Rosewood Grows $400M Vehicle

Accompanied by a redirected investment strategy and an expanded staff, Rosewood Capital is back in the fund-raising market this week as it shops the second half of a $400 million-targeted vehicle to outside investors.

The San Francisco-based firm closed out the initial $200 million last month with a combination of a roll-over from the existing $115 million Rosewood Capital III and additional commitments from inside investors.

Named Rosewood Venture Partners (RVP), the new fund signals a shift in focus for the firm in that it will back Internet enterprises, thereby forsaking new investments in the type of consumer-based organizations upon which Rosewood had built its reputation. A final close is expected within the next two months.

Chip Adams, a founder and principal with Rosewood, said that he expects RVP to invest $1 million to $10 million in about 35 early-stage Internet companies, plus a few strategic later-stage plays.

Moving with the market, Rosewood began shifting to an Internet focus in early 1999 and, since then, has completed 15 investments in that space. Most recently, the company took a small piece of a $45.7 million mezzanine round for PeoplePC Inc. Other notable activity includes investments in BuyMedia Inc., Xpede Inc. and Inc.

In order to help support its refocused effort, Rosewood bolstered its staff in January by hiring Principals Anne Martin, the former managing director and head of Internet investments at Deutsche Bank Alex. Brown, and Robert Keller, previously managing director and head of Hambrecht & Quist’s Internet investment banking practice.

Martin, who will focus on the firm’s investments in the Internet infrastructure and communications spaces, has worked with companies such as America Online Inc, Exodus Communications Inc., Covad Communications Co., eBay Inc. and CBS MarketWatch.

Keller, who has led deals with Inc., LookSmart Ltd., Vignette Corp., @Home, GeoCities and CNET Inc., will concentrate on Rosewood’s expansion to the media and services sectors.

The firm also enlarged its board of directors to complement its Internet focus. New members include eBay President and Chief Executive Officer Meg Whitman, Mayo Shattuck, co-chairman of Deutsche Bank Alex. Brown, Schuyler Marshall, president of Rosewood Corp., and Bob Fisher, former president of Gap Inc.

Rosewood believes that having a wide network of strategic alliances is key to its success.

The firm uses what it refers to as the “Tuesday night test” to characterize a network member’s dedication, and it works like this: If a member of the network gets a call on a Tuesday night at 10 p.m. with a request, and it gets done by the next day, they pass the test, Adams said. “One of the things we pride ourselves on is that our network really delivers value.”

Founded in 1986, the firm is run by Principals Kyle Anderson, Mike Brown, Tim Burke, Kevin Reilly, Adams, Keller and Martin. Rosewood plans to hire additional partners, however, the timing and number is still undetermined, Adams said.