The Big Deal analysis rarely looks at the implications of an exit on a venture capital firm but the sale of Virsto Software, a US-based provider of software that optimizes storage performance and utilization in virtual environments, bears a closer look.
VMware, a New York-listed provider of virtualization and cloud infrastructure, last week agreed to acquire Virsto, which provided the first exit for venture capital firm Correlation Ventures.
Virsto is Correlation’s first exit after raising $165m in January last year after building a database of venture capital financings to try and predict which deals to co-invest in – for its chart on exit multiples over the past decade click here.
Correlation made 26 deals last year having promised to spend only two weeks deciding whether to co-invest on each deal.
Correlation Ventures includes as its limited partners more than 30 undisclosed partners at other VC firms making it a quasi-corporate venturing-backed fund by raising more from its peers. These may include partner at the other VC firms that backed Virsto: August Capital, Canaan Partners, InterWest Partners and Southern Cross Venture Partners.
That partners of VC firms will commit to other funds is not uncommon as alternative investment managers often buy-in to the whole asset class and will diversify their money with peers. That these other holdings can help connect firms and provide early insights whether to fund future rounds of portfolio companies is perhaps an intended consequence, too, and a network of knowledge and connections that corporate venturers often find hard to replicate.
Correlation has effectively refined this often-informal co-investment and commitments approach into a unique selling point for its fundraising. And, though the returns are yet to be known from Virsto, that it has made a presumably postive exit so relatively quickly will be positive to its annual rate of return.
And there could be more to come. David Coats, managing director of Correlation Ventures, by email said: “Yes, it was [the firm’s first exit]. Hopefully the first of many!”