Shasta tops $250M, eyes Facebook apps

Shasta Ventures has demonstrated its staying power by successfully raising a $250 million second fund, expanding its limited partner base and maintaining its focus on early stage Internet and software startups.

Shasta was one of a handful of venture firms that raised its inaugural fund after the dot-com bust. Each of the three partners left a well-known venture firm before launching Shasta in 2005 and raising $210 million for its inaugural fund. Ravi Mohan was a general partner at Battery Ventures, Rob Coneybeer was a GP at New Enterprise Associates and Tod Francis was a GP at Trinity Ventures.

About half of the money the firm collected for its first fund came from limited partners that had previously invested with Battery, NEA or Trinity. New limited partners in fund II include investors that the GPs had met while at their previous firms, according to Francis. “We do have a few new relationships coming into this fund from people we’ve known for a long time,” he says. “We never really went out and announced a fund-raising; we focused on existing relationships.”

Francis declined to discuss specifics about the LPs in Shasta’s second fund, but a regulatory document from the firm’s first fund shows that its two largest LPs were the California State Teachers’ Retirement System and the Teachers’ Retirement System of the State of Illinois. Both are listed as beneficial owners of the fund, which means that each invested at least 10%, or $20 million, in fund I.

The filing for fund I lists 29 accredited investors. The largest number (nine) are based in California and together put up $61 million, followed by five investors in Illinois, who committed nearly $48 million and two in Connecticut who invested $35 million. Also, fund I attracted LPs from Massachusetts, New York, Ohio and Virginia. The Securities and Exchange Commission has yet to register a filing for the firm’s second fund.

Shasta has backed 22 companies from its first fund. It will invest in one or two more before tapping into the second fund some time early next year, Francis says. “We did this in advance of running out of money to continue business without a hitch.”

The firm is still too young to have much of a track record, especially since it invests in early stage startups. But it has sold two of its portfolio companies so far. It sold design company Logoworks to Hewlett-Packard and information technology trouble-shooter iConclude to Opsware. Both were positive outcomes, Francis says. He wouldn’t disclose how well the firm did on either one of the exits, but a source familiar with the deals estimates the firm didn’t earn more than a 5x return on either one.

Half of the companies in Shasta’s portfolio are Internet startups, almost half are software startups, and the remaining few are communications and hardware startups, according to Thomson Financial (publisher of PE Week). Despite the recent rush by many VCs to invest in Web 2.0 startups, Francis says that Shasta is becoming increasingly cautious when investing in the Internet. “The data shows that there’s been a large increase in capital going into Web-based businesses,” he says. “The entrepreneur has lots of options on where to get money, so more companies are getting started and valuations are creeping up and that is concerning.”

Still, the firm is sticking to a traditional capital deployment model rather than adopting a seed program or accelerator program such as those run by Charles River Ventures or Bay Partners.

Shasta is, however, looking closely at Facebook-related applications. “It’s too early to tell what the economics are for the applications built on that platform,” Francis says. “A business will look at the Facebook platform as one of its distribution and marketing opportunities. Similar to other businesses, there will be several that do well and many that do not.”