Norwest closes fund X with eye on India, Israel

Founded: 1961

Location: Palo Alto, Calif.

Fund: Norwest Venture Partners X

Fund Size: $650M

Under Management: More than $2.5B. The firm raised $400M for fund IX in 2001.

LP: Wells Fargo is Norwest’s primary institutional limited partner.

Recent Exits: Airespace (acquired by Cisco for $450 million), Spinnaker Networks (acquired by Network Appliance for $300 million), Arbortext (acquired by PTC for $190 million), Corio (acquired by IBM for $182 million), and the IPO of Website Pros in November 2005.

Focus: Invests in such IT sectors as semiconductor and components, enterprise and communication systems, software, services, consumer Internet and media.

Venture Team: In closing fund X, Norwest promoted Robert Abbott, Jeffrey Crowe, Vab Goel, Jim Lussier and Venkat Mohan each to general partner. They join GPs Kurt Betcher, Promod Haque, Matthew Howard and George Still.

Norwest Venture Partners backed just two Indian startups from its previous fund—a $400 million vehicle that closed in 2001. But the firm is using its latest and largest fund to date to step up its international investment efforts as the firm has become more bullish on the Indian landscape.

“When we look at India as a market, we’re more interested in consumer plays,” says Managing Partner Promod Haque, who announced in April that the firm closed on fund X with $650 million in commitments.

The firm didn’t take long to start its dealmaking. In early May, Haque said that the firm had two foreign deals “in closing mode.”

If the investments go through as expected, they would double the firm’s portfolio of Indian deals. In fund IX, the firm invested an undisclosed amount in New Delhi-based travel services website Yatra and was one of three venture firms to invest about $19 million in Persistent Systems, a Pune, India-based software development company.

Haque says that the firm’s expansion overseas will take time. “Our first priority is to do some of these deals to get a sense of what the opportunities are.”

Despite Norwest’s plans for increasing the number of its international investments, the firm opted not to split fund X into smaller, location-targeted funds, as Sequoia Capital did recently with its China fund. Haque cited flexibility as the main reason for not making the funds location-based. “If for some reason India becomes a problem in two years, then we don’t have to put all the money we set aside to work there,” he says.

Haque also says that keeping the firm’s worldwide investments in a single fund will help entrepreneurs get the most value out of their partnership with Norwest.

Norwest does plan to add investment professionals in the subcontinent to help find consumer Internet and services companies. Newly promoted General Partner Vab Goel is picking up the slack while Norwest looks for local investors. Goel currently jets between India—where he has a board seat on Yatra—and Israel, where he works with Qumranet, a maker of switching and routing services for grid computing.

Goel is one of five venture partners Norwest promoted to GP in the new fund. Robert Abbott, Jeffrey Crowe, Jim Lussier, and Venkat Mohan also were promoted. Venture Partner Ernest C. Parizeau, who invests for Norwest in Boston, is phasing out of the firm and will not be involved in Norwest Venture Partners X.

Haque says that the larger fund will not only help the firm expand worldwide, but Norwest expects to follow its early stage investments by participating in more follow-on rounds and pursue such deals as its $8 million commitment to MovieBeam, a video-on-demand provider that was spun out from The Walt Disney Co. In all, Burbank, Calif.-based MovieBeam raised about $50 million from Norwest, Mayfield Fund, Intel Capital, Cisco Systems Inc. and ABC.

Founded in 1961, Norwest has long focused on business-oriented startups like software giant PeopleSoft, telecom equipment maker Cerent and Wi-Fi company Airepace. But its new fund will focus more on consumer applications and services.

Reorienting the fund toward the consumer fits well with the firm’s globalization strategy. Business product companies traditionally have not done well outside the United States. It puts startups too far away from their big customers: U.S.-based corporations. “If you’re 10,000 miles and 12 time zones away, it’s impossible to know just what will work,” Haque says. “You’re going to see more participation in Internet applications, the MySpaces and Facebooks, popping up in the rest of the world.”

Consumer startups are much easier to get off the ground abroad, especially when the entrepreneurs understand the intricacies of the local market. Take online travel site Yatra. Broadband penetration in India is much lower than mobile phone usage, so Yatra takes travel reservations through the wireless network and via call centers: two options U.S. companies such as Expedia and Travelocity don’t have to include in their offerings.

Still, Norwest is not about to abandon its business-oriented startups. Haque is hopeful that the dismal exit market will warm up and the firm will be able to take some of its portfolio companies public.