Millennium bolsters portfolio as it raises $300m

Millennium Technology Value Partners is expected to hold a final close by year end on its second venture capital-focused direct secondaries fund. The firm hopes to raise between $200 million and $300 million, as the boards and employees of VC-backed companies increasingly look to secondary players for liquidity while the M&A and IPO markets remain stunted.

The firm officially began marketing the fund at the start of the year and held a first close last month, according to sources familiar with the matter. Millennium declined to comment.

Its first secondaries fund, Millennium Technology Value Partners, closed on approximately $130 million in April 2006 and is largely deployed. Since the fourth quarter, the firm has added nine new portfolio companies to that fund’s roster, including social networking site Facebook, online dating service eHarmony and online shoe retailer Zappos.

MTVP I now has 26 “best-of-breed technology and high-growth companies” in its portfolio, the New York-based firm said in a statement yesterday that stressed the secondaries market is “open for business”.

Though the current fund being raised is tagged with the Roman numeral ‘II’, it is technically Millennium’s fifth fund. The firm is affiliated with 8-year-old Millennium Technology Ventures, which has raised three traditional VC funds and was founded by former Blackstone Group executive Dan Burstein after having run some traditional, early-stage VC funds from within Blackstone in the late 1990s. Though not Blackstone-branded funds, they were invested in by the private equity giant’s senior management and Blackstone co-founder and senior chairman Pete Peterson remains one of Millennium Technology Venture’s special limited advisory partners.

Fellow Blackstone alumnus Samuel Schwerin left the mega-buyout firm to join Burstein in 2002, and the two founded Millennium Technology Value Partners in 2004. Their thesis revolved around removing risk from venture investments without diminishing VC-type returns. Schwerin previously told sister magazine Private Equity International the firm offers a “systemic approach to offering liquidity into the venture capital model” to individual investors and institutions.

An example of the firm’s success with specialised secondary investing is voice-activated mobile directory Tellme, which was sold in March 2008 to Microsoft for an estimated price of $800 million to $1 billion. Between 2005 and early 2007, Millennium worked with management to understand who in its capital structure could benefit from liquidity and made 12 investments in Tellme worth more than $12 million. The deals involved a mix of debt, senior preferred stock, junior preferred stock and common stock and resulted in a 3x return.

Schwerin told PEI in September the firm sees increasing demand for “white label” employee programmes that allow the portfolio company to give its employees cash and take all the credit, with the secondary firm doing heavy lifting in the background. The secondary firm would then directly target other shareholders outside the company, such as former employees, in a traditional secondary investment way.