Morgenthaler Ventures Looks to Raise Up to $200M for IT Fund X

Morgenthaler Ventures has begun the initial steps of looking to raise its 10th fund, an IT-focused, early stage fund with a hard cap of $200 million, according to an LP source familiar with the fundraising effort.

The source says no formal documents, such as a private placement memorandum, have been distributed, but the firm has had initial conversations with some LPs and is expected to begin formal fundraising as early as January.

Morgenthaler Ventures declined to comment.

It is believed the fund will follow the same strategy as it firm’s previous fund by taking large, early-stage ownership stakes in its investments. The firm, which historically went after hardware deals, now predominantly focuses on software and services in Silicon Valley and San Francisco.

Morgenthaler raised its ninth fund in 2008, a $400 million effort that was evenly split between between IT and life sciences.

Although now is a challenging time for many firms to raise fresh commitments, Fund IX contains a few notable portfolio companies, including one that has already generated some liquidity for the fund:

  • Late last month, Evernote, raised $85 million, much of it coming through a secondary sale, bringing the total amount of capital raised by the company to more than $250 million. TechCrunch reported that the funding was done at a valuation of $2 billion, although some sources suggested to peHUB that it was closer to $1 billion. In 2009, Morgenthaler Ventures was the first U.S.-based VC to invest in Evernote, which raised a $10 million Series B that year at a reported pre-money valuation of $25 million. An LP source says that Morgenthaler Ventures sold off a small portion of its holding in Evernote in the round last month, but still holds a sizeable stake.
  • Lending Club, the San Francisco-based personal lender, last month announced it has helped enable more $1 billion in loans to date. The company has raised about $100 million from investors, including a $15 million infusion from new investor Kleiner Perkins Caufield & Byers in June. Lending Club board member John Mack, the former CEO of Morgan Stanley, also invested $2.5 million. Morgenthaler Ventures has been an investor in Lending Club since the company’s $12 million Series B round in early 2009. Norwest Venture Partners and Canaan Partners are the No. 1 and No. 2 largest shareholders, respectively, in Lending Club.
  • Practice Fusion, a San Francisco-based medical records management company, has raised some $70 million in funding from angels and institutional VCs, including Morgenthaler Ventures and the Founders Fund, among others. The fast-growing company has amassed more than 50 million patient records in its database, which is more than three times the VA (7.5 million) and Kaiser (8.5 million) combined. Morgenthaler Ventures took part in the company’s first venture round in early 2009.

The new fund will reportedly be called IT Fund X and is unrelated to Lightstone Ventures, a firm formed by the life sciences partners at Morgenthaler Ventures and Advanced Technology Ventures, who are raising a separate fund of up to $250 million to focus on early-stage therapeutics and medical devices. The Lightstone partners are expected to stay involved in their existing life sciences and health care-related investments at their previous firms, but new life sciences investments in the sector will be made from Lightstone.

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