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Sprout Group grows $1.6 billion tech fund

The Calif.-based venture arm of Credit Suisse First Boston closes a $1.6 billion tech fund, placing it among the seven largest funds formed by venture capitalists this year.

The Sprout Group, a Calif.-based venture arm of Credit Suisse First Boston, announced Monday it closed a $1.6 billion tech fund, placing it among the seven largest funds formed by venture capitalists this year.

The Sprout IX fund will invest in communications, health care technology and Internet software companies.

Sprout IX is about 10 times the size of the typical venture fund. For the first nine months of the year, the median-sized fund was $150 million, said Sasha Talebi of research company VentureOne.

"A lot of the funds were smaller because they were targeting early stage companies, which tend to receive investments of $2 million to $5 million," Talebi said.

Sprout IX investments will range from $10 million to $50 million for companies seeking early stage to mezzanine financing, which is the last stage prior to an initial public offering. The fund expects to invest the funds during the next three years.

"Up until this summer, we didn't see $2 billion funds closing," Talebi said.

TA Associates, however, closed a $2 billion fund in July, while New Enterprise Associates closed a similar-sized fund in September.

While megafunds such as these put pressure on the venture firms to find enough quality investments to take a stake in, they also afford flexibility.

"If they want to be a lead investor in a sizable deal, then they can take advantage of it," Talebi said.

Sprout Group has had 12 of its portfolio companies go public this year.

Sprout's IPO companies include Avici Systems, which raised its pricing range twice before setting an IPO price of $31. But Monday, the stock was underwater, trading around $24 a share.