Lehman venture arm raises fund V

Lehman Brothers Venture Partners closed its fifth fund with $365 million in commitments, as it expanded its limited partner base to include investors other than its parent bank.

Lehman Brothers, its investment banking parent, kicked in $75 million to the oversubscribed fund as the venture unit upped its number of limited partners from three to 16. Managing Director Tom Banahan declined to name any LPs, but they include insurance companies, pension plans and endowments, he says. The fund invests in mid to late stage investments in high-growth tech companies.

The firm, with offices in Menlo Park, Calif., and Boston, had targeted the fund at $300 million, and the fund had received enough interest to close at between $420 million and $450 million after four months in the market, Banahan says.

The venture fund’s continued connection to its parent bank makes it an anomaly within private equity.

Bank of America (NYSE: BAC) spun out its venture arm, BA Venture Partners, at the beginning of the year, retaining only a minority stake of the $400 million VC fund. The fund’s investors reformed as Scale Venture Partners and continue to manage the portfolio.

Also, JPMorgan has been casting off private equity divisions since 2006. The firm spawned Panorama Capital from its former venture investment team and CCMP Capital Advisors from its buyout and growth equity team. JPMorgan also spun off its Bay Area Equity Fund, which invests in socially beneficial startups.

CCMP Capital Advisors raised $2 billion toward its $4 billion target last year. Panorama Capital has yet to close its proposed $550 million fund. JPMorgan still retains a team of private equity investors in its One Equity Partners unit, which does mid-sized management buyouts and growth investments. It manages $5 billion in investments, according to its website.

Banahan says that the venture group benefits from the continued association to its investment banking parent. For instance, he says that the firm can use the Lehman Brothers information technology staff to help it diligence deals. “We’re able to go to them and talk about a firewall or new storage ideas,” Banahan says.

Also, the Lehman name brand helps the venture fund’s startups get traction with potential customers, Banahan says. “It helps when you’re trying to sell into the Midwest where people don’t know many West Coast venture capital funds, but they may know the Lehman Brothers bank name.”