Long-time secondary private equity investor Venture Capital Fund of America (VCFA) has held a first closing on its latest fund for $102.8 million. The firm expects the new fund, VCFA Private Equity Partners IV, to have a final close between the end of March and the middle of April with $250 million.
VCFA, which was founded in 1982, has definite commitments for another $21 million that arrived too late for the first closing. In addition, the firm has between $55 million and $140 million in “soft commitments” from limited partners. The last fund the firm raised was VCFA Management IV, a $50 million Bermuda-based fund that closed in 2001.
Limited partners in the fund include American Family Insurance Group, Liberty Mutual, New York State Teachers Retirement System and the University of Richmond. VCFA has taken on some new LPs that include large institutions. The firm has added some smaller university endowments that invested between $3 million and $5 million apiece. VCFA also gained two additional foundations to its LP roster. “Once you have the first closing, everyone knows you mean business. It makes people make a decision,” said Managing Director Dayton Carr, a Smith Barney & Co. veteran. “Some people think they can wait until the last minute and get in-not with us.”
This fund represents a significant shift for the New York-based firm. Previous dedicated secondary funds have been focused on buying venture capital assets. VCFA Private Equity Partners IV will be 90% invested in the assets of middle- market leverage buyouts. VCFA Venture Partners III is approximately 51% invested and will be completely invested by 2006. VCFA Private Equity Partners IV will take about four years to invest.
“In the venture world there are lots of venture backed portfolio companies that aren’t doing well,” explained Carr, who began doing direct venture investments with his firm Carr Management Co. “There’s a lack of fundamentals and overvaluation. The valuations are going down, but some of the problems remain. We’re interested in smaller and medium sized LBOs. Our prior rates of return have been higher on our LBOs than in our venture investments. Overall I think the fundamentals of LBOs are better.” He also added that lower prices and fewer competitors make investing in small-and middle-market LBO assets attractive.
VCFA is actively pursuing a handful of buyout deals already for the new fund. The firm will likely add one partner and one associate as the fund closes. VCFA currently has two additional investment staff working on a consulting basis. The firm currently has four managing directors and has offices in Chicago and San Francisco in addition to its New York headquarters.