The Battery Overage

Battery Ventures once again wants to become a billionaire, by raising a $250 million “overage fund” to supplement the $750 million eighth fund it closed last summer. I’ve got a bunch of related items, and since bullet points are so much simpler than prose…

* Battery last raised $1 billion for its sixth fund in 2000, but then reduced it to $850 million during the Great Fund Size Cuts of 2002. It then dropped down to $450 million for its sixth fund in 2004, before raising $750 million for Fund VIII. Add in the $250 million, and it’s a perfect circle.

* Why would LPs invest in an overage fund? In some cases, they have no choice because the general fund and overall fund are stapled together. That’s the situation with Austin Ventures, for example, which is raising $600 million for its general fund and $300 million for its overage fund (final close on both set for the middle of next month). Either play in both, or don’t play at all. But there is also a fee incentive: Most of these overage funds only charge management fees on called capital, rather than on committed capital. It gives LPs a warm, fuzzy feeling…

* The result is that overage fund portfolios are much more concentrated than are typical VC or PE fund portfolios.

* I spoke yesterday with Battery partner Dave Tabors – not about the fund (natch), but about his firms ability to secure leveraged financing. He said that the credit crunch has obviously affected both deal-flow and prices, but that Battery has still been able to find debt when needed. For example, he said, the firm got leveraged financing for its $85 million carve-out of HighJump Software from 3M, and portfolio company HealthVision bought a division of MediSolution using 90% leverage and 10% incremental equity.

* I also asked Tabors whether VC firm efforts to diversify into buyouts would meet the same fate as buyout firm diversification into venture capital during the dotcom daze. He said no, so I asked why? The key, he believes, is that buyout deals – by their nature (i.e., actual assets, revenue) – are less likely to go bust than are early-stage transactions.

* Of course, there’s no pesky leverage on early-stage deals – so the real answer might have more to do with firm scaling. In other words: The typical buyout deal has more potential to move the needle for a VC firm than did a typical early-stage deal for a big buyout firm (like TH Lee or Hicks Muse).

* Private Equity Insider first broke news of the Battery overage fund. Too bad, really, because I spent part of yesterday thinking I had a scoop…