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Industry closes $265m VC secondaries fund

The San Francisco-based secondary specialist estimates some $5bn in venture secondary assets are up for grabs.

Industry Ventures has closed its fifth fund on $265 million, more than doubling its predecessor, which closed on $105 million in 2005. Fund V will spend the next two to three years investing between $1 million and $25 million per deal in limited partnership interests in venture capital funds as well as directly into portfolio companies. A co-investment agreement also allows Industry to make larger investments in “special situations”.

Originally targeting $200 million, the fund was granted limited partner approval to increase its size given investor demand and market dynamics, Industry said.

The secondary market is “one of the few bright spots” in such tough economic times, Industry founder Hans Swildens said in a statement. The number of sellers increased greatly last year as markets dried up and the financial crisis spread, he added. “Since last quarter we have seen the volume of secondary deals grow more than 25 percent and we estimate that there is more than $5 billion for sale in the venture capital market.”

Known investors in Industry’s Fund V include the Macquarie Group and the San Bernadino County Employees’ Retirement Association, the latter of which committed $10 million according to pension documents available online. Investors in the firm’s fourth fund included the Montana Board of Investments and DuPont Capital Management, according to sister data service Private Equity Connect. Industry did not disclose how long fundraising took for Fund V, nor if it had used a placement agent.

Sellers have increased as they look to create liquidity by disposing of fund stakes, or by directly disposing of assets taking longer to realise than planned. Last year, the National Venture Capital Association found the median age of a company from founding to its initial public offering had grown to 8.6 years – a 27-year high – due to factors including skittish investors, credit market dislocation and Sarbanes Oxley regulations.

“A lot of those companies that thought they were going to go public and filed IPOs, now have withdrawn it,” Swildens told sister magazine Private Equity International last year. “The manager teams, the investors in those companies expected an exit and now there’s no exit. So that’s caused them to look for alternatives for liquidity.”

Last year, the San Francisco-based firm said it made 40 secondary acquisitions, up from 27 deals in 2008. The firm has made more than 100 secondary acquisitions since it was established in 1999 and it has more than $500 million of invested capital across five funds.