Hedge fund Artis Capital continues growth

Artis Capital Management, a San Francisco-based hedge fund that has invested in venture capital deals, has raised more than $250 million for proposed investment funds totaling $1 billion, according to regulatory documents.

The filings don’t specify how each of the funds—Artis Partners Ltd., which raised $115 million, and Artis Partners 2X Ltd., which raised $136 million—will be invested.

It is also unclear from the filings what relation these funds have to a bevy of vehicles that the firm raised over last summer.

The Artis fund-raising comes as hedge funds continue to show interest in private equity, investing in more than 20 venture capital-style deals during 2007. Leaders in the space include Artis, AllianceBernstein, which has invested in 12 venture deals since it launched its venture arm last year (see story, page TK), and D.E. Shaw Group, which has also made about a dozen VC deals and has expanded its investment team in Silicon Valley.

While hedge funds are drawing more attention in the PE market, they remain small players. As a group, hedge funds contributed to less than 5% of the venture deals done during the second quarter, according to a PE Week analysis of data gathered by Thomson Financial.

Artis, however, is one of the few hedge funds that has achieved notable liquidity from exits. The firm collected more than $60 million worth of Google (Nasdaq: GOOG) stock in October 2006 when the Internet search giant bought YouTube for more than $1.6 billion in stock. Artis had participated in the startup’s $11.5 million Series B round in April 2006.

Artis scored again last year with the IPO of Aruba Networks (Nasdaq: ARUN). The wireless LAN company priced 8 million shares at $11 each at the end of March and the stock was trading last week at about $13 a share, putting the company’s market capitalization at more than $1 billion. Artis set the terms of the company’s $19.3 million Series D financing in September 2005, a round that eventually grew to $30 million in 2006.

Artis has dipped its toe into the private equity market in the last several years as it typically follows investments made by Sequoia Capital. (One of the Artis investors is David Lamond, the son of Sequoia Partner Pierre Lamond.)

Artis invested in six private companies during 2007. It backed auto GPS company Dash Navigation in a $25 million Series B in February; alcohol-based fuel cell maker Oorja Protonics in a $15 million Series B in March; fabless semiconductor company Open-Silicon in a $10 million Series D, also in March; enterprise software company SchemaLogic in a $12.7 million Series C in July; security service provider Cast Iron Systems in a $16 million Series F in August; and Internet advertising network AdBrite in a $23 million Series C in November.

Artis increased its holdings by $181 million during the third quarter of 2007, according to regulatory filings, reaching $2.09 billion in assets. Its largest holdings, as of the end of September 2007, were analog chip company Marvell Technology Group (Nasdaq: MRVL), in which it held shares worth $212.5 million; wireless device maker Qualcomm (Nasdaq: QCOM), in which it held shares worth $174 million; and flash memory maker Sandisk Corp. (Nasdaq: SNDK), in which it held shares worth $120.6 million.

Perhaps the most noticeable change in the firm’s portfolio at the end of September is the absence of its holdings in Google. It had held shares worth $100.5 million in the company as recently as May 2007—at least some of which it received after Google acquired YouTube.