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Last year, Scale made investments of more than $90m

Venture capital never looked a happy marriage with mainstream banking at Bank of America. Last year's merger with MBNA, making the bank the biggest credit card issuer in the US and the UK, probably sealed the issue.

So this year's spin-off of BA Venture Partners, coming in the wake of the departure last year of the European private equity operations, was logical.

Last month, the renamed Scale Venture Partners confirmed its independence when it closed Scale Venture Partners II at $400m (¤300m), its first fund raised since coming out from under Bank of America's wing.

Scale managing director Kate Mitchell said the bank was going to hold about a quarter of the new fund but, after its first close in January, there was enough demand from other investors to replace the bank. Bank of America remains the sole investor in Scale's first $500m fund raised in 2000.

Mitchell said: “Bank of America was a great sponsor but we operated as a standalone business and did not see any flow from the bank. It was the right strategic move for them to exit from the business and we went off with their blessings.

"Bank of America did not want to be in the venture capital business and we have some great new long-term limited partners.”

Investors in the new fund, for which Probitas Partners was the placement agent, include Credit Suisse, Lexington Partners, Liberty Mutual, Macquarie Global Private Equity Fund, Montague Newhall, Pantheon Ventures, Key Capital Corporation and Storebrand.

Scale will be pleased at this roster, given that many of these institutions are discerning when it comes to picking funds. Key Capital's criterion for venture capital investments is to seek relationships with “top decile” information technology and healthcare venture capital funds with a strong performance record and a reputation of financially partnering with world-class entrepreneurs.

Scale employs what Mitchell calls a thesis-based strategy in which it develops an investment theme in the technology and healthcare sectors and then identifies companies that have proven technologies and are at a turning point.

Scale's technical staff took apart a television set to see which components could be digitised, leading the firm to Xceive, one of its portfolio companies.

The team's approach is to educate itself about a sector, talk to public companies, then cold call, often becoming the first institutional investor in a firm.

The company also appoints staff with relevant industry experience, such as Jeff Calcagno who joined as a principal last year from Vela Pharmaceuticals, a venture-backed specialty pharmaceuticals company, where he was chief business officer and chief financial officer.

Jim Jones, Scale's managing director, who specialises in the semiconductor sector, was at technology company 3Com before joining Scale in 2000, while venture partner Rob Herb, who focuses on the same sector, was at rival AMD for 20 years before joining Scale in 2005.

Mitchell said: “Throughout our fundraising, we heard that the team and our thesis-based approach to investing were important differentiators.”

She said the firm receives between 5,000 and 7,000 business plans a year, but may only make a dozen investments. “We have a big funnel and a good filter or otherwise you waste a lot of time. It is not always the best technology that wins and we look for companies that have commercial momentum and with our narrow focus we try and get ahead of the wave.”

Mitchell said the first fund's performance has been in the top quartile. Last year, Scale made 29 new investments totalling more than $90m and eight sales.

This month, Scale floated Glu Mobile, which generates most of its revenue from mobile phone companies that market and distribute games, in an $83m initial public offering through Goldman Sachs and Lehman Brothers.

Orexigen Therapeutics, a biopharmaceutical company that produces drugs for central nervous system disorders and obesity, filed for an $86m flotation in December.

There may be an opportunity for more IPOs. In the first quarter of this year, 17 venture-backed companies raised $2bn through floats on US exchanges, 70% more than in the same period last year, according to an exit poll report by Thomson Financial and the National Venture Capital Association.

The average disclosed deal size was $161m, making this one of the best quarters in the last five years.

Mark Heesen, president of the National Venture Capital Association, said: “This quarter may mark a shift in the exit mix for venture capital. There appears to be a crack in the IPO window which changes the psychology of the market.”

That should spell good news for Scale as it attempts to build an independent existence.

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