VCs Raise Tech Buyout Fund –

Venture capitalists Terry Garnett and David Helfrich are back in the private equity market, but this time as buyout professionals. Garnett, formerly a general partner with Venrock Associates, and Helfrich, formerly a general partner with ComVentures, teamed up last year to launch a tech-oriented buyout firm, and recently closed their inaugural fund with $250.25 million.

Garnett & Helfrich Capital has been likened to a smaller version of Silver Lake Partners, but the comparison only goes so far. Like Silver Lake, Garnett & Helfrich is based in Silicon Valley and will acquire technology companies. Unlike Silver Lake, however, Garnett & Helfrich is exclusively focused on spinouts of under-performing assets, business lines, product lines and divisions of public companies. Moreover, the firm expects to install new management teams, which is at odds with Silver Lake’s emphasis on management-involved buyouts.

“Our strategy is to have a couple of CEOs-in-residence, who will source companies and be part of the deal team,” Garnett explained. “Then one of them will likely become the company’s permanent CEO. We’re finding that, in this environment, great executive talent is a bit leery of going into startups.”

Garnett added that the firm will look for technology companies-communications, Internet, media, semiconductors and software-that have annual revenue of between $20 million and $100 million. He does not expect that the deals will use much leverage, and approximately half will be syndicated.

“In order to generate extraordinary returns, you should be doing something that others aren’t,” Helfrich said. “We’ve identified what we believe draws on both the best of venture and of buyouts, with the high growth of venture and then the acquisition base upon which you can layer that growth.”

The pair commenced fund raising last summer with a target capitalization of between $200 million and $250 million. The fund also featured Venrock as an official sponsor, but Garnett & Helfrich dropped the affiliation after some prospective limited partners balked.

Grove Street Advisors was the first limited partner to sign on, but many institutional investors continued to express doubts over a buyout fund whose two principals had virtually no buyout experience. Momentum began to change in late fall, however, when Harvard Management Co. committed $50 million to Garnett & Helfrich.

Institutional investors took particular note of Harvard’s participation, and the Garnett & Helfrich fund was fully committed by this past February, and a final close was held in late March.

Other participating limited partners (in order of commitment size) included: Stanford Management Co., HarbourVest Partners, RHO Management, University of Michigan, Columbia University, Comprehensive Financial Management, Capricorn Holdings, Park Street Capital and Silicon Valley Bank.