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VC firm Greylock joins billion-dollar club

The venture capital firm closes a $1 billion venture fund, marking the fourth billion-dollar war chest raised this year by venture capitalists.

VC firm Greylock said Monday it closed a $1 billion venture fund, marking the fourth billion-dollar war chest raised this year by venture capitalists.

VCs have increased their efforts to raise these large venture funds because it takes longer in current market conditions for portfolio companies to return a profit, if at all.

"The VCs are now being a bunch of ants," said Jesse Reyes, vice president of global product management for Venture Economics, a venture research firm. "They're out there raising hordes of money because they probably know they won't be able to go back to their investors for the next year or two."

There were 17 billion-dollar funds created last year.

The Greylock XI fund marks the first $1 billion fund for the Boston-based company, said Aneel Bhusri, a general partner. The previous fund raised $510 million last year.

Greylock decided to double the size of its current fund--in part, to compete for the best investments among entrepreneurs who may seek out larger, more established funds, Bhusri said. The fund will also be drawn down over a longer period of time.

Although the firm usually sets aside 35 percent to 40 percent of a fund for follow-up investments in the portfolio companies, the firm slightly increased its reserve in its previous fund. It is too early to tell what reserve will be set for the Greylock XI.

Under Greylock XI, Bhusri estimates that 80 investments will be made during the course of four years to six years in companies that market software to large corporations, as well as in wireless and communications companies.

The firm, which tends to invest in companies seeking their first venture round, expects to invest $5 million to $20 million per company over the life of that company.

Investment areas will include storage and security business applications for large corporations, optical technology, and wireless software for both carriers and corporations.

Greylock plans to close on two to three investment deals within the next month, Bhusri said.