MENLO PARK — Menlo Ventures, a totem of the powerful Sand Hill Road investing community that has backed almost every major Silicon Valley success story since the birth of the silicon chip, has raised a $400 million fund to back a new generation of tech startups, the firm announced Wednesday.
The new fund will allow Menlo Ventures — which has funded companies such as Uber, Tumblr and Gilead Sciences — to continue its role as a heavyweight in what has become an ultracompetitive investing environment where funding rounds have reached never-before-seen levels. Uber, for instance, raised two rounds of $1.2 billion last year in what investors agree were the largest private market investments ever in tech; Menlo joined one of those rounds.
Venky Ganesan, managing director at Menlo Ventures, said the new fund, the firm’s 12th since its founding in 1976, would be split between investments in consumer technology companies and companies building technology for businesses; sometimes one sector is hot while the other is not, and the firm wants to be able “to play in both,” he said.
The firm already has made one investment from the fresh pile of cash: RealtyShares, a San Francisco-based online real-estate marketplace that connects investors with real-estate development opportunities, raised $10 million this month in a round led by Menlo Ventures.
The fund is one of the largest reported this year by venture capital firms in what has so far been a sluggish year for fundraising. When compared with the 61 new venture funds that were raised in the first quarter and reported this month by the National Venture Capital Association, Menlo’s $400 million fund ranks fifth. The firm’s blockbuster performance with its last fund — the one that put money into companies such as Dropcam, which sold to Google’s Nest Labs for $555 million; Check, which Intuit bought for $360 million; and Uber, now valued at $41 billion — likely gave Menlo’s partners significant clout when asking investors for money.
Venture capital firms raise money from institutional investors such as pension funds, university endowments and governments.
And yet by Menlo Ventures’ standards, this 12th fund is smaller than previous funds, signaling the firm’s decision to spend more time working with individual companies and making fewer, yet more thoughtful, investments, Ganesan said. Menlo’s 10th fund was $1.5 billion.
“This is the Goldilocks fund,” Ganesan said. “It’s not too small that you can’t invest in interesting companies, but not so big you have to put a lot of capital to work.”
The new fund coincides with a changing of the guards at Menlo Ventures. Firm founder DuBose Montgomery will not join this fund, and it is the last fund that longtime partners Doug Carlisle and John Jarve, who have been at the firm since the 1980s, will help oversee. Ganesan is among four younger partners assuming leadership at the firm.
Of the $400 million fund, $15 million will be dedicated to seed-stage startups, Ganesan said. Seed is among the earliest stages of a company’s formation, often when a company comprises just a couple of entrepreneurs working out of an apartment. Menlo’s commitment to very early-stage investing is the latest sign that VCs across the valley are backing away from late-stage investing since it has become dominated by large hedge funds and mutual funds, which are pouring millions into growing startups and driving up funding rounds and valuations to stratospheric levels.
“To the extent that there is some exuberance in the market, it is very much in the late stage, and we look at that as an opportunity to sharpen our focus on seed- to early-stage,” Ganesan said.
Saeed Amidi, founder of Plug and Play Tech Center in Sunnyvale, an accelerator that mentors and funds entrepreneurs starting companies and connects them with VC firms such as Menlo, said interest in early-stage investing is picking up. Last quarter, 21 of Plug and Play’s young companies raised early-stage funding from VCs for a total of $67 million of new investments, “which may be the biggest number we’ve ever had,” he said.
“Frankly, VCs are still really interested in pre-seed and seed,” Amidi said.
Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.
