TrueBridge Raises $408M for Fund of Funds, Foresees Seed Shakeout

TrueBridge Capital Partners, one of the few remaining fund-of-funds managers focused exclusively on venture capital, closed its third venture-focused fund of funds at $408 million, which includes the general partner commitment. 


The Chapel Hill, N.C., firm, which exceeded the $325 million target for TrueBridge-Kauffman Fellows Endowment Fund III LP, said it attracted capital from investors that include the endowment of Lehigh University, which backed the firm’s previous fund of funds, and agricultural company Syngenta AG.


TrueBridge, which added that the vehicle reached its hard cap, plans to use the bulk of the fund’s capital to build a portfolio of about nine to 12 venture capital funds, primarily ones focused on information technology, said General Partner Mel Williams, a former senior executive of UNC Management Co., who co-founded TrueBridge in 2007 alongside General Partner Edwin Poston.


Over the years, TrueBridge gradually has concentrated its capital on a smaller number of venture managers, said Mr. Williams, who added that the firm has committed about half of the new fund’s capital so far. It backed 18 managers through its first fund of funds, a $310 million vehicle raised in 2008, and 11 managers through its second, which wrapped up with $342 million in 2011. 


“We’re less willing to take the marginal risk at the fund manager level,” said Mr. Williams. “We’re focusing on those managers that generate high-quality deal flow and track records that help them win deals, hopefully without paying the highest price.”


As it did with its previous fund of funds, TrueBridge plans to allocate up to a total of about 20% of the fund’s capital to seed-stage funds and direct investments in venture-backed companies. The firm backed seven seed-stage managers through its second fund of funds, according to Mr. Williams.


He added that this time around, the firm expects to back between seven and 10 seed-stage funds. One seed-stage manager it backed through both Funds II and III is Philadelphia-based First Round Capital, which collected about $175 million earlier this year for First Round Capital V LP. 


Although First Round is an established seed-stage firm, a wave of new, even smaller funds have been popping up recently. Nineteen debut funds totaling $100 million or less were closed in the first half of this year, a record, according to Dow Jones VentureSource, a data provider owned by Dow Jones & Co., the publisher of this newsletter.


“The micro-[venture capital] segment is rapidly evolving,” said Mr. Williams. “We would estimate that today there might be 140 to 160 micro-VC managers. We probably see a new one every week or two. For the average investor to feel comfortable making investments in that segment of the market, they have to see a lot of managers.”


That said, Mr. Williams adds that the firm is exercising caution in the selection of its seed-stage portfolios, amid what it sees as a glut of managers in the market. 


“There’s no doubt that this market is overcapitalized and there will be a shakeout,” he said. “We don’t think we’re anywhere near that shakeout. Based on the funds we see getting raised and the amount of capital flowing into the marketplace, we think we’re still in the early innings.”


Although venture-focused funds of funds flourished during the technology boom of the late 1990s and early 2000s, during the past decade their numbers and dollar volume have dwindled as more large institutional investors have abandoned the venture space. 


Other than TrueBridge, fund-of-fund managers that continue to focus on venture include Darwin Ventures, Greenspring Associates, Top Tier Capital Partners and SVB Capital.


--Zoran Basich contributed to this article.


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