New Enterprise Associates, identified by the acronym NEA, has closed a brand new pair of early-stage and growth-stage funds, each hovering somewhat over $3 billion to a complete of $6.2 billion.
The two-fund construction is a primary that begets one other first for the 45-year previous agency: TechCrunch has realized that NEA has filed to be thought-about as a registered funding advisor, which, if handed, would give the agency a standing much like the likes of different storied companies together with Andreessen Horowitz, SoftBank, and Sequoia Capital.
NEA’s shift alerts the agency’s curiosity in doing enterprise in a more recent, extra blended method. Scott Sandell, NEA’s basic managing associate who has labored on the agency for practically three a long time, spoke to TechCrunch concerning the agency’s rising remit amid tech uncertainty.
For one, Sandell explains, NEA desires to take up much more room within the business. Before the tech bubble hit its peak in 2021, the agency’s operations workforce uncovered that NEA was doing a 36% IRR on $4 billion {dollars} invested over a decade. The dangerous information? That NEA solely accounted for 10% of the capital that the identical cohort raised in complete.
“It sounds like an opportunity to me,” Sandell stated. The agency thus set off to boost two funds, one that may be used solely to spend money on early-stage bets, and one other that may dedicate one-third of its capital to current growth-stage portfolio firms, with the remainder invested in new growth-stage firms. It helped that buyers have been additionally knocking on NEA’s door, asking for publicity to both early-stage or late-stage, not at all times each.
“What we had heard over and over again, not from everybody, but certainly from some and some that mattered, is that they didn’t really know what to do with us,” Sandell stated of LPs. “We had this one big fund and it had venture and growth in it…we had resisted going in the [dual-fund structure] for a long time.”
It seems to be effectively geared up to deal with the incoming homework. NEA at present has 22 funding companions, and round 40 different enterprise operations workers amongst a lower than 100 individual workers. Sandell famous generative AI and software program as two of the agency’s curiosity areas, including that they’re particularly concerned with horizontal know-how.
Because the funds had their first shut earlier, NEA has already invested 20% of the capital raised. The greatest distinction, Sandell stated, relating to investing the remaining 80% of the fund versus the preliminary 20% is that NEA desires to give attention to capital-efficient companies.
“We know that capital will be scarce for the foreseeable future – at least for the period of the next three or four years during which these companies will be formed and developed and have to raise additional capital and so on,” he stated, later including that “a lot of the companies that were born in the last decade, because capital was so freely available, did not develop that efficiency gene.”
If it turns into a registered funding advisor, NEA doesn’t have to restrict its stakes, can spend money on public shares, take part in secondaries, and might work together with its LPs in numerous methods. For instance, Sequoia’s Alfred Lin just lately famous that Sequoia solely charged its LPs charges on invested capital, and whereas NEA will not be doing that this time round – perhaps because of its 175 individual workers – Sandell stated he wouldn’t be stunned in the event that they thought-about that sooner or later. “We haven’t had as much flexibility historically to do some things. And I’m excited about that,” he stated.
On yet another notice about LPs, Sandell shut down the concept capital calls have been tougher to get executed on this setting, one issue that has added to the mirage of how a lot dry powder is out there proper now. “We’ve never had an issue with that,” he stated.
When requested about how a lot capital the agency, a quiet large, has given again to its buyers thus far, Sandell didn’t share something concrete however stated that “I’m virtually certain we have returned significantly more capital than we’ve ever raised.”
He added, “that’s not true of a lot of other firms that have grown very quickly.”