Convinced that software has the potential to impact every aspect of our lives, New York-based RRE Ventures LLC is currently in the midst of raising a fund that will concentrate more than half of its investments in the sector. Targeted at between $200 million and $250 million, RRE Ventures III is expected to close by January 31.
Launched at the beginning of this year, the fund has drawn about $150 million from institutional and corporate investors, as well as a slew of high- net-worth individuals. A majority of RRE’s existing limited partners re-upped in Fund III, along with a handful of new investors, said Jim Robinson, Jr., a general partner with the firm.
That RRE has chosen to focus mostly on software and communications plays in the new fund is not surprising, as the firm has historically invested in such companies, specifically those that cater to Fortune 500 companies.
“In the 10 years we’ve been investing, software has been a great opportunity,” Robinson said. “Can you think of another business that gets 80%, 85%, 90% gross margins? More importantly, it’s changing the face of how we do things in the 21st century. Software runs our lives, whether it’s in the car or the elevator or the communications [devices] we use.”
To that end, the fund will invest in a variety of different areas, such as Web services, wireless LAN administration software, security and telematics, a technology that aids in the provision of real-time data to and from specific locations.
It seems as though the firm also will be taking a long, hard look at software companies in the telecommunications space, as it has brought former Lucent Technologies Inc. CEO Richard McGinn on board as a senior advisor to help conduct due diligence on such companies and advise RRE portfolio firms. McGinn, who is one of a dozen senior advisors at the firm, is also an investor in RRE Ventures III.
Historically, RRE’s first-time investments have hovered between $3 million and $5 million, and Fund III will carry on that tradition, Robinson said. Typically, the firm will pump approximately $7 million to $8 million into a company over the life of an investment, he added.
While most of RRE’s transactions tend toward early- and expansion-stage deals, Robinson said the firm is more likely to invest in a company if it has a product that is in beta or has already been shipped to a Fortune 500 company.
“We spend a lot of time with Fortune 500 execs getting a handle on what they’re spending their money on over the next two years,” he added.
While it has targeted no magic number for its portfolio, Robinson said Fund III may bring in as many as 25 companies before it becomes fully invested two to three years from now.
With offices in Manhattan and Redwood City, Calif., RRE Ventures will pursue deals on both coasts, primarily in the New York metropolitan and Silicon Valley regions.
The firm has already sealed one deal, leading a $15 million Series B round for Fort Lee, N.J.-based ReefEdge in July. Allegra Partners and previous investors Bessemer Venture Partners and Columbia Capital also participated in the round, which was expected to have a final close of $18 million. ReefEdge has developed a software product designed to enable companies to install secure wireless networks in their buildings and increase the size of their networks on an as-needed basis.
RRE Ventures III also has another transaction in the works, but Robinson declined to disclose any details related to the deal.
Its existing portfolio includes such firms as enterprise software upstart Juice Software Inc. of New York and San Diego-based Entropia Inc., which provides an Internet-based platform for math and science research.
RRE Ventures closed its last fund in 1999 with $225 million. The firm currently has about $500 million under management.
Robyn Kurdek can be contacted at:Robyn.Kurdek@tfn.com