Three partners at the venture capital firm Morgenthaler Ventures are striking out on their own, with a new fund to make early-stage investments in software companies.
The new fund, known as the Canvas Venture Fund, has attracted $175 million, the partners plan to announce on Thursday. It is the first fund raised by a company they recently formed, the Morgenthaler Technology Investment Company.
For Morgenthaler Ventures, the offshoot represents another step in the evolution of one of Silicon Valley’s oldest firms. The three partners - Gary Little, Rebecca Lynn and Gary Morgenthaler - will remain partners at Morgenthaler Ventures even as they run their new fund.
Founded 1968 by David Morgenthaler, who is Gary’s father, Morgenthaler Ventures has moved from a generalist approach to one of greater specialization. Last year, the firm’s life sciences group joined with partners from Advanced Technology Ventures to form Lightstone Ventures, which invests in medical device and biotechnology companies.
The move toward becoming a boutique was motivated in part by pressures in the broader venture capital market, Mr. Little said.
“The landscape has evolved into the global brand V.C.’s that have multiple funds in multiple countries, and then the specialist boutique firms,†he said. “It’s been challenging for those that are in the middle.â€
Based in Menlo Park, Calif., the Canvas fund plans to make early investments - known in the industry as Series A and Series B - in software firms serving businesses and other information technology companies. There is a “good chance†that one of the first investments will be in the financial technology area, Mr. Little said.
To raise their fund, the Canvas team turned to investors that had previously committed money to the latest Morgenthaler Venture funds. Though the new fund had an initial target size of $150 million, the partners allowed the size to climb to $175 million amid strong demand.
At least one investor had concerns about the fund growing that large.
“On balance, we would have preferred them not to have done that,†said Ashton Newhall, a co-managing general partner at Greenspring Associates, a fund near Baltimore that invested $10 million to $20 million in Canvas. “But I think there’s a rather cohesive argument for why, and what they’re planning to do.â€
Canvas said it planned to take a selective, thoughtful approach to investments by focusing on large stakes ranging from $5 million to $15 million. Mr. Little contrasted his strategy with that of other investors that make a lot of smaller investments and then nurture the ones that do well.
In the past, the Morgenthaler name has been behind some big successes in technology, including Apple. Its portfolio also includes Evernote and the Lending Club.
For another investor in the Canvas fund, Industriens Pensions, a private pension fund in Denmark, investments in the Morgenthaler funds have been among its best performers, according to Soren Thinggaard Hansen, the pension’s head of private equity.
When it came to investing in Canvas, the specialized focus was a selling point, said Mr. Hansen, who committed $20 million.
“Software and services is quite an attractive area,†he said. “That’s one of the areas where it actually pays out to be an early mover.â€
