Manager Emergence

I spent some long-distance minutes last week with Brian Connors and Clint Chao, co-founders of Formative Ventures. The official purpose was to discuss the closing of Formative's first institutional fund, but the more interesting part was a meandering tangent about what it means to be an emerging manager. Connors and Chao certainly feel their partnership fits the bill, given that they were sales and marketing executives whose initial foray into venture capital was a $5 million “friends and family” fund raised back in 2000. While raising their institutional fund, however, almost all institutions with so-called emerging manager programs passed, saying that Formative wasn't the right type of emerging manager.

"Except for Erica Bushner [managing director of GKM Newport Generation Funds], they were looking for people they already had a history with, like people who were spinning out of VC firms that they had already invested in," Connors explained.

All of this leaves me a bit perplexed, and continuing to wonder about the actual purpose of emerging manager programs. Maybe it was just to offset the bad PR associated with certain non-emerging managers who got hit hard by the bubble burst. Kind of reminiscent of those relatively inactive programs dedicated to backing clean-tech or green funds.

Anyway, here is a quartet of new VC funds. Judge for yourself if they deserve to be called emerging managers:

Panorama Capital: This is the name chosen by the VC team of JPMorgan Partners, which will begin raising its first independent fund next month. For those who don't remember, JPMorgan Partners announced earlier this year that it would spin out from its parent bank, with the VC team and later-stage/buyout team forming independent firms. Don't expect any significant changes for Panorama, which will continue backing early-stage and expansion-stage IT and life sciences companies.

No formal – or informal – word yet on the fund-raising target, although Shahan Soghikian suggested $400 million during an interview back in March. Books will be sent out next month by an independent placement agency, with a final close expected for the first half of 2006. The only hold-up right now seems to be a bit of red tape related to both J.P. Morgan Chase and JPMP, but it is almost all worked out.

In case you're wondering, the late-stage/buyout team's firm/fund is expected to launch sometime next year. It is coming a bit later because that team has a bit more dry powder remaining from the current JPMP fund.

Brooks/Levine Fund: Former Mayfield general partners Todd Brooks and Peter Levine are looking to raise $200 million for their first fund as an independent duo. If you're thinking: “Hey, is this the answer to a blind item from a few weeks ago?” the answer is yes. Constance Loizos has all the scoopy details at www.privateequityweek.com.

Sequoia Capital China : Asian Private Equity News (a sister pub to your beloved Wire) reported in August that Sequoia Capital had put two investors on the ground in China. Now, SiliconBeat.com is reporting that the venerable Valley firm has raised a $200 million China fund. It also has named one of the two vets (it's a name that makes a lot of sense, but the info comes from a blog comment so no confirmation is yet available).

This would be Sequoia's second stab at a regional fund – it previously raised an Israel-focused fund – and possibly could be considered as an “emerging manager” by certain LPs. After all, it's basically a new team, new focus, etc. Yeah, I don't buy it either, but don't be surprised to find emerging manager programs among the limited partners…

Formative Ventures: The Palo Alto, Calif.-based firm raised $77.5 million for its first institutional fund, which will continue to back early-stage IT companies in areas like communications, wireless and Internet solutions. Most notable fund-raising nugget is that around 90% of Formative's capital came from endowments and foundations, which is virtually unheard of for a first-time effort. Harvard served as the anchor, while other LPs include The University of Virginia Investment Management Co. and the University of Pittsburgh. Fund-of-funds GKM Newport Generation Funds also participated.

Connors and Chao said that they considered taking $100 million, but ultimately concluded that the extra $22.5 million would require a third general partner. It's not that they're unfriendly or play poorly with others, so much as it is that they know the current partnership works, and are still a bit skittish about messing with the formula. Companies backed by Formative's friends and family fund include Marketocracy Inc., IP Infusion Inc., Zyray Wireless Inc. (acquired by Broadcom), InnoCOMM Wireless (acquired by National Semiconductor) and defunct Fast-Chip Inc.

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