Despite internal predictions that Updata Venture Partners’ sophomore fund would reach its $150 million target capitalization inside of six months, the firm is still meeting with potential limited partners and holding sporadic closes. nine months later. Most recently, Updata last week netted $12 million in a secondary closing event.
The firm had previously closed on $50 million in October, and now expects the fund will be fully capitalized before a final close in April, said John Burton, managing general partner with Updata, the venture arm of investment bank Updata Capital Inc. He added that the second close was not originally planned, but that new limited partner Grove Street Advisors and existing institutional backer High Street Partners requested that they be able to make their commitments official as soon as possible.
Investors involved in the first close include Allied Capital, Grange Insurance, Mellon Ventures, PNC Venture Bank and several undisclosed technology executives.
“Many of our LPs are CEOs of companies we’ve invested in, or that we’ve worked with in an operational capacity,” Burton explained. “They help us by taking board seats [in our portfolio companies] or sourcing deals.”
A Hands-On Approach
The bulk of UVP II’s investments will be in early-stage opportunities in the soft sectors of information technology and communications, namely software services and infrastructure plays. Its scope does not include more capital-intensive tech ventures such as optical network build-outs and chip manufacturing plants, Burton said.
With offices in Reston, Va., and Red Bank, N.J., the firm will concentrate approximately 70% of its transactions in the mid-Atlantic region, where it has the strongest ties to the business community, Burton added. The remaining 30% of the deals will be mostly opportunistic plays located elsewhere on the East Coast.
Since Updata likes to be a hands-on investor, the firm typically assumes a lead role in most deals or, at the very least, takes board seats. It also aims for a 10% to 25% ownership stake in its portfolio companies, giving it just enough of a controlling interest to offer operational and strategic guidance, Burton noted.
As in the past, it also intends to co-invest on a number of deals, and will likely team with previous partners such as Charles River Ventures, Greylock and Battery Ventures.
Similar to its freshman vehicle, the Fallen Angel Equity Fund, Updata will reserve some capital to make follow-on investments in its portfolio companies during later rounds. The firm also will invite its LPs to participate in late-stage transactions where appropriate, Burton noted.
Currently, Updata is tapping its capital reserves from Fund I for follow-on deals, and plans to make all new investments from its second vehicle. In fact, the firm is looking to complete 20 to 25 deals within the next three years, with average start-up investments in the neighborhood of $4 million to $8 million.
“The valuations are much more attractive [than they were a year ago],” Burton said. “It’s time to be adventurous and opportunistic, and at the same time, to be conservative, until we have a better idea of what the markets are going to do.”
<>A Flurry of Deal Flow
Although Burton and Updata’s three other general partners prefer to err on the side of caution, the fund has already made four investments even though it hasn’t quite reached its final target capitalization.
Its first two investments were in The Kernel Group Inc., a storage management software firm, Ecutel Inc., a network security software that serves the mobile and wireless applications arena. Updata outfitted The Kernel Group with $4 million in a two-part first-round financing, and was the only investor. Burton and Updata General Partner Tim Meyers also took seats on the start-up’s board of directors.
Burton said Ecutel was actually a small transaction for the firm, as it only contributed about $1 million to the deal. However, it was enough to win him a board seat. Core Capital led the investment, and Intel Capital, Avansis Ventures, McDonnell & Associates and Steve Walker & Associates also participated.
The terms of UVP II’s third investment in Melbourne, Fla.-based E-Security are expected to be released today, Burton said. He declined to divulge any details of the deal, except to say that the firm co-invested with Fidelity Ventures. E-Security provides real-time management for all of the security components of enterprise networks.
Details are also sparse regarding the fund’s fourth investment as Burton divulge any additional information.
As it gets closer to Fund II’s final close, Updata plans to open a satellite office in Boston, which will house the firm’s merger and acquisition advisory group, as well as a few venture capital professionals. Burton said he expects the firm’s new digs to open by the end of March.
Robyn Kurdek can be contacted at Story Feedback.