In a disappointing first quarter for venture capital fundraising, August Capital Management LLC
offered a ray of hope. The Menlo Park, Calif., VC firm raised $650
million for its balanced-stage fund, August Capital V LP, beating its
last fundraising, in 2005, by $100 million.
The firm, which manages $1.3 billion, boasts one of the longest track records in VC. Co-founded in 1995 by John Johnston and David Marquardt, August Capital has backed well-known technology companies including Intuit Inc., Symantec Corp.,
Compaq Computer Corp. and Skype Technologies SA. Its new fund is
participating in the purchase of recommendation engine StumbleUpon from
eBay Inc. and the $5.75 million Series A for Web publishing tool maker Pixazza Inc.
We spoke with partner David Hornik about the challenges VCs face in the current economy.
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The Deal: How difficult was this fundraising?
David Hornik: It's as tough a fundraising climate for venture
firms as it is for startups, and it's about as challenging as I've ever
seen for startups. That's certainly being mirrored in the limited
partner community. The reality is that the way LPs had allocated their
investments across different investment classes means they are
overweighted in things like venture capital and private equity because
the public markets dropped so quickly. The primary differences between
this fundraising cycle and the last one in 2005 were that it took
slightly longer and there were some LPs who didn't have the capacity to
invest. We started fundraising after Thanksgiving, and we had hoped to
finish before the end of the year. Obviously, that process got
stretched out a bit.
Did you need to find new limited partners?
We did bring in some new LPs, but the percentage of new LPs is quite
small, and they were of the same top tier of LPs. The number of
individuals or entities who can reasonably take on the risk of venture
firms, who understand the business and have the right set of
expectations for the time frame on returns, is a relatively small
universe.
What role did August's track record play in its ability to raise funds?
Nothing replaces success like success when it comes to fundraising.
Despite the warning that past performance is no indication of future
performance, LPs use past performance as their first criteria. Most of
our LPs have a long history with us, and no August fund has ever lost
anyone money.
Does the current economy offer opportunities for the fund to exploit?
We were part of the syndicate that took Seagate private, and that
was an interesting opportunity that existed only as a result of that
point in time in 2000.
We look forward to seeing other opportunities like that.
