Underscoring investors’ infatuation with buyout funds, Terry Garnett and David Helfrich added $100 million to their $250 million debut fund that they closed in March 2004. And the pair says that it may raise a new venture buyout fund as soon as the middle of next year.
Garnett & Helfrich Capital – which invests in subsidiaries within large technology companies – did not propose to its LPs that it reopen its fund. It was the idea of the investors, the managing directors say.
In a meeting with PE Week at the firm’s Menlo Park, Calif.-based offices last week, Garnett said that the firm planned to use the fund to back between eight and 10 companies with annual revenue of between $20 million to $100 million. But that strategy changed once the partners began scouting for deals.
“We found that the most compelling growth opportunities are in the $50 million to $200 million annual revenue sector,” said Garnett, who was previously a GP at Venrock Associates. “This became evident to LPs as it became evident to us, and it was their suggestion that we expand the fund to $350 million.”
Helfrich – formerly with ComVentures – said that all of the fund’s LPs were given the option to participate., pro rata. And he says that they all did.
Harvard University, Stanford University and HarbourVest Partners are among the largest investors (their combined stakes amount to “well over half of the fund,” says Garnett). Other LPs include Grove Street Advisors, Rho Fund Investors, the University of Michigan, Columbia University and Park Street Capital.
The firm has made just one investment so far. It invested $35 million for a 50% controlling interest in the network computing company Wyse Technology Inc. The other investor is Taiwan-based Koos Group.
Garnett & Helfrich – which also includes director Mike Guthrie – plans to back five or six companies with the expanded fund, and is already in the process of closing on its second deal, an $80 million investment that will be announced by year’s end.
Garnett declined to discuss details of the deal. “But after our first two transactions, we’ll have committed about a third of the expanded fund,” he said.
When the firm announces its next investments, don’t be surprised if they come from abroad – or are moved overseas shortly afterward. Wyse, which is based in San Jose, Calif., has shipped 95% of its engineering jobs and roughly two-thirds of its 400-plus employees moved offshore to India and China since Garnett & Helfrich made its investment, which closed in February. Europe may be next. “We’ve looked at a handful of businesses in Europe that we might want to spin out,” says Garnett.
Garnett projects the firm’s next fund will be raised in the next 12 to 18 months.