By Heather Somerville
SAN FRANCISCO (Reuters) - Venture capital firm Lightspeed Venture Partners has raised $1.8 billion to invest in startups from cryptocurrency to beauty supplies, hoping to build on its streak of lucrative bets in companies such as Snap Inc (N:SNAP), the firm's partners told Reuters.
Lightspeed has historically been an early-stage investment firm and was the first outside investor in Snap's messaging app Snapchat. But about $1.05 billion of the new funding will be earmarked for a separate fund to invest in more mature companies, the partners said on Monday. The dollar amount is more than double the size of its previous growth-stage fund.
Lightspeed is eyeing a business expansion to Southeast Asia and wants to add investments in cryptocurrency, biotechnology, new TV streaming services and even cosmetics companies.
As startups stay private for longer, relying on venture capital rather than the public markets for funding, firms like Lightspeed have to invest repeatedly in a company for years if they want to maintain a large enough ownership stake.
"That trend has only been increasing over time, and as a result our funds have been getting bigger over time as well," said Jeremy Liew, a Lightspeed partner. Later-stage companies are less likely to go belly up, but are also less likely to provide extraordinary returns, he said.
Lightspeed also said it hired a new partner, Brad Twohig, formerly an investor with Insight Venture Partners, who will help lead the firm's growth investments.
The firm's larger fund for growth-stage investing reflects a shift in the venture capital industry that has been underway for years, as deep-pocketed investors from every corner of the globe have piled into startup investing.
SoftBank Group Corp's (T:9984) Vision Fund, a more than $93 billion investment vehicle, has rankled the venture capital community by investing billions of dollars into companies such as WeWork and Uber Technologies Inc [UBER.UL]. The fund often commands a large ownership stake and may buy out existing investors.
An investment of "$500 million or a billion dollars can be a king-making strategy," said Lightspeed partner Ravi Mhatre. "But it's not a substitute for building a lasting company."
In the first half of the year, U.S. venture capitalists have raised more than $20 billion across 157 funds, on pace to beat last year's total, according to a report released Tuesday by data firm PitchBook Inc. By comparison, venture firms raised $18 billion across 157 funds for all of 2004, the oldest available Pitchbook data.
The median-size venture fund is about 20 percent bigger than in 2004.
Lightspeed will be challenged to live up to the performance of its previous funds, which returned $2.7 billion to investors since the start of 2017, the firm said. As venture-backed tech companies have delayed their initial public offerings, many venture capital firms have seen investment gains mostly on paper. Lightspeed has been an exception.
Lightspeed-backed companies have held 17 initial public offerings in the last five years, about half of which have occurred since the start of 2017, including messaging app Snap, personal stylist company Stitch Fix Inc (O:SFIX) and data storage provider Nutanix Inc (O:NTNX). Lightspeed also reaped windfalls when Cisco Systems Inc (O:CSCO) acquired AppDynamics Inc and when Salesforce.com Inc (N:CRM) bought MuleSoft for multiple billions of dollars.
"If you point to one moment in time for the firm it was probably the Snap IPO," said Liew, who led the firm's Snap investment. "But really, it's a decade of hard work and it all came to fruition at the same time."
Also on Tuesday, Silicon Valley firm Scale Venture Partners announced a new $400 million fund, smaller than some of its peers but still about 20 percent larger than its previous fund. Partner Alex Niehenke said he was skeptical of the "massive, massive funds" other firms were raising.
"They start writing much bigger checks, and talking entrepreneurs into taking more money than they need," he said.