New Enterprise Associates, often known as NEA, has closed a total of $6.2 billion across two new funds, one for early-stage investments and another for growth-stage investments.
Aside from the novel two-fund structure, the 45-year-old business has also applied to become a registered investment advisor, which would put it on par with other legendary companies like Andreessen Horowitz, SoftBank, and Sequoia Capital.
This change reflects NEA’s desire to do business in a more contemporary, interdisciplinary manner. Scott Sandell, a 29-year veteran of NEA and its general managing partner, recently spoke on the company’s expanding scope in light of the current state of the technology industry.
Sandell says that for one thing, NEA wants to expand its presence in the market. The operations staff found that NEA was earning a 36% IRR on $4 billion invested over a decade before the tech boom peaked in 2021. Here’s the awful news: This NEA was just 10% of the overall funding that the same group of people brought in.
The opportunity seems good to me,” Sandell added. So, the company set out to establish two funds, one of which would be used exclusively for early-stage bets, and the other of which would invest one-third in its existing growth-stage portfolio firms and the remaining two-thirds in new growth-stage bets. Investors were pounding on NEA’s door, which was helpful, but they were usually only interested in either early-stage or late-stage investments.
Sandell stated, “What we had heard over and over again, not from everyone, but certainly from some and some that counted is that they didn’t really know what to do with us.” This was in reference to LPs. We had a large pool of money that included both risk capital and expansion capital… For a very long time, we had opposed moving toward a [dual-fund arrangement].
It looks like it can manage all of the homework assignments that will be coming in. The current headcount at NEA is about 100 people, including 22 investment partners and about 40 additional venture operational professionals. Sandell said that the company is particularly interested in horizontal technology, and that generative AI and software are other areas of interest.
Given the early initial close of the funds, 20% of the total cash collected has already been invested by NEA. Sandell said that NEA’s preference for investing in capital-efficient enterprises was the primary distinction between the initial 20% and the remaining 80% of the fund.
Adding 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,” he said, “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.”
With RIA status, NEA may invest more broadly in public equities, take part in secondaries, and have more flexible relationships with its limited partners. While NEA is not charging its limited partners (LPs) fees on invested capital at the moment, maybe due to its large workforce of 175 people, Sandell said he wouldn’t be shocked if they contemplated doing so in the future. Historically, we have been limited in our ability to perform certain things. I can’t hide my enthusiasm,” he said.
Regarding limited partners again, Sandell disproved the notion that it has been more difficult to complete capital calls in current climate, which has contributed to the illusion of how much dry powder is in the market right now. We’ve never had any problems with it, he said.
When asked how much money the company, a relative unknown, had returned to investors thus far, Sandell stated, “I’m very convinced we have returned much more cash than we’ve ever raised.”
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