As VCs struggle to survive, Trinity closes new $300M fund

It’s been a brutal year for venture capital firms — a non-existent IPO market, a credit crunch among limited partners, and new financial regulations are just a few of the issues making it hard for them to show results. The ones looking to raise new funds are discovering that their limited partners are far less willing to give them money than in the last few years. But Trinity Ventures has closed a new $300 million fund that was actually oversubscribed — investors wanted to put more money in than it had originally planned to raise. And the firm raised the new round in a short 10 weeks.

Limited partners, from universities to foundations to wealthy individuals, have lost billions in public markets since last year. Accordingly, they’ve gotten more rigorous about criteria for funding firms. So what did they like about Trinity? Yesterday, I sat down with Ajay Chopra, a general partner at the firm, to get a sense of what he thought allowed it to successfully close its tenth fund in its 24 years of operation.

According to Chopra, here’s what made the difference:

Performance: This one’s not surprising, but now it has basically become a minimal requirement that a firm be ranked in the top quartile among its competitors. Trinity is. Some examples of recent exits from its previous fund: It put $10.5 million into photo-sharing site Photobucket, which sold to News Corp. for $240 million in 2007; it and Mayfield put less than $10 million into community portal company Affinity Labs, which sold to Monster in early 2008 for $61 million.

Stability: LPs want long-term, stable relationships with a venture firm’s partners. Portfolio companies need a firm’s partner to help them grow over what can be many years — and so do investors. Many funds have terms that require “key men” in a firm to stay on board, or else the LPs can decide to do things like halt all further investment (Union Square’s Fred Wilson had a good article on this yesterday). Trinity hasn’t seen a lot of partner turnover in recent years.

Relationship history: Being cash-strapped and all, LPs are thinking back to past years working with venture firms — who’d they get along with, or not? Has the firm always been proactive in delivering the latest news, whether it’s good or bad? Trinity has developed relationships with LPs over decades; with tight connections, regular communication is automatic.

Focus: Are firms focused on early-stage investments in promising but unproven startups? Are they late-stage, looking to help take companies public or sell them? Are they focused on one geographic area? Are they focused on specific categories, like cleantech, enterprise software or digital media. Of course, LPs want firms to be opportunistic — so deals outside of a core focus are sometimes okay — but something like 10 percent of the time versus 50 percent of the time, Chopra says. Trinity has continued to invest in the U.S. and in early-stage companies covering digital media and consumer internet, software as a service, and infrastructure. Trinity has continued to invest its ninth fund, having put money into five companies in the last six months.

Size: What’s the ratio of fund size to partners to the number of portfolio companies? The equation can fall out of line, with young portfolio companies getting too much money or partners trying to work with too many companies at once. At Trinity, each general partner oversees around $50 million invested over three or four years and sits on five or six portfolio company boards at any one time.

Domain expertise: Does a partner at a firm have experience investing in the category they’re focusing on? Have they succeeded at running a company in it? Chopra himself cofounded Pinnacle Systems, a digital media software and hardware company, in 1986 and took it public in 1994.

Of course, different strategies work for different firms. And as startups are risky businesses, there’s no guarantee that Trinity’s past success will make it successful in the future.

So what is Trinity investing in now? How does it hope to cash in on consumer internet companies, for example, when so many venture-backed startups in that area are still having trouble showing serious revenues? Ad spending is down in this bad economy, so like many other investors, Chopra says his firm is looking at companies that have subscription-based business models. For example, he recently used money from Trinity’s new fund to lead a $3 million round in TubeMogul, a company that charges online video creators to help them syndicate their content across the web.