New Enterprise Associates, known by the acronym NEA, has closed a new pair of early-stage and growth-stage funds, both hovering a little over $3 billion to a total of $6.2 billion.
The two-fund structure is a first that begets another first for the 45-year old firm: TechCrunch has learned that NEA has filed to be considered as a registered investment adviser, which, if passed, would give the firm a status similar to the likes of other storied firms including Andreessen Horowitz, SoftBank and Sequoia Capital.
NEA’s shift signals the firm’s interest in doing business in a newer, more blended way. Scott Sandell, NEA’s general managing partner who has worked at the firm for nearly three decades, spoke to TechCrunch about the firm’s growing remit amid tech uncertainty.
For one, Sandell explains, NEA wants to take up even more room in the industry. Before the tech bubble hit its peak in 2021, the firm’s operations team uncovered that NEA was doing a 36% IRR on $4 billion dollars invested over a decade. The bad news? That NEA only accounted for 10% of the capital that the same cohort raised in total.
“It sounds like an opportunity to me,” Sandell said. The firm thus set off to raise two funds, one that would be used solely to invest in early-stage bets and another that would dedicate one-third of its capital to existing growth-stage portfolio companies with the rest invested in new growth-stage companies. It helped that investors were also knocking on NEA’s door, asking for exposure to either early stage or late stage, not always both.
“What we had heard over and over again, not from everybody, but certainly from some and some that mattered, is that they didn’t really know what to do with us,” Sandell said of LPs. “We had this one big fund and it had venture and growth in it … we had resisted going in the [dual-fund structure] for a long time.”
It appears to be well equipped to handle the incoming homework. NEA currently has 22 investment partners and around 40 other venture operations staff among an overall staff of less than 100 people. Sandell noted generative AI and software as two of the firm’s interest areas, adding that they are especially interested in horizontal technology.
Because the funds had their first close earlier, NEA has already invested 20% of the capital raised. The biggest difference, Sandell said, when it comes to investing the remaining 80% of the fund versus the initial 20% is that NEA wants to focus on capital-efficient businesses.
“We know that capital will be scarce for the foreseeable future — at least for the period of the next three or four years during which these companies will be formed and developed and have to raise additional capital and so on,” he said, later adding that “a lot of the companies that were born in the last decade, because capital was so freely available, did not develop that efficiency gene.”
If it becomes a registered investment adviser, NEA doesn’t need to limit its stakes, can invest in public stocks, participate in secondaries and can interact with its LPs in different ways. For example, Sequoia’s Alfred Lin recently noted that for two of its newer funds, Sequoia is only charging its LPs fees on invested capital, and while NEA is not doing that this time around, Sandell said he wouldn’t be surprised if they considered that in the future. “We haven’t had as much flexibility historically to do some things. And I’m excited about that,” he said.
On one more note about LPs, Sandell shut down the idea that capital calls have been harder to get done in this environment, one factor that has added to the mirage of how much dry powder is in the market right now. “We’ve never had an issue with that,” he said.
When asked about how much capital the firm, a quiet giant, has given back to its investors to date, Sandell didn’t share anything concrete but said that “I’m virtually certain we have returned significantly more capital than we’ve ever raised.”
He added, “that’s not true of a lot of other firms that have grown very quickly.”