SAN FRANCISCO (06/13/2000) - In another sign that venture capitalists have no intention of shutting their doors to dot-coms just yet, Accel Partners closed a $1.6 billion fund on Monday that will focus on Internet and communications companies.
Once the funds are doled out, the firm will have more than $3 billion in investments. That's quite a load for a firm with 12 partners, including four new ones announced Monday.
While the fund is Accel's eighth since the firm was founded in 1983, it's by far the largest. The fund is more than $100 million larger than Accel's previous funds combined.
Accel's new fund will focus on Internet infrastructure, optical networking and digital communication services. Alan Austin, formerly COO and managing partner at the law firm Wilson Sonsini Goodrich & Rosati, joins Accel as its first COO.
Kevin Comolli, formerly of European private equity firm Doughty Hanson & Co., will spearhead Accel's expansion into Europe. The additions of Jim Goetz and Bill Lanfri, both networking and communications industry executives, reflect Accel's growing communications practice.
Accel joins four other firms that have raised funds of $1 billion or more this year. Technology Crossover Ventures has raised $1.6 billion, Softbank has raised $1.5 billion and Mayfield and Battery Ventures has raised $1 billion in funds this year. Falling shy of the billion-dollar mark were Crosspoint Venture Partners, Polaris Venture Partners and Sequoia Capital, which raised funds in the $800 million-$900 million range this year.
But are the bigger funds better? More VC money in circulation means the really good deals become more competitive, and a firm had better be well-capitalized if it's going to sway the most promising entrepreneurs into its camp. Jim Breyer, managing general partner of Accel, says its new fund will be spread among about 35 companies, roughly the same number as Accel's earlier funds.
That's almost $46 million for each investment.
There's no doubt that the fund's size speaks to the increasingly capital-intensive nature of growing a high-tech business. But another reason for raising such a large fund has to do with how often one wants to go back to the well. Accel VII, a $600 million fund, was raised last year and took only about a year to invest - faster than the partners would have liked. Accel didn't want to continue fundraising at that pace, so it got a bigger bucket.
Breyer says the $1.6 billion should carry Accel through the next several years.
What might be more impressive than the size of these funds is the sales cycle for raising them. Accel called its existing investors in mid-April, and within two weeks, the firm had more than $4 billion in commitments, Breyer says.
Breyer barely raises an eyebrow at the current glut in venture funds. "Is there too much venture capital? Yes, but that's been true of the last five years," he says. What's likely to change are the unprecedented rates of return, which Breyer calls unsustainable.
What remains to be seen is whether the venture-capital industry will eventually mirror the very high-tech industry it backs, with a growing gulf between winners and losers.