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Benchmark closes $220 million fund

Even in a slowing market, the venture capital firm has closed a $220 million fund for start-ups that includes several corporate investors.

Even in a slowing market, Benchmark Capital has closed a $220 million fund for start-ups that includes several corporate investors, the company announced Monday.

Cisco Systems, Rational Software, Mercury Interactive and Infineon Technologies were investors in Benchmark Israel, a recently formed overseas operation that will invest money in young tech companies seeking seed financing and early funding rounds.

Benchmark's unusual invitation to corporate investors to join its fund is a move that other venture capitalists are expected to follow, industry watchers say.

"VCs are opening up to having corporations as limited partners, because some of their institutional investors like pension funds and endowments are curtailing their investments," said David Berry, senior editor of the Corporate Venturing Report.

Berry added that a market decline and languishing returns have prompted some pension funds and similar investors to temper their investments.

While Benchmark historically has not had a large number of corporate investors participate in its funds, partner Steve Spurlock said the decision to change its status quo was driven by the operational needs of the overseas fund, rather than by a need for capital.

"This time we thought it was important for our portfolio companies to have access to multinational companies in Israel," Spurlock said. "We didn't turn to them out of a need for capital."

The venture firm plans to invest in such areas as data communications, semiconductor fabrication, enterprise software and networking security companies, Spurlock said.

Benchmark plans to invest $2 million to $5 million per company in the initial rounds and then up to $15 million over the life of a company.

Companies are generally reining in their venture investing, whether in a venture fund or as a direct investment. Corporate venture investments made directly to a company declined dramatically in the first quarter, according to venture research firm VentureOne.

These investments, typically done alongside a venture fund's investment, fell to $143 million and 34 deals in the first quarter, compared with $745 million among 58 deals in the fourth quarter.

Intel, for example, expects it will spend less on venture investing this year, even though the amount of capital it has committed to investments is roughly the same as last year--$1.3 billion.

The chip giant invests alongside venture capitalists, so as VCs pull back on their investments, Intel will have fewer deals to invest in, said Stephen Nachtsheim, vice president of Intel Capital. He noted that Intel prefers to have VCs act as its financial advisers on deals, handling such issues as a company's valuation.

And with valuations down dramatically this year, Intel will find it more difficult to spend its $1.3 billion, Nachtsheim said.

But corporate participation in venture funds is expected to increase. Last year, 125 corporate investors participated in venture funds, up from 60 the previous year, Berry said.

"There's a strong interest by VCs to access all forms of capital," Berry said.

Previously, venture firms were somewhat leery of accepting a corporation as a limited partner.

"A lot of VCs want limited partners that will invest in (their multiple) funds. And corporations tend to be more flighty than endowments or pension funds. They tend to get out in bad times," Berry said.