NEA to score with two IPOs, nears close of $2.5B fund: The firm has already raised about $2.3B for fund 12

VC stalwart New Enterprise Associates is preparing to have two of its better-known investments launch an IPO as it puts the final wraps on its $2.5 billion fund 12.

NEA has raised about $2.3 billion to date, PE Week has learned, and co-founder Dick Kramlich said that the firm is looking to secure another $100 million to $150 million when it holds another close in July. He did not identify LPs.

Meanwhile, the firm is watching two of its portfolio companies that are in IPO registration – Internet phone company Vonage and RFID provider Alien Technology.

NEA owns 23% of Vonage, thanks to the more than $131 million it has invested since 2003 in the Edison, N.J.-based company. The firm is the second largest shareholder behind founder Jeffrey Citron, who owns 41 percent. If the company raises the $18 per share in its proposed IPO, its market cap should reach about $2.9 billion, putting NEA’s stake at about $540 million.

Still, investment bankers may have a tough time shopping the company pre-IPO. Vonage lost $85 million on sales of $118 million during the first quarter of 2006. And it has opened up 20% of its offering to its customers last week in an attempt to boost interest in the offering. The move comes as eBay rolls out Skypeout, a competing service that allows people to use the Internet to make calls to any telephone, for free for the rest of the year.

Other VCs are optimistic about the offering though. Len Rand, a managing director of Granite Ventures, points to the positive post-IPO performance of recent new issues. The investing public is receiving offerings with open arms, he says. That’s an indication that they have a pent-up demand for new stocks such as Vonage.

Alien Technology expects to raise $138 million in its IPO, based on its filing in April. NEA participated in Alien Tech’s $66 million late stage investment last year, in a deal that put the startup’s post-money valuation at more than $540 million according to Thomson Financial (publisher of PE Week). Advanced Equities, Inc., Sevin Rosen Funds and Rho Ventures have also invested in the Morgan Hill, Calif.-based company, which has raised nearly $230 million since its inception.

Alien Technology lost nearly $18 million on sales of $5 million during the last three months of 2005, more than twice the loss it reported during the same period in 2004.

Nonetheless, NEA has no worries that less-than-stellar IPOs from Vonage and Alien Technology will interfere with raising fund 12.

The fund is the firm’s largest to date, outpacing the $2.3 billion it raised form its fund 10 in 2000 and more than double the size of its 2003 fund 11, which weighed in at $1.1 billion.

Fund 12 will increase the firm’s capital under management 42% to $8.4 billion, a huge size for a firm that primarily invests in early stage startups.

But Kramlich says his firm’s size doesn’t dilute its ability to earn returns. “Common knowledge said you couldn’t scale this business. If so, it would be the only business in the world,” Kramlich said in defense of his fund’s size at a recent conference. “We pay attention to every dollar we invest.”

Other VCs point to how hard Kramlich has had to work to make good on his claim. “I don’t think venture scales,” says Gerry Langeler, of OVP Venture Partners. “The fact that NEA scaled successfully means they did something very difficult.”

A big fund allows NEA to follow its startups as they raise ever-larger investment rounds. A smaller fund would have been washed out of its investment in Vonage or Alien Tech as other investors diluted its share of the company.

Additionally, a huge fund allows NEA to leverage insights from its startups to make investments in late-stage or public companies and visa-versa. Take the firm’s $210 million investment in positioning company Tele Atlas in July 2004 alongside OAK Investment Partners. The public company is based in the Netherlands and provides infrastructure for locating mobile devices and delivering services to them. NEA bought in at less than $6 a share. Tele Atlas now trades at over $25.50.

Not only was the Tele Atlas deal a smart play for NEA, but it also has helped them better understand and develop promising startups. The firm put down $5 million alongside Sequoia Capital to help mobile services startup Flipt get off the ground in May. The startup will focus on delivering location-based social networking to mobile phone users.