Perseus Hits The Road For Fund VIII

Firm: Perseus LLC

Fund: Perseus Partners VIII LP

Target: Minimum of $400 million

Placement Agent: None

Nearly out of dry powder, Perseus LLC has entered into discussions with limited partners about raising more money to continue making equity-heavy buyout and growth-capital investments, two sources with knowledge of the situation told Buyouts.

The Washington, D.C.-based firm, named after the Greek hero that killed Medusa, hopes to raise a successor fund comparable in size to Perseus Partners VII LP, which closed in 2007 on roughly $600 million in commitments.

The fundraising process for Perseus Partners VIII LP got under way about two months ago with top executives at Perseus starting to make calls and visits to prior LPs, as well as one or two new investors, a source said.

The firm plans to hold a first close on Fund VIII sometime in the fourth quarter. The target for the pool will depend on investor appetite at the time of the inaugural closing. At the very least, Perseus hopes to be within $100 million to $200 million of Fund VII’s total capitalization, one of our sources said.

A source said that all, or almost all, investors in Fund VII are expected to re-up in Fund VIII. “It’s not so much a question of ‘if’ but of ‘how large’ their commitments will be given the liquidity constraints of some investors,” the source said.

According to public documents, investors in Perseus Partners VII include the New Mexico Educational Retirement Board, the North Carolina Retirement System, the Massachusetts-based Public Employee Retirement Administration Commission, and the University of California.

No placement agent has yet been tapped to assist in the fundraising effort, though one may be hired later in the process to help target select limited partners.

To date, Perseus Partners VII has had two liquidity events, two write-ups, and no write-downs, a source said. Among its exits, the fund earned 3x its invested money on an investment in Westport Innovations Inc., a supplier of products that allow engines to operate on natural gas and other clean-burning fuels.

As of Dec. 31, 2008, Perseus Partners VII had generated a return multiple of 1.08x for the University of California. The firm’s three main target areas include undervalued or distressed investments; biotechnology and medical device businesses; and energy, environmental and engineering technology investments.

Other Perseus funds backed by the University of California include the Perseus 2000 Expansion Fund, a $153 million effort used to make follow-on investments for companies in Perseus’s 2000 fund, and the Perseus-Soros Biopharmaceutical Fund, which closed on $449 million in 2000 to invest in life sciences companies. Those vehicles had return multiples of 0.92x and 1.76x, respectively, at the close of 2008.

Perseus tends to use little to no debt in its deals, be it a buyout or growth capital investment. It’s an approach that has allowed the firm to continue doing deals relatively unhindered by the credit crunch. With typical equity checks ranging between $20 million and $100 million, Perseus tends to deploy its funds over a three- to four-year timeframe.

In the past three months, Perseus has closed two add-on deals for portfolio companies housed in Fund VII. These include the addition of medical communications provider Skyscape Inc. to Physicians Interactive LLC, a provider of digital sales and marketing to the health-care industry, and the tack-on of oilfield services provider Transgulf Technologies LLC to Houston-based Seismic Equipment Solutions LP.