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Crystal Ventures Ready to Reengineer with Fund III By Lizbeth Scordo VentureWire Professional November 03, 2003

Crystal Ventures, a venture firm focused on North America and Asia, is raising $150 million for its third fund and expects to make a first close of $40 million to $50 million by the beginning of next quarter. The firm will dedicate at least half of the total fund to mid- or later-stage companies that have run into problems and need to be "reengineered", managing director Joseph Tzeng told VentureWire. Mr. Tzeng said companies that fall into this category will most likely be broadband or wireless firms, as well as some hardware and software companies, that Crystal considers "stuck" with $5 million or $10 million in revenues. "They need a certain way of breaking through into the next stage in both revenue and in growth. If you look at the whole world right now [for those four target areas] the biggest growth market is in Asia...and for those companies to say 'Oh OK, I want to go global,' is not that easy," said Mr. Tzeng. For these companies, many of which may have already raised several rounds of VC funding, Crystal plans to bring in a syndicate of investors, new or existing, to invest an average of $20 million to $40 million in total. "Unfortunately the U.S. market is not going to rapidly grow like three years ago," said Mr. Tzeng. "So without raising more money, without finding more revenue, they'll either have to shut down, or do a fire sale, go nowhere, or they could...cutback and just keep it break-even." Mr. Tzeng said Crystal's Fund III will also help Asian companies break into North America, through both financial investments and strategic assistance. "A lot these companies which had raised a lot of money and developed their product...unfortunately when the product came out and they began to sell, the market was either dead or slowed down, so they need a lot of help," he said. The remainder of the fund, targeted to close with approximately $150 million next summer, will go toward seed and early stage companies. Crystal plans to invest $10 million to $12 million over the life of a company, with an initial investment of $1 million to $5 million in an average early-stage deal. The firm will dedicate about 60% of the total fund in companies headquartered in th U.S., with the remaining capital going to firms based in Asia. However, Mr. Tzeng said that 80% to 90% of the fund's portfolio companies will have global, and especially, trans-Pacific operations. As has been the case with its previous funds, Crystal expects to raise between 60% to 70% of the fund from LPs based in Asia. Mr. Tzeng said by the time Crystal announces its first close, it will be ready to announce its first investment as well. Crystal, founded in 1997, has $240 million under management and offices in Palo Alto, Calif.; Cleveland; Singapore; and Taiwan. Portfolio companies include Cobalt Networks, acquired by Sun Microsystems; About.com, acquired by Primedia; and PowerBridge.

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