The venture industry is contracting at the moment, with fewer funds raised so far this year and overall dollars going into venture capital funds shrinking by 57 percent in the second quarter from the year before. Amid this background DFJ Mercury, a Houston-based affiliate fund of Draper Fisher Jurvetson, raised a $70 million second fund. I spoke with Ned Hill, a managing director at DFJ Mercury, to learn more about its strategy of investing in Texas, Michigan and other states Hill dubbed “the mid-continent,” and investing based on an expectation of an acquisition rather than an initial public offering.
The focus on middle America is essential for DFJ Mercury’s M&A-focused path to an exit, as the lack of competition keeps deal valuations lower, said Hill. The other thing keeping costs down is the firm’s focus on seed and early stage deals, although finding a Series B investor can sometimes prove challenging outside the Coasts. That’s one reason DFJ Mercury more than doubled the amount of funds it raised this time around.
DFJ Mercury’s first fund was about $30 million raised initially in 2005 (the firm raised additional money after that point to support investments from the first fund). So far the firm has had one exit from the 14 companies it invested in for Fund I — the sale of Phurnace Software to BMC last year — and closed one company, VizionWare. For more, check out the video below:
Related GigaOM Pro Content (sub req’d): What the VC Industry Upheaval Means for Startups
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