Venture capitalist talks China slowdown, late-stage funding and where his firm will invest its new $1.2 billion fund.
Norwest Venture Partners this morning announced that it has raised $1.2 billion for its thirteenth fund. This is the same amount it raised for each of its past two funds and, per usual for NVP, its only outside investor was Wells Fargo WFC .
Senior managing partner Promod Haque was on a plane last night and unable to speak, but I send shoot over a few questions via email. Here’s the Q&A:
FORTUNE: How does the economic slowdown in China affect your general investment strategy/growth theses for portfolio companies?
Promod Haque: Our investment thesis is not influenced by the ecosystem in China or, for that matter, even the general economic environment. Our investment thesis is motivated by innovation driving new infrastructure, new business solutions that change productivity and behavior. The U.S. has always been a major source of innovation and the earliest adopter. Therefore, current developments in China don’t change our investment thesis. China of course will eventually be an adopter of these U.S.-led innovations. In general, our business is more focused on innovation cycles versus financial cycles, and we believe now is a great time to invest in the next wave of innovation across multiple sectors.
Do you expect crossover investors (mutual funds, etc.) to continue being major factors in 2016 late-stage investing?
They will, and already have, started to become more conservative. The public markets are driving this change in behavior. Soon there will be less money chasing later-stage venture deals, and valuations will eventually drop. Discipline is working its way back, slowly but surely, and you will now start to see this accelerate.
This is the same sized fund as you raised in early 2014. Does that indicate that you expect a similar amount of opportunity? Or do you expect smaller/fewer deals and a longer fund cycle?
Innovation continues to be brisk and there continue to be solid investment opportunities. The rate of innovation hasn’t changed – we’re seeing a lot happening in cloud, data analytics, healthcare IT, e-commerce, security. Market turbulence doesn’t affect our strategy. The size of Norwest XIII was determined by our belief in the potential of emerging technologies and growth opportunities in the U.S. and emerging markets abroad, as well as the amount of capital we think will be necessary to capitalize on the venture and growth equity opportunities we’re seeing today and in the next few years. We could have raised a larger fund based on our exits, but we ultimately decided $1.2 billion is the right size fund for us. We want our fund to be big large enough to handle our combined strategy (venture and growth equity/global), but small enough to achieve outstanding returns and top quartile performance. It’s more difficult to produce outsized returns with a fund much larger than $1.2 billion, and we have managed to produce these returns and know this is a sweet spot for us, given our combined venture and growth strategy.
What, if anything, is different about the new fund, in terms of focus?
Our strategy hasn’t changed. We will continue to pursue innovative early to late-stage venture and growth equity investments across a wide range of sectors, particularly in healthcare, consumer Internet and enterprise. We’ve had more than 22 liquidity events since we announced the last fund—across all stages, sectors and geographies. It’s a strategy that is working for us and we plan to continue it. We do envision a continued, and possible increased focus in the area of healthcare/healthcare IT, as we are seeing higher innovation and an increased rate of innovation and adoption in this sector. In the first half of 2015 alone, VC investments in this sector reached $2.1 billion. We’ve been building our healthcare practice to become a prominent partner for healthcare companies, both on the venture and growth equity side, since there continue to be so many opportunities ahead of us to invest.
We have expertise in consumer technology, which has a natural tie into wearables, medical devices, and employee health programs. We also have a deep understanding of enterprise IT, including big data/analytics and cloud computing which is obviously converging with healthcare IT. Our team is a unique mix of traditional investors and MD’s—providing the insight needed to determine if these emerging companies are viable investments. For proof, we’re 2/2 for our wearables investments—Misfit acquired by Fossil FOSL and Basis acquired by Intel INTC .