NEA kicks the slump

As NEA’s release pointed out, the $2.457 billion NEA XIII “represents an estimated 17% of all US venture capital funds raised in 2009 and is the largest single fund raised since 2007.”

In a week when two rival reports, from Dow Jones Private Equity Source and Prequin, both concluded that private equity and VC had seen their worst fundraising year since 2003, NEA’s achievement is all the more striking. As Peter J. Barris, Managing General Partner of NEA, rightly concluded, the fund was raised during “an incredibly challenging time for the venture capital industry.”

Back on the West Coast for the time being from his tenure at NEA’s Shanghai office where he has been assisting the firm’s China practice, Dick Kramlich, General Partner and Co-Founder of NEA, shared a few thoughts on the fundraising trail and prospects for the VC sector.

Timing and track record

“We were pretty lucky,” Kramlich conceded modestly. “We actually started just before the meltdown, but we had had indications from our LPs that they would support a fund of this size or larger.” As this indicates, NEA’s ability to move on its plan in the teeth of the financial crisis was the outcome of its track record and its close relations with its LPs.

“We had a good record: 85% of people were existing partners who came in,” Kramlich told AVCJ. As he reported, the new draft of LPs in particular indicated that they had been swayed by the track record of NEA’s last two or three global funds. “All were in the top quartile or higher in terms of their performance.”

LPs in the new fund include CalPERS, California State Teachers' Retirement System (CalSTRS), the Teacher Retirement System of Texas, and Utah Fund of Funds. Despite the large final close, earlier reports indicated a target of up to $3.33 billion, though. NEA has been investing from the new fund since May 2008.

Fund proposition and geography

Almost as important as track record in the new fund’s appeal to LPs, Kramlich continued, was the firm’s structure and its geographical coverage, particularly the inclusion of Asia Pacific. NEA’s announcements emphasized the expansion of its global coverage to Beijing, Shanghai, Mumbai and Bangalore.

“The geographical dispersion and the way we allocate our resources appeal to people,” Kramlich noted. “We now have very good teams in both India and China.”

With the investment operations already in place in Asia, Kramlich agreed that the next logical step might be to incorporate more Asian LPs into the mix. “If we establish an on-the-ground track record that people can relate to, I think we’ll have the possibility of having more indigenous LPs. We would like that to happen, for obvious reasons. These relationships are long term, they lead to better prospects.”

Kramlich put this into the context of the growth of the asset class. “There’s a globalization now. It’s a much larger business than it was then. And there are people who, with dedicated resources, are ready to make us part of their allocation.”

Prospects for Asia Pacific

Given the importance of Asia in NEA XIII’s investment case, “20% or so of what we calculate we will be investing in Asia,” Kramlich said. “We have guidelines but we basically allocate on a basis of the opportunities we find.” And he emphasized that carry and compensation for GPs, as well as dealmaking, was globally based. “Their interests and their carry are fund-wide. We try to align the interests.”

NEA already has a strong Asian investee base and pipeline. “Right now we have 18 companies in China, and 14 of them are positive cash flow. I expect to have 3-6 IPOs over the next 18 months,” Kramlich pointed out. And he instanced “no lack of opportunity” to invest the new capital.

“We have a longterm point of view about this. We have both early stage and later stage deals. We have a mix of both of them. And I would say that the allocation is going to be based on opportunity, but it’s going to be pretty evenly divided between startup and later stage deals. That’s particularly true in China. In India the bias is more towards later stage.”

Above all, Asia will be important in the much-needed renovation of VC. “Our asset class has had a really unspectacular few years in the IPO market. Our results are still dependent on IPOs, both directly and indirectly, because IPOs have to set a standard for the overall M&A market,” Kramlich stressed. “The IPO market needs to be rejuvenated …The IPO market in Asia is superior to that in the US. It’s very exciting for Asia.”

Prospects for the asset class remain good, according to Kramlich – at least for the right players. “This is the best time to make investments since 1978. I picked that since it’s the date we started the firm. That time was almost as dismal as the time we’re in, at least in the US. No one knew that it was going to be altered in a year or two, and it was.”

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• Topics
• Venture
• Fundraising
• North America
• LPs
• People
• Peter Barris
• Dick Kramlich
• New Enterprise Associates