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Institutional Venture Partners (IVP) has raised a $1-billion (U.S.) fund, IVP XIV, underscoring the ability of a small group of venture-capital firms to raise outsize funds in an environment of lacklustre returns.
IVP specializes in late-stage venture investments – companies with $20 million or more in revenue – and growth equity businesses with $100 million or more in revenue. Traditional venture companies come in at much earlier stages, sometimes before a company has any revenue.
While the later-stage strategy offers less potential upside compared with some early-stage strategies, it also carries far less risk. IVP says its annual internal rate of return since 1980 is 43 per cent.
IVP partners will keep investing in the firm's core areas of Internet and digital media, enterprise information technology, and mobile and communications, says partner Dennis Phelps, though he admits those areas were increasingly combining.
"With the evolution of the technology market, it's harder to draw firm lines. There's quite a blur between those areas now."
The formula has led to investments such as file sharing service Dropbox, movie-rental service Netflix, and microblogging service Twitter. The fund will likely invest in 25 to 30 companies, Mr. Phelps says, with an average initial investment of around $10-million.
While most firms raise much smaller funds, a handful focus on the $1-billion-plus sector. Last quarter, Andreessen Horowitz raised $1.5-billion, the firm's largest fund to date. New Enterprise Associates is raising a fund that could reach $2.3 billion.
With its new fund, IVP has a total of $4 billion of committed capital.