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IVP raises US$1.5b venture fund amid greater competition

[SAN FRANCISCO] Venture firm IVP said it raised a new US$1.5 billion fund, just two years after closing its last, showing how changes in the market are forcing even the biggest startup investors to pick up their pace.

The firm said it likely won't start investing from the new fund, IVP XVI, until next year, because it has plenty of cash left in IVP XV, a US$1.4 billion fund it raised in 2015-three years after its previous effort. But it wanted to be ready.

In the time since IVP raised its last fund, other VCs have announced their own giant pools of cash.

Last year, Andreessen Horowitz raised US$1.5 billion for its fifth fund. Earlier this year, NEA raised US$3.3 billion for its 16th.

And late last year, SoftBank Group announced its Vision Fund, a US$100 billion technology investment vehicle that has been putting money into some of Silicon Valley's top late-stage companies, including Slack Technologies, WeWork, and potentially Uber Technologies.

Despite the somewhat greater size of the fund, IVP plans to stick with its strategy of investing about US$10 million to US$100 million in each company, usually as part of larger funding rounds that in some cases total well more than US$100 million, said Steve Harrick, an IVP partner.

"We think it's important not to become too large, where the amount you can put in the best companies is constrained," Mr Harrick said, discussing how investors like SoftBank need to deploy outsized funding rounds to generate a decent return.

"When you raise that much capital, you can't do those smaller deals."

While most of SoftBank's investments are part of much bigger funding rounds than those in which IVP generally participates, the Japanese conglomerate could still compete with the venture firm. 

For example, SoftBank recently led a US$114 million round in Brain, an artificial intelligence company.

Last year, venture funds raised a near record US$41.6 billion, according to the National Venture Capital Association, although that total doesn't count the SoftBank Vision Fund since its mandate extends beyond venture-backed companies.

A slow market for initial public offerings has meant IVP chalked up just five IPOs in the two years since its last fund, including Snap, maker of the Snapchat disappearing photo app, and Yext, a digital media company.

That compares with 11 IPOs in the three years leading to its 2015 fund. Mr Harrick doesn't expect a significant uptick in IPOs next year.

As with most venture firms, more IVP portfolio companies are acquired than list on public markets, although the companies that go through IPOs tend to draw greater attention.

A third path for more portfolio companies may be emerging: having a private equity firm buy a majority stake in a venture-backed company, as was the case with IVP's LegalZoom.

In 2014, Permira bought a majority stake; IVP sold one-third of its own holding in LegalZoom.

"You will see more of that," Mr Harrick said.

"Private equity firms - they're looking for growth; they're willing to pay competitive prices."

IVP generally invests in about 12 to 15 companies a year. It specialises in companies that have already raised a funding round or two and are on track to grow to US$100 million or more in revenue.


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