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DEALIN' / Financing the State's Emerging Companies

Redpoint Fund Raises $1.25 Billion

August 14, 2000|DEBORA VRANA | TIMES STAFF WRITER

Redpoint Ventures is expected to announce today that it has raised $1.25 billion in its second venture fund, joining a host of other $1-billion-plus venture funds formed in the last year.

The fund is about twice as big as Redpoint's first fund. The well-connected venture firm, based in Menlo Park, Calif., and Los Angeles, invests without geographical restrictions. Formed in late 1999 by partners of established venture firms Brentwood Venture Capital and Institutional Venture Partners, Redpoint has so far invested in 38 companies, nine of which are in Southern California.

Much of the money raised came from large institutions, including universities such as Harvard and Yale and pension funds such as the Los Angeles County Employees Retirement Assn. Redpoint had no trouble raising such a large amount and even turned down $400 million in venture money, according to a partner there. That's how popular the venture market has become.

Some experts question whether such large venture funds can be successful, saying they either make too large investments in early-stage companies, which can be risky because the companies are unproven, or make too many smaller investments in too many companies, a diversification that can hamper overall returns.

"You can be big at the expense of being good," said Jess Reyes, analyst with Venture Economics, a New Jersey-based data arm of the National Venture Capital Assn.

"If you are doing later-stage investments or some buyouts, it makes sense [to be big]; but if you are going to focus on start-ups or early stage, it can be dangerous," he said.

Because the trend of multibillion-dollar funds is so recent, and venture returns are seen only when a portfolio company sells stock or is purchased, analysts say it's too early to track the returns of such funds versus smaller ones.

Redpoint partner Brad Jones, however, argues that venture firms need larger amounts of money in this competitive climate to get their portfolio companies up and running more quickly. Firms that once raised $2 million to $3 million in a first round of venture funds now need $8 million to $10 million to get rolling with new technology talent, marketing campaigns and research.

"If you don't have the resources, your companies don't stand the best chances of surviving and being a winner," Jones said.

Despite stock market sell-offs in March and April, the money from institutional investors continues to flow to venture funds, with $1-billion funds becoming almost commonplace. There were five $1-billion-or-more funds raised in 1999, compared with two in 1998. So far this year, seven such funds have been created, raising a total of nearly $11 billion.

"For some venture capitalists, there is some panache and cachet to being in the $1-billion boys club," Reyes said.

Redpoint, which has seven partners, including several with longtime venture capital experience, believes that it will find exceptional opportunities.

The new fund, Redpoint II, will focus on investing in "platform companies" that will form the foundation of the next-generation broadband Internet, the firm says. Like other venture groups such as the venture arm of Japanese investment giant Softbank, Redpoint encourages "cross-fertilization" among its portfolio companies, so the success of one firm can benefit others.

"Our focus is to continue to invest in industry leaders which will take the Internet to the next level and continue to build on the track record investors have come to expect from our team," said Allen Beasley, Redpoint's newest partner and a veteran venture capitalist.

Still, Redpoint's performance has yet to be seen, as none of its portfolio companies has gone public or merged. At least one first-time stock offering is expected from one of its companies this year, sources said.

Venture capitalists invest in various start-ups, and though many of the portfolio companies fail, the investors aim to reap profits when those start-ups go public through a first-time stock sale or are acquired.

In Southern California, Redpoint's investments include Santa Monica-based BizBuyer.com Inc., a business-to-business site where a business in need of supplies, services or talent posts a request and other businesses bid to provide that service. Others include Irvine-based Nexgenix Inc., a developer of Web sites and techniques to keep visitors at the site, which postponed a first-time stock offering earlier this year; and Fandom Inc., a Santa Monica-based Web site devoted to science fiction news and products.

"Los Angeles has got a great community in fiber optics and the Internet commerce area," Jones said, "and in content and media, well, it goes without saying, Los Angeles is king."

*

Debora Vrana, who covers investment banking and the securities industry for The Times, can be reached at debora.vrana@latimes.com or Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Redpoint's Southland Investments Since its formation in November 1999, Redpoint Ventures has bought stakes in these Southern California start-up companies through its first fund:

*--*

Company City Business BizBuyer Santa Monica B2B Web site Fandom Santa Monica Science fiction Web site Fusient Media Los Angeles Incubator of Web content firms Internet Machines Agoura Hills Internet infrastructure Line 6 Thousand Oaks Digital music software Multilink Santa Monica* Optical networking MusicMatch San Diego Digital music software Nexgenix Irvine Develops Web sites N/A Long Beach Optical components

*--*

* Has moved to New Jersey

N/A: Not available (deal to be announced)

Note: While the exact amount is not disclosed, Redpoint has invested between $5 million and $20 million in these companies.

Source: Redpoint Ventures

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