Idealab Capital Partners III Ready For Lift-Off

Citing the strong performance of its $105 million 1998 Fund I, Idealab Capital Partners intends to officially launch its third venture capital fund in the waning weeks of 2000.

However, the partners at the firm readily acknowledge that the venture seas have changed since 1999 when the firm last brought a fund to market.

“Clearly this is a more challenging fund-raising environment than August 1999,” said Senior Managing Director Bill Elkus. “But in selecting our core group of investors at that time, we looked for long-term investors.”

Elkus added that the financial strength of that core group of 12 LPs ? Goldman, Sachs & Co., Horsley Bridge Partners, HarbourVest Partners, Moore Capital Management, Michigan State Treasury, Ray Hunt, Grove Street Advisors, J.P. Morgan, Invesco, California Institute of Technology, Massachusetts Institute of Technology and one private family ? should enable the firm to hold an initial close in February.

Final terms of the fund are still being worked out, but Elkus said it would be somewhat larger than the $364 million Fund II, and that the fee structure would be in line with industry standards.

Managing Director Jim Armstrong noted that the venture market has seen some discretionary money enter funds during the ebullience of the past two years, but said most of Idealab Capital?s investors understand the inherent long-term nature of the market.

Consumer Isn?t Always Right

Many VC observers assume that based on the type of companies that have emerged from its incubator parent, Idealab! Capital Partners invests almost exclusively in b-to-c deals. However, the facts do not support that supposition. Indeed, Elkus said just three of the 18 Fund II investments were consumer-related.

“[Managing Directors] William Quigley and Erik Lassila have a strong background in technology and enterprise investing and that is where we are spending a lot of our time now,” he added. While the firm touted the performance of the 1998 fund, the partners didn?t reveal the early returns from Fund II.

In Fund III the firm intends to retain its emphasis on early-stage deals within these areas, and while Lassila said the firm has the rights under the new fund to participate in late-stage deals, that remains unlikely.

“More capital makes us more competitive, and we feel that the availability of the partners and the dry powder will allow us to be aggressive [in pursuing early-stage deals],” he said.

Elkus added that two-thirds of the investments from the new fund will fall in early-stage companies, but he did mention opportunities in companies that have fallen on hard times that are seeking second rounds could present “early-stage like” pricing opportunities for the fund.

Driven Off The Lot

Despite the brave face being put on the launch of Fund III this week, all was not rosy at Idealab! Capital Partners as prized Fund I portfolio company Inc. pulled its S-1 registration papers from the SEC.

In a Wednesday withdrawal request, Chief Executive Robert Brisco blamed “current volatile market conditions” for the decision.

As of CarsDirect?s initial SEC filing on May 16, Idealab! Capital Partners held a total of 3,7777,636 shares of stock while parent company Idealab! held an even higher stake.

According to Venture Economics, CarsDirect has raised over $350 million in venture capital financing from a group of investors including Idealab!, Goldman, Sachs & Co., Foundation Capital, Soros Fund Management, Primedia Ventures, Morgan Stanley Dean Witter Capital Partners and Oracle Corp.

George Moriarty can be contacted at Story Feedback.