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Willis Stein raises $1.8 billion fund

Willis Stein & Partners closes on a $1.8 billion fund, marking the latest private equity firm to raise a mega-fund despite the market downturn.

Willis Stein & Partners closed on a $1.8 billion fund, marking the latest private equity firm to raise a mega-fund despite the market downturn.

The Chicago, Ill.-based leverage buyout fund plans to allocate roughly 13 percent of the new fund to telecommunications investments such as wireless-related companies. Willis Stein tends to invest $100 million per deal in private companies to gain a controlling interest.

"We look for established revenues, established customers, growth opportunities, and predictable cash flow," said John Willis, co-founder and managing partner.

But the big funds don't spend that money freely; venture capitalists have tightened their investment spending for the last four consecutive quarters, according to research company VentureOne.

"VCs aren't spending the money as quickly as they have over the past several years," said John Gabbert, a research director at VentureOne. "But we might start to see funds with a longer lifetime of three to five years to invest the money, whereas over the past few years, some funds were fully invested in a year."

The Sprout Group is one of several venture firms that have slowed their spending pace. Sprout, which raised $1.6 billion last October for its Sprout IX fund, has invested about $300 million in 24 companies.

"Back in 1999, which wasn't a normal period, we were investing more then than we are now. But now we're at a normal pace and investing at the same level as we did back in 1996," Sprout General Partner Alex Rosen said.

Despite the slower pace, private equity firms say it's still necessary to raise large funds if possible.

New Enterprise Associates, for example, raised $2.3 billion last September for its NEA 10 fund. The firm has invested roughly 10 percent of the fund and is moving at a moderate pace, said Dick Kramlich, NEA co-founder and general partner.

"We save about half our fund for follow-on investments and plan to take four years to (fully) invest it," Kramlich said. "A billion-dollar fund gives us a lot of freedom for a lot of different projects. Our sweet spot for investments is infrastructure networking deals, and they are capital-intensive."

But more to the point, "our golden rule is to not run out of money," he added.