The Daily Deal, Monday, April 2, 2001, by Cliff Carlsen

San Francisco's Walden International became the latest to join the once-elite billion dollar club, landing $950 million in its PacVen Walden Ventures V fund and another $50 million in a parallel fund of individual investors.

The new fund triples the $328 million Walden raised in 1998 and eclipses its original target of $750 million. The hybrid U.S.-Asian firm plans to stick with its previous strategy of investing about one-third in U.S. deals, one-third in Asia and one-third in cross-border deals that take advantage of disparate market factors.

Walden Executive Chairman Lip-Bu Tan said it raised most of the money soon after launching its fund-raising effort last October, but kept it open as some fund-of-fund investors were still involved in their own fundraising. In doing so, he saw firsthand the chilling of the market in recent months.

"We had conducted most of our road show by Thanksgiving, but then later, particularly in January and February, the market hit a wall, and investors started to get very nervous," Tan said. "But I think our global focus drew people in, because Internet penetration and telecommunications infrastructure in Asia is still behind when the U.S. is already in a shakeout."

The firm's Asian focus allowed it to finish the fund well above its targeted level, but it clearly got in at the end of a record wave of mega-fund closes. Last year saw a record 18 funds close with $1 billion or more, representing a six-fold increase from 1999, with three funds raising more than $2 billion each.

According to San Francisco venture market research firm VentureOne, more than half the money raised for venture capital funds are in funds exceeding $500 million, and the median fund size reached $138 million in 2000, up from $135 million in 1999.

Figures for the first quarter of 2001 are not yet available, but funding is certain to be down dramatically, and only a handful of firms have closed over the billion-dollar mark. Tan and general partner Daniel Faizullabhoy said the current global market situation is almost an exact reverse of when it began investing PacVen IV, when the Asian financial crisis was just beginning and valuations were very low. Now the Asian markets are relatively strong and the firm will focus more on the U.S. for bargains, though still balancing the amount it invests in each market in the same manner.

Tan hopes to make opportunistic investments in difficult U.S. markets and target new growth markets in Asia. Since its first $40 million fund in 1990, Walden has concentrated on sourcing deals in local markets throughout Asia and in the U.S. The firm has offices in the U.S., Taiwan, Singapore, Philippines, Malaysia, India, Japan, China and Hong Kong.

With different dynamics driving each market, the firm believes now is a particularly good time for deals that take advantage of geographical disparities.

"This is a better environment for cross-border deals because we can keep the burn rate so much lower," Faizullabhoy said. "We have investments in India where the burn rate can be $100,000 a month." Tan said the firm also will pay particular attention to investments in Japan, which he said is close to a market bottom, as well as other down markets.

"Today's economic slowdown creates excellent opportunities for early-stage investing," Tan said. "We expect to see a return to more reasonable valuations within realistic time frames, making this the ideal environment to identify and invest in solid companies with long-term growth potential." The new fund was raised from about 30 sources returning from previous Walden funds and about 30 new sources. Tan said virtually all previous investors re-upped, with most doubling or tripling their commitments.

"Over the years, we have seen Walden International continue to refine its focus on early stage, international investing," said Kevin Delbridge, managing director at Boston-based HarbourVest Partners. "The firm's deep industry and local knowledge uniquely position Walden International to capitalize on the opportunities made available in today's global technology marketplace."

Walden called on Dan Frank of San Francisco's Cooley Godward llp for legal work on the deal. The firm did not use a placement agent in putting the new fund together, but called on Bob Mest of the Monument Group in Boston to help target new limited partners.

"We purposely broadened the fund this time, bringing in some very strong investors such as Horsley Bridge Partners and added some fund-of-funds as well as new European investors," Tan said.

Walden drew about 70% of its capital from U.S. investors, with the rest from Europe and Asia. Returning investors who make up the fund's advisory board include Commonfund Capital, HarbourVest Partners, Harvard Management Company, Massachusetts Institute of Technology, NIB Capital Private Equity and Pantheon Ventures. Other investors in the fund include Adaptec, AOL Time Warner Ventures, Credit Suisse First Boston, DBS Bank, Goldman, Sachs & Co., GIC Special Investments Pte Ltd., Morgan Stanley Dean Witter & Co., Robertson Stephens' BAYVIEW 2000 LP, Sumitomo and Temasek Holdings.