H.I.G. Capital Raises VC Fund

Buyout firm H.I.G. Capital held a first and final close in January on its $250 million H.I.G. Venture Partners LP, which will back early-stage communications, Internet and information technology companies, said Tony Tamer, a managing director at the firm.

Known for its management-led buyouts and recapitalization investments, H.I.G. decided to try its hand at venture investing to take advantage of what it views as a shortage of capital for early-stage companies in the Southeastern U.S. The firm formed the fund in response to what it sees as a shortage of available capital for funding entrepreneurs and early-stage companies in the Southeast, although they will consider investments elsewhere.

The decision to raise the VC fund also was based on H.I.G.’s financial successes over the last three years when it used capital from its two buyout funds – the $100 million H.I.G. Investment Group LP and the $255 million H.I.G. Investment Group II LP – to back 12 early-stage companies, Tamer said. In November 1998, for example, the firm invested in the Austin, Texas-based networking company Agere Inc., which was recently acquired by Lucent Technologies for $450 million, he said.

Following Returns

Firms engaging in traditional buyout and late-stage investing have increasingly become involved in technology and early stage deals in an effort to mimic the high returns venture capital firms have been producing recently. While many buyout firms have made venture style investments out of their buyout funds, H.I.G. is setting itself apart by creating a fund specifically for venture investing, joining firms such as The Carlyle Group and The Blackstone Group in expanding its franchise of funds.

H.I.G. Venture Partners will back between 25 and 30 companies, primarily in the Southeast, with investments of between $10 million to $20 million over several rounds of financing, Tamer said. The fund will invest alongside the firm’s $255 million vehicle, a buyout fund that closed in August 1998, which is approximately 50% invested.

Limited partners for the new vehicle, all of whom are previous investors with H.I.G., include Goldman, Sachs & Co., Massachusetts Institute of Technology, Yale University, Donaldson, Lufkin and Jenrette, Deutsche Bank Alex. Brown, Wilshire Associates, First Union Corp., PNC Bank and Teachers Insurance and Annuity Association.

Founded in 1993, H.I.G. investments are led by the firm’s five managing directors: Sami Mnaymneh, John Bolduc, Douglas Berman, Brian Schwartz and Tamer. The investment professionals have backgrounds that will complement their new fund. Tamer, for example, has held marketing and engineering positions at Hewlett- Packard and Sprint.

Founded in 1993, H.I.G. is a middle-market buyout firm typically engaging in management-led buyouts and recapitalizations as well as venture capital technology investments.