Scale Venture closes $400m second fund

The Bank of America spin-out has closed its second fund, and transferred the ownership of its portfolio from the banking giant to 12 new limited partners.

Foster City, California-based Scale Venture Partners closed its second technology- and healthcare-focused fund, Scale Venture Partners II, on $400 million (€305 million).

In a unique fund structure, Scale Venture Partners II’s original sole investor, Bank of America, has transferred its interest in the existing fund to a mix of 12 limited partners, the majority of which are funds of funds including Montague Newhall, Lexington Partners, Pantheon Ventures and Macquarie Global Private Equity Fund. The new LPs, many of them secondary market specialists, have not only committed fresh capital but have bought into the fund’s existing portfolio companies.

“It’s a great outcome for us,” said Scale Ventures managing director Rory O’Driscoll. “We’re excited to have the new LPs, and at the same time, this is a great transition.”

The venture capital firm, formerly BA Venture Partners, became independent of Bank of America in January. Bank of America was the only limited partner in the firm’s first fund, which closed in 2000.

Venture Partners’ current fund – the structure of which has not changed despite the difference in LPs – began investing in December 2004, and its portfolio currently has 16 companies, said O’Discroll. “I think we’ll end up with around 27 to 30 companies,” in which the average investment will be between $5 million and $20 million, he said.

The firm expects to focus primarily on US companies, O’Driscoll added.

The fund was marketed by San Francsico-based placement agent Probitas Partners, which also advises clients on secondary market transactions.

Lining up LPs took less time to do than does the typical primary fundraise, said Probitas partner Craig Marmer.

It was, however, slightly more complicated, Marmer said, “because you had an existing fund structure with a portfolio, requiring more information and more analysis” on the LP-side.

That may be the reason why so many of Scale Venture Partners II’s are funds of funds and secondary specialists, O’Driscroll speculated.

Last year, Scale Venture Partners had eight exits through acquisitions or initial public offerings and 29 financings totaling more than $90 million. Its 2006 IPOs among its portfolio companies included Somaxon and Omniture, while acquisitions included Outer Bay by Hewlett-Packard, and Good Technology by Motorola. The firm currently manages $1.2 billion in capital.