SAN FRANCISCO (04/04/2000) - Claiming that it has raised the largest Internet-related venture fund ever, the venture capital firm Technology Crossover Ventures announced Monday morning that it closed a fund at $1.6 billion. Such a huge fund was once unthinkable.
Indeed, in 1991, total funding for all venture firms was roughly $1.9 billion.
During the past year, however, the billion-dollar-fund club has grown almost crowded, as the amount of money pouring into the venture capital business has skyrocketed. In recent months, Benchmark Capital, CMGI, Andersen Consulting and others have established billion-dollar funds.
It's difficult to evaluate Technology Crossover Ventures' claim that its latest fund - the fourth since it was established in 1995 - is truly the largest ever. Many venture firms don't publicize the amount they've raised. In addition, a number of buyout firms that are making venture investments in Internet startups have funds well in excess of $1.6 billion.
There's also a question of whether bigger is actually better. Some VCs say they have opted not to raise the maximum amount available because they feel that there aren't enough good investments out there and because their firms are too small to manage such large sums. But Jay Hoag, a cofounder and general partner of Technology Crossover Ventures, says the large fund will give his firm a competitive advantage in winning investment deals.
"Part of the rationale is that Internet companies are demanding larger and larger amounts of capital, so this provides us with a business edge," he explains. "We can tell a company that we'll be able to provide them with all the capital they'll ever need." The fund clearly gives the Palo Alto, Calif.-based VC firm one of the largest piles of cash to play with in Silicon Valley. And the ease with which Technology Crossover Ventures raised the fund suggests that investors' appetite for pre-IPO Internet startups remains strong.
Technology Crossover Ventures invested its latest fund of $417 million in 12 months. During the past five years, the firm has funded more than 90 companies, including Ariba, CacheFlow, iVillage and Copper Mountain Networks. To prepare itself for the new fund, the firm has been adding partners. It began 1999 with five; now it has 12. And it might add a few more partners in the coming months, Hoag says. An additional factor motivated Technology Crossover Ventures to raise the larger fund: The firm has distinguished itself from other venture firms by investing not only in privately held companies, but also in companies that have gone public.
With the increase in Internet stock prices, Hoag's firm needed more money to continue to play in the public markets. The larger fund, Hoag notes, might even enable Technology Crossover Ventures to act as a buyout fund, taking an undervalued public company private. "We expect the average investment to go up," Hoag says. "This gives us the flexibility to do larger deals with both private and public companies."