NVP Unveils $400M Fund, Albeit Prematurely

After being “outed” in Lisa Bransten’s Starting Gate column in The Wall Street Journal late last month, Norwest Venture Partners (NVP) last week fessed up to the fact that it had recently closed its ninth fund with $400 million worth of commitments.

Before the news was inadvertently leaked to the Journal during an interview with a Norwest partner, the Palo Alto, Calif.-based firm originally had planned to hold off the closing announcement until mid-January.

In all fairness to Norwest, however, its fund-raising efforts don’t exactly involve a lot of fanfare. The 40-year-old early-stage venture capital firm has but one institutional limited partner, Wells Fargo, who has backed all eight of Norwest’s previous investment vehicles.

“We don’t need to say, how much do we raise, how much appetite is there for this fund?” said Promod Haque, a managing partner with Norwest. “We just go in and say we want to raise $400 million this year.”

Granted, the firm does have some smaller LPs, including entrepreneurs and its own partners but, clearly, neither contingent requires much convincing, Haque said.

Simply monikered Norwest Venture Partners IX, the new fund will continue to focus on the enterprise software and communications spaces. Additionally, Norwest will begin to take a much more proactive approach toward ferreting out new investment opportunities in the wireless infrastructure space, specifically looking at companies that manufacture chips and wireless components, or that build larger networks and systems for wireless carriers.

With the IPO window indefinitely shut, Norwest’s goal in Fund IX is to make sure its portfolio companies will be sufficiently funded for at least 18 to 24 months. As such, the firm will likely pump between $18 million and $20 million into each portfolio company over its life cycle.

The fund is expected to invest in about 20 companies over the next two and a half to three years, most of which will be in the pre-product or pre-revenue stages, Haque said. In fact, 70% to 80% of its investments are Series A deals, while the remaining 20% to 30% usually fall into the Series B category.

To be sure, overall economic conditions will likely dictate how quickly Norwest invests its new fund, at least during the first half of next year. “In 2000, we invested in 20 new deals,” Haque said. “Our new investment activity is down, so this year we only did six deals. Next year, maybe it will end up being a deal a month, or maybe it’ll be the same. You have to look at the peak and valley [as normal].”

As venture capital activity for 2001 is likely to wind down in the coming weeks with the advent of the holiday season, and given that Fund VIII now has dry powder left only for follow-on financings, Norwest plans to begin putting its newest investment vehicle to work in January.

Robyn Kurdek can be contacted at: Robyn.Kurdek@tfn.com