Strapped for cash and burdened by unexpectedly needy portfolio companies, New Enterprise Associates (click for firm profile) is in the market for a $150 million annex fund to its 1998 early-stage investment vehicle, the $565.7 million NEA VIII.
NEA VIII poured $50.77 million into 24 companies in final six months of 1998, just after it had held a final close. Rather than letting up on its frenetic investment pace, however, the firm ramped up efforts in 1999, investing another $277.91 million in 78 new companies. Of the 153 companies now held in NEA VIII, 16 executed initial public offerings while another eight were acquired. Only one, according to our VentureXpert database, filed for Chapter 11 protection and the rest remain privately held and looking for additional rounds of venture financing.
Although the NEA VIII had reserved almost 50% of its total pool of investment capital for follow-on investments, the fund will have to sell off certain existing equity stakes and recycle that cash into other portfolio companies.
“Anticipating an adequate reserve level is very difficult. At the time, reserving 50% seemed very conservative,” said Nancy Dorman, administrative general partner in the firm?s Baltimore offices. She added that once the IPO window closed last fall, and with the fund already entrenched in capital-intensive communications networking deals, the need for additional capital became apparent..
The annex fund will share follow-on investments at a 50-50 ratio with NEA VIII. Although it is structured as a stand-alone fund, the annex fund will not, however, scout new deals.
NEA, for its part, has reduced its carry on the annex fund to 15% from 20% and will charge a minimal management fee.
Announced at the firm?s annual meeting May 2, the firm expects to hold a final close on the annex vehicle June 29 ? drawing on commitments from NEA VIII?s existing limited partners and others that have invested with NEA in the past.
Meanwhile, the firm is closely monitoring the availability of follow-on capital for NEA IX, an $879.9 million fund raised in 1999 also heavily laden with Internet and software deals. Approximately 85% of that fund already has been committed.
Contact Carolina Braunschweig: Carolina.Braunschweig@tfn.com