Long-time secondary private equity investor Venture Capital Fund of America (VCFA) held a first close on its latest fund for $102.8 million. New York-based VCFA expects the new fund, VCFA Private Equity Partners IV, to have a final close by mid-April with $250 million, and not a dollar more, the firm says.
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.
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. Managing Director Dayton Carr expects the rest of the fund-raising cycle to go smoothly after this first close.
“Once you have the first closing, everyone knows you mean business,” Carr says. “It makes people make a decision.”
VCFA’s partners insist that they will not exceed the $250 million limit, citing a commitment to preserve their LPs profit share.
“We won’t raise a dollar over $250 million,” says Carr, a Smith Barney & Co. veteran. “Some think they can wait until the last minute and get in. Not with us.”
VCFA’s latest fund represents a significant shift for the firm.
VCFA’s previous secondary funds have been focused on buying venture capital assets. The most recent U.S.-based dedicated secondary fund that the firm closed was VCFA Venture Partners III, which closed in 2000 with $100 million and is 75% dedicated to 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 just over half invested and will be completely invested by 2006.
VCFA Private Equity Partners IV will take about four years to invest, Carr says.
“In the venture world there are lots of venture backed portfolio companies that aren’t doing well,” says Carr, who cites a lack of fundamentals and overvaluation.
He also adds that lower prices and fewer competitors make investing in small and middle-market LBO assets attractive.
VCFA is pursuing a handful of small and medium sized 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 has four managing directors and has offices in Chicago and San Francisco in addition to its New York headquarters.
Email Matthew Sheahan