For venture capital firms, it seems the adage "The rich get richer and the poor get poorer" is ringing true.
Institutional Venture Partners, a firm based in Menlo Park, Calif., is enjoying its position in the former group. IVP in late June announced the close of a $1 billion late-stage fund, the largest it has raised since it was founded in 1980.
Helping to put the new fund to work will be Jules Maltz, one of six general partners at the firm. Maltz notched a recent success via IVP's investment in Buddy Media Inc., the enterprise social networking company that agreed last month to be acquired for $745 million by Salesforce.com Inc. IVP, the target's largest investor, posted a "significant return," but Maltz wouldn't add details.
Buddy Media, along with IPO successes Zynga Inc. and Netflix Inc., are some of 300 companies IVP has backed since it was founded 32 years ago. Most are late-stage investments, but the firm also takes on the occasional early investment. Maltz played an instrumental role in IVP's becoming one of Twitter's biggest backers, bringing the fledgling company to the attention of his firm after he attended a talk by Twitter Inc. co-founder Evan Williams soon after Maltz joined the firm in 2008.
The latest fund marks IVP's 14th and largest investment vehicle and brings the firm into the handful of VC shops that have raised more than $1 billion in a single fund. The others include Andreessen Horowitz, which raised a $1.5 billion fund earlier this year, and Khosla Ventures, which last year raised $1 billion for its fourth fund.
It's a trend, driven in part by the hobbled market for initial public offerings, that has fewer VC firms raising bigger pots of money. As legendary investor Vinod Khosla said after unveiling his firm's latest fund, "Third-tier VCs are not getting funded."
IVP set out to raise IVP XIV in February, with a goal of $750 million, but interest from its limited partners drove the amount raised to $1 billion. The Deal magazine's Olaf de Senerpont Domis recently spoke with Maltz about the new fund and the VC industry at large.
The Deal magazine: Tell me about the environment for raising IVP's latest fund. Sounds like most of the funding came from existing LPs?
Jules Maltz: The vast majority came from existing LPs, which is typical. I'd say the venture market is changing. Some firms are growing and raising more, while others are shrinking. We feel very fortunate.
From a pure number of firms, there were over 1,000 ten years ago, but now there are really only 400 active firms. Firms are generally investing larger amounts of money in companies, as companies are taking longer to go public.
There is meaningful consolidation in venture capital. If you are going to be in this business, you want to have a large amount of capital to support your portfolio companies throughout their life.
The size of the new fund also is a function of where we play in stages; if you are investing in premier late-stage companies, you will want to invest potentially up to $100 million.
Your investment in Twitter proves you aren't exclusively late-stage, though.
Most companies we invest in have $10 million to $20 million in annual revenue, but we always look for smaller companies with exceptional growth that are market leaders. Twitter and Zynga are examples.
What kinds of companies does your new fund have in its sights, and has any of it been invested yet?
We invest anywhere from $10 million to $100 million exclusively in late-stage. We spend the most time in three areas. One is the cloud -- both on the infrastructure and the application side. We're seeing massive disruption there. Then there's mobile. We've done some recent ones in mobile: MobileIron [a mobile security startup for which IVP led its recent $40 million Series E] and Voxer [a mobile "walkie-talkie" app developer whose recent $30 million round was co-led by IVP and Intel Capital], two innovative mobile services. Consumer Internet is the third area.
What do you think of the notion held by some that social media, particularly on the consumer-facing side, has peaked?
I see social as a horizontal, not a vertical. If you only look at social networks, there are only two that matter now: Facebook and Twitter. The chance of building something of that scale is relatively small. But because social is horizontal, you can focus on commerce, like with [virtual online pinboard site] Pinterest, and use social to scale rapidly.
Social enables multiple industries, like finance, education and commerce, which will create multibillion-dollar companies.
Could it be argued that the enterprise side of social has topped out, at least from a private investor's perspective? The market has reached the point where companies like Radian6 [a social enterprise company purchased by Salesforce.com] and Buddy Media have begun to be acquired. Is it too late to make a successful investment in that area?
There will be more. Social is here to stay. It is as meaningful as the Internet itself. Not something where in 10 years we won't be connected to friends on the Internet. It has created the opportunities for a lot of big companies to be built out there.
With the dicey IPO market, has a venture capitalist like yourself changed your advice to portfolio companies at all? M&A is the primary route to an exit. Does that change what you tell your investments about how to build for the future?
The most important thing is to control your own destiny. One of my mentors, Mark Leslie, who was CEO of Veritas, told me: "Cash is oxygen, and oxygen is life. Don't run out." We want all our companies in any market to be well financed and building fundamental value; if you can do that, you'll have lots of value in the future.
It's such a great time to be an entrepreneur. The cost to a company is one-tenth of what it was, and the Internet is 10 times bigger. There's an order-of-magnitude difference. There are better conditions to start a business, and as they achieve scale, we're glad to be there to fund them. n