Proving it has made more than a pilgrim’s progress since raising a mere $11 million for its inaugural fund five years ago, Syosset, N.Y.-based Topspin Partners recently closed on a $215 million sophomore investment vehicle.
The first to carry the firm’s namesake, the Topspin Partners Fund is structured differently from its predecessor, the Long Island Venture Fund. With the initial vehicle, Topspin’s limited partners made additional co-investments of approximately $50 million, eventually ramping up the vehicle’s total investment power to just over $60 million. That formula seemed to work well, as the Long Island Venture Fund is now fully invested, but Topspin decided to change the equation this time around, collecting all commitments for Fund II up front.
“We were just testing the waters with our first fund, so we allowed all of our LPs to co-invest. This time, we thought we’d make them pay for all of it,” joked Paul Lowell, managing director with Topspin.
Lowell declined to reveal any of the firm’s LPs, most of whom are high-net-worth entrepreneurs. However, he did say that a majority of the commitments came from the original LPs who participated in Fund I, and that they allocated more money on this go-around because they had reaped “significant returns” on their previous investments with Topspin.
Moreover, the firm did not accept any institutional money for its latest investment vehicle. When asked why, Lowell simply said, “We didn’t want it.”
Nuts and Bolts
The fund, which will be managed by Lowell and Topspin’s four existing partners, is mostly focused on Application Specific Integrated Circuit (ASIC) hardware design companies and Internet and e-commerce infrastructure plays. It will also make limited investments in biotechnology firms, Lowell said.
To dispel any confusion generated by the Long Island Venture Fund’s deceptive moniker, Topspin isn’t solely a local investor. While it does like to invest close to home – particularly in the corridor between Boston and Research Triangle Park, N.C. – the firm has also looked at and will continue to pursue deals all over the country. It also has the flexibility to participate in some international deals.
As Fund II is still in its infancy, it will likely gravitate more toward early-stage deals during the first year or two so as not to spread the partners too thin.
“We’re limited by the number of partners we have,” Lowell explained. “We each take on board seats at one or two start-ups, and [our schedules] fill up pretty quickly.”
On average, Topspin will contribute between $1 million and $5 million for early-stage transactions, and $5 million to $10 million for late-stage firms. At that rate, Lowell expects that the entire $215 million will be invested within three to four years, although the fund is structured with a traditional 10-year term.
“We’re on the hunt [for deals], but we’re in no particular hurry [to unload the capital],” he noted. “It’s a reasonable assumption that it’s going to take at least three years to wisely invest all of the capital in the fund.”
The firm also plans to co-invest quite a bit, which will further temper its transaction pace. Still, Lowell said that the more money Topspin invests, the most likely it is to lead a transaction and take board seats.
“If the lead VC is good, we’re happy to be a penguin,” he noted. “We don’t want to be a controlling investor.”
Four Investments… And Counting
Despite Lowell’s assertion that Topspin isn’t rushing to disburse its latest capital infusion, Fund II has already made four investments.
The largest was a $5.1 million contribution to Naperville, Ill.-based Visual Insights’ $25 million second-round financing, which closed late last year. Topspin joined fellow newcomer Milstein Brothers Capital Partners, as well as repeat backers Intel Corp., Lucent Technologies Inc., ABN Amro Private Equity and Emigrant Bancorp’s venture arm, Emigrant Capital, to help fuel development and distribution of the company’s software, which in the main is used to monitor the performance of e-business Web sites and databases.
Topspin also floated an undisclosed amount to CosmoCom Inc., a developer of an IP-based automatic call directory based in Melville, N.Y., in a transaction announced last week. British global communications provider Marconi PLC also participated in the financing.
Lowell declined to disclose the details of the other two investments, saying only that they were “in areas where we don’t want people to know the companies exist quite yet.”
With so much capital to invest over the next few years, Lowell said that the firm hasn’t ruled out the possibility of hiring additional partners, but no plans are in the works to do so at the moment. Currently, the team is gearing up to relocate to a new office in Roslyn, N.Y., a move he anticipates will take place sometime in the next month.
Robyn Kurdek can be contacted at Story Feedback.