August Capital has raised a new $550 million fund, its largest ever. Why so big? For one thing, the firm plans to do more late-stage private equity deals in addition to early-stage VC investing. "We've institutionalized our ability to do deals like Seagate," says Andy Rappaport, a general partner at August, which was one of six investors in the $2 billion buyout of storage company Seagate in 2000. August has always resisted being pigeonholed as investors in one tech sector or one stage of development. In addition to buyouts, the firm will keep prospecting for early-stage startups like Six Apart and Perform Local, which are in the new fund. But August's girding up for late-stage investing says a lot about the new opportunities for buyouts in the maturing tech industry.
The terms of August's new fund allow the firm to do as big a deal as it wants without approval from limited partners. Whether the firm will exercise that freedom is a different matter. It’s a firm that doesn’t want to pin itself down. A deal could be between $500K and several hundred million. Could be a young company or a mature company at a crossroads. Could be a semiconductor, open source or ecommerce deal. Rappaport jokes that most of his best investments have been called crazy early on in partner meetings, including Atheros, which went public last year. In short, August unabashedly does what many firms say they don't do: gut-feeling investing. The partners want to have a good feeling about a team and a pretty good idea that the company is doing something that's worth money to someone--even if the business model isn't clear. If there's a risk the firm will take, it's being uncertain about whether the technology will work. But Rappaport is confident that if the team is smart enough, they'll get the laws of physics to comply. "The biggest problem firms make is over-burdening every deal to be a winner," he says. "Then you're not taking enough chances."
To help invest the new, larger fund, August has added two general partners: Vivek Mehra, a former founder of Cobalt Networks, and David Hornik, a former intellectual property lawyer at Perkins Coie. That brings the firm's total number of general partners to five, which is still small by VC industry standards. The GPs don't have associates and do their own research. Expect August to keep doing the unexpected.
-- Justin Hibbard and Sarah Lacy