Reading into ISAI’s Second Fund

Apr 9, 2012
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Last week, Frenchweb broke the news that ISAI had raised a second fund, which would focus primarily on expansion of already profitable companies looking to grow quickly. If you’ve ever talked to me, you know I’m a big fan of ISAI – and not just because they make really good investments – the fact that the fund is invested by entrepreneurs with a Silicon Valley feel to it doesn’t hurt. So when I heard that they had raised a second fund, I had hoped it would be for the same purpose.

Fund #2 will not invest in Fund #1 portfolio companies for the same reason: no Ponzi scheme !

I shot ISAI GM Jean-David Chamboredon an email, and he filled me in on a few of the things that mattered most to me: like how many new investments does this mean for ISAI (2/year on top of the 4/year of the first dun) &  what the focus of the fund will be (100% tech with no over-lap between the first fund’s investments). But really, my big burning question was “why?” Why not add more money into the early stage fund and jump to 8 investments per year? It’s not as if there aren’t enough startups – even though I wouldn’t invest in all of them given the chance, I could still pick out eight per year. Here’s JDC’s response:

We consider part of our role to fill existing gap in the funding chain. There are plenty of mid-stage/late-stage VC but there’s no small cap PE [Private Equity] firm dedicated to the internet sector.  In addition, when a management company runs 2 funds in parallel, it’s good to have separate mandates to avoid any conflict of interest between the 2 LP bases of the 2 funds.

So that clears a few things up: I had asked whether it was a standard dilution of investment, in the sense that you invest a little early stage, a little late stage, and a little of standard PE, but that really doesn’t make sense because each fund’s ROI is independent, so it’s much more of a dilution strategy in the sense that ISAI sees multiple holes in funding in France, and is trying to plug all of them up a little instead of one of them a lot.

JDC said that the new fund’s earliest investment could come as early as the end of this summer. The fund is oriented towards profitable companies which need cash to grow (organic, international, acquisition). They can offer them equity investment (including potential secondary “cash-out”) and, in some cases, potential leverage (mezzanince type of).

While I think unfunded startups would love to see ISAI making more investments, or more funds with an ISAI-oriented mindset, I think that this kind of incremented help to the funding structure will be best in the long run.

I guess I kind of have to hope that’s true. – It’s not like I have any money to invest!