,” says Tom Hodge, a general partner and COO for Frazier Healthcare Ventures who manages operations for both Frazier Healthcare and FTV.

FTV faced an uphill battle, given that the fund-raising environment is so difficult and that its first two funds came in well below target, according to regulatory documents filed with the Securities and Exchange Commission. FTV set out to raise an inaugural fund of $150 million in 2000, but closed that vehicle with $45.5 million. Four years later, it set a goal of $250 million, but that fund managed to raise just $104.3 million.

Hodge declined to say how much FTV hoped to raise for a third fund, and there were no regulatory documents filed with regard to the fund.

Hodge also declined to reveal the names of FTV’s limited partners, any IRR information about its funds or reveal exactly how much capital fund II has left, other than to say it has “very meaningful reserves to support the existing portfolio companies.”

PE Week found only two known limited partners in FTV: the Wisconsin State Investment Board (WSIB) and the Public Employee Retirement System of Idaho (PERSI). WSIB reported on June 30, 2008, that it had invested $34.14 million in fund II and that the carrying value was $45.61 million. More current data were unavailable for WSIB and no investment data was found for PERSI.

Hodge says FTV has no plans to sell all or part of the fund II portfolio on the secondary market.

“At this point, that [a secondary sale] would be a suboptimal return for the portfolio,” he says. “The FTV team is committed to pursuing the best possible outcome for the fund. They have personal reputations and financial interests in managing this portfolio to the best possible outcome. And they have a moral commitment.”

Besides Jordan, FTV’s other two general partners are Paul Bialek and Scott Darling. Jordan is joining Seattle-based Madrona Venture Group as a venture partner, but Bialek and Darling don’t have any immediate plans other than managing the portfolio.

“We’ve been very clear with all of our portfolio companies that we’re going to continue to support them in two ways,” Jordan says. “First, I’m remaining on all four boards I’m involved with, which are the same companies I’ve been involved with for the past three years. Our other [eight] active companies will continue to be managed by the other two general partners. Also, we’ve structured things with Madrona so that I’ll continue spending half my time managing the Frazier portfolio, which I think both our companies and syndicate partners appreciate.”

The portfolio companies fall in three categories. In the software and Web services category are Aprimo, DocuSign, DSIQ, Finsphere, OnRequest Images, Smilebox, Socrata and Wetpaint. In the wireless and mobile category are Aveso, IceBreaker and Medio. And in the communications/networking category is Control4.

Fund II has only had one significant liquidity event to date. In August 2008, it sold Bellevue, Wash.-based SNAPin Software Inc., which makes phone software, to Nuance Communications for $180 million in stock and the potential for more if certain milestones are met. SNAPin had previously raised $19.9 million from FTV, Oak Investment Partners, Seapoint Ventures, Hunt Ventures and Triology Equity Partners, according to Thomson Reuters (publisher of PE Week).

Fund II had a second liquidity event for an undisclosed amount. In September 2006, it sold Chicago-based Mobitrac Inc., which makes enterprise software to improve fleet productivity for trucking companies, to Fluensee for an undisclosed amount. Mobitrac had previously raised about $14 million from FTV, Arch Development Partners, NetFuel Inc., Illinois Ventures, the Illinois Development Finance Authority and U.S. Venture Partners. Fluensee reportedly sold its Mobitrac fleet management business to Canadian firm Descartes Systems Group for $650,000 in cash in January 2008, according to tech news blog TechRockies.

Separately, FTV portfolio company Neah Power Systems, which makes of fuel cells, merged with a publicly traded shell company in 2006. Its stock (OTCBB: NPWZ) closed at $1 a share last Wednesday. Neah had previously raised $21 million in total VC from Frazier, Intel Capital, Alta Partners, Castile Ventures, WestLP Mellon Asset Management and Middlefield Ventures, according to Thomson Reuters.

Although a number of venture firms nationwide have scaled back the size of their next funds, FTV is one of more than 50 firms that are winding down its operations, according to the National Venture Capital Association.

The NVCA won’t name names, but the group reports that its membership has fallen from 480 firms in 2007, which was an all-time high, to 425 firms in 2009, an 11% decrease of 55 firms.

Most of the firms dropping out did so because they’re not raising a new fund, says NVCA spokesperson Emily Mendell.

Deborah Gage contributed to this report.