News – Keystone Readies $200M Fund VI

Having already committed $65 million of the $102 million Keystone Venture V, which closed in September, Keystone Venture Capital intends to launch its sixth fund this year with a probable target of as much as $200 million.

The Philadelphia-based firm intends to grow its funds in accordance with the early-stage venture market, said managing director Kerry Dale.

“We try to [invest] at the bottom of the hockey stick,” Dale said. “And those companies are tending to raise larger sums earlier than they would have five years ago.”

Based on this growth, Dale said the firm would be able to maintain its focus on early-stage investing, which Dale said typically means participating in the first institutional round. He added that the firm has invested in 22 companies through Fund V, and he said he would expect Fund VI to invest in a similar number, albeit at higher dollar commitments.

Limited partners in Fund V, which closed last September, include Pennsylvania State Employees’ Retirement System, the State of Connecticut Retirement Plans, the City of Philadelphia Board of Pensions and Retirement, Dime Capital, Citizens Capital, Progress Bank, Silicon Valley Bank, Imperial Bank and Cambridge Holdings.

Dale said the firm is keen on expanding its base of limited partners, so Keystone Venture VI would likely include some new limited partners. In fact, depending upon response from existing LPs during pre-marketing, Keystone might retain a placement agent to assist in fund raising.

In conjunction with the close of Fund V, Keystone hired two new vice presidents – Atul Madahar and Robert Pace – who have operational experience in telecommunications, which is an area the firm has targeted with Fund V and will expand upon in Fund VI.

“We have been stepping up our activity in wireless and telecom, but we hope to do a lot more.” Dale said. “When we decided to expand the staff, rather than hire more VCs, we decided to balance out with people like Atul and Robert.”

Immediately prior to joining Keystone, Madahar worked as an Internet strategy consultant, and before that he worked in the wireless group with NEC.

Pace joined the firm after spending six years in the telecom and wireless industry, including time with Airtouch Communications. “At AirTouch, we evaluated start-ups to see if the technology was appropriate,” Pace said.

Dale said the firm has several exits from the $31 million Fund IV planned for this quarter, including the recently completed initial public offering of L90, which at press time was trading at $27.625, and the planned IPO of i3 Mobile, a Stamford, Conn.-based company that will begin its roadshow this month.

In addition to IPOs, the firm is seeing increased exit opportunities through mergers. Indeed, Dale said half of the planned exits being discussed currently are mergers.

“Essentially, we are finding that the market is changing and the best option to maximize value is [acquisition],” Madahar said.