March 27, 2006 Foundation closes fifth fund By Clifford Carlsen / VC - TechNews Foundation Capital of Menlo Park, Calif., turned primarily to previous investors to close its fifth venture capital fund at $525 million. The new fund was scaled down slightly from Foundation's previous effort, a $595 million fund close in April 2002, but Foundation general partner Warren Weiss said Foundation Capital Fund V will invest at the same pace of about 10 deals a year, or two per partner. Foundation founding partner Kathryn Gould is retiring from the firm and will not participate in management of the new fund. Weiss said Foundation started fundraising last fall when it informed existing investors that it would launch a new fund but did the bulk of fundraising in the first quarter. Foundation did not use a banker or placement agent in putting the new fund together. It called on Craig Dauchy and Shane Goudey of Cooley Godward LLP in Palo Alto, Calif., for legal work. Returning investors in the fund include the endowments of Harvard University of Cambridge, Mass., Yale University of New Haven, Conn., and the California Institute of Technology of Pasadena, Calif. The fund also includes fund-of-fund investors, foundations and pension plans. Although 90% of the new capital comes from previous investors in Foundation funds, Weiss said the firm added notable new investors, with the endowments of Stanford University and Purdue University coming in for the first time. Weiss said that Foundation has worked closely with Stanford's department of engineering on a number of portfolio companies. Adding the school's endowment as an investor will extend that relationship. Georganne Perkins, director of private equity for Stanford Management Co., which manages the university's $10 billion endowment, said Foundation has established itself as an outstanding venture firm and that participating as an investor will extend the school's involvement in portfolio companies. Weiss said Foundation V will continue to focus on software, telecommunications, consumer and energy investments, as the firm has in previous funds. He said that Fund IV is about 90% committed to previous investments and reserves, but that Foundation will make a handful of new investments from the existing fund before making investments with Fund V. Weiss said about 40% of investments will go into software and on-demand technology services, 40% into semiconductors, networking storage and telecommunications infrastructure and the remainder in consumer investments, and energy. Weiss said energy, or "clean tech" deals will likely make up about 10% of the fund, but he said Foundation will be cautious in the area, as well as in consumer investments. "What we do in clean tech is very coaligned with what we do in the IP space, we won't be investing in power generation projects or solar or those kinds of things," Weiss said. "Clearly there is a lot of activity in both the consumer and clean-tech areas, and they have become almost bubblelike here in the valley." Weiss said the firm remains committed to the telecommunications equipment sector despite the downturn in the last five years, and he said Foundation had a strong return from the sale of Peribit Networks Inc. to Juniper Networks of Sunnyvale, Calif., for $380 million in April 2005. Weiss said Hammerhead Systems Inc. of Mountain View, Calif., which had its first institutional investment from Foundation, was one of the few companies in the sector to land a strong follow-on investment, with a $30 million Series C round that closed in January. TheDeal.com Copyright 2006, The Deal, LLC. All Rights Reserved