Crosslink Halfway to $600M

Crosslink Capital has raised $300 million of a $600 million targeted fifth fund that it began raising in January to invest equally between venture deals and hedge fund-like public market investments, has learned. The fund is slated to close in September or October and is more than double the size of the $280 million Crosslink Crossover Fund IV, which was raised in 2003.

The San Francisco-based firm currently invests from three parallel vehicles. They include one that the firm uses to invest in public companies, one to invest in startups and a third that splits its money between the other two funds. The majority of the money from fund V will go toward public market investments. The venture team expects to call down money from the hedge fund team as the fund matures.

The hedge fund team invests in tech stocks, typically going 60% net long with as many as 30 to 40 companies long and 15 to 25 trading short at any given time. The hedge fund’s top holdings, as of May, were software company Omniture (Nasdaq: OMTR), for which it holds shares worth nearly $43 million; IT infrastructure provider Equinix Inc. (Nasdaq: EQIX), for which it holds shares worth more than $33.6 million; and wireless networking company Atheros Communications (Nasdaq: ATHR), according to a regulatory filing.

In 1999 and 2000, the Crosslink hedge fund returned 60% and 40%, respectively. But it returned only 1.5% in 2001 and lost 8.4% during 2002. It picked up in 2003, returning 25.7% and leveled off at 9.6% in 2004 and 13.7% in 2005, according to previously reported numbers from one of the firm’s internal marketing memos. The firm also raised a $250 million venture fund in 2005 called Crosslink Ventures V.

Crosslink is one of several hedge funds to increasingly cross over to VC and invest in early stage tech companies. Artis Capital Management, for instance, has invested in VC-backed startups, and the hedge fund invested in Wi-Fi access point maker Aruba Wireless’ $19.3 million Series D in September 2005. The round later expanded to more than $30 million in 2006. Artis also participated in chipmaker Open Silicon’s $15 million Series C in October 2005 and online advertising service company AdBrite’s $8 million Series B in February 2006. This year, Artis backed automotive GPS company Dash Navigation’s $25 million Series B in February and alcohol-based fuel cell company Oorja Protonics’ $15 million Series B and Open Silicon’s $10 million Series D in March.

Other hedge funds that are doing similar deals as VC firms are Farallon Capital Management, Och Ziff Capital and Maverick Capital. D.E. Shaw, one of the world’s largest hedge funds, and which manages more than $20 billion in capital, hired former Apax Partners’ Alex Wong to open a Silicon Valley office last year to invest in tech startups.

Farallon and Och-Ziff helped biometric payments startup Pay By Touch raise $60 million in February 2006 on the heels of a $130 million round that the company raised in September 2005.

Early this year, online video delivery startup Brightcove raised nearly $60 million from VCs and hedge funds in its Series C financing from Maverick Capital and the hedge funds AllianceBernstein and Brookside Capital. Venture firms Accel Partners and General Catalyst Partners also backed Brightcove.

Bill Burnham is hoping that his VC connections can help give him insights into public market investments. The former Mobius Venture Capital investor raised $10 million for a hedge fund he launched last summer called Inductive Capital. Burnham, who was a software investment analyst before becoming a VC, says that he is relying on insights from VCs to help him pick stocks.

Similarly, at Crosslink, the firm’s venture group meets with the public equity investors each week to discuss deals and industry trends. Burnham, though, is quick to point out that VC prognostication should be taken with a big grain of salt. “A lot of the VCs are not very well in touch with what’s hot or not in the public market now,” he says.