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Austin Ventures Said to Reduce Fund Size for Early-Stage Focus

Austin Ventures, the biggest backer of technology startups in Texas’s capital city, is reducing the size of its next fund by half from its prior fund as it focuses on younger companies, said two people familiar with the matter.

The 34-year-old firm is aiming to bring in $450 million for its 11th fund, down from the $900 million fund it raised in 2008, said the people, who asked not to be named because the fundraising is private.

Austin Ventures, with close to $4 billion under management, has helped stoke a revival in the local technology scene, backing HomeAway Inc. (AWAY) and Bazaarvoice Inc. (BV), which have both sold shares to the public in the past two years. The firm also invested in SolarWinds Inc. (SWI), which went public in 2009, and is the lead investor in RetailMeNot Inc., an online coupon provider that is preparing for an initial public offering.

While Austin Ventures’ early bets are paying off, the firm has had less luck with its investments in more mature companies. In its early stage portfolio, the firm writes initial checks of $500,000 to $10 million with a focus on business technology, Internet and digital-media startups. It’s cutting back on venture growth investments in bigger companies, the people said.

Kim Hughes, a spokeswoman for the firm, declined to comment.

Austin Ventures also buys stakes in what it calls middle-market companies, Texas-based businesses in a range of industries including oilfield services, food services and light manufacturing.

Funds’ Returns

At $450 million, the new fund would be the firm’s smallest since it brought in $320 million in 1998.

The firm’s previous fund was worth 1.2 times its original investment and producing an annual gain of 9.7 percent as of Dec. 31, according to Oregon Public Employees Retirement Fund performance data. The ninth fund, which brought in $525 million in 2005, was valued at 1.1 times the original investment with a 3.1 percent annual return as of Sept. 30, according to performance data on California Public Employees Retirement System’s website.

Other fast-growing Austin startups the firm has backed include Spiceworks Inc., a provider of free software used by information-technology pros to track and fix internal computers and servers, and MapmyFitness Inc., developer of Web-based software for sharing workouts.

U.S. venture firms raised $4.1 billion in the first quarter of this year, a 14 percent decline from a year earlier, according to the National Venture Capital Association. Firms invested $533.6 million in Texas startups in the first three months of the year, up 30 percent from the same period in 2012, the NVCA said.

To contact the reporters on this story: Sabrina Willmer in New York at swillmer2@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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