14 DAY TRIAL // Venture capital investors haven't had the best year with the economic downturn hitting the tech sector hard. So, the news that New Enterprise Associates made a 26-fold return on its investment in Data Domain Inc., a backup solutions company, should make some people optimistic. The firm got $372.4 million after Data Domain was sold upon a $14.7 million investment, according to Bloomberg citing NEA partner Scott Sandell.
Data Domain is in the process of being acquired by EMC Corp., a Fortune 500 company and the biggest maker of storage solutions for businesses, for $2.1 billion with the tender offer for shareholders having expired tonight. The NEA is following a trend set by most venture capital firms lately with smaller investments at earlier stages, as, even though the risks are greater, they only stand to lose a small sum and may get a larger return at some point in the future.
However NEA invested in Data Domain through a $2.3-billion fund it set up at a point where most other investment firms were going for smaller ones. In fact, the size of the average venture funds created in 2009 is of only $85.3 million, compared with $143.7 million in 2007.
The New Enterprise Associates was founded in 1979 and is one of the biggest venture capital firms in the world, with a reported $8.5 billion in management under several funds. One of its latest funds, NEA 10, has invested in Data Domain. While the Data Domain sale is a success, experts point out that the size of the fund makes it hard to return its investment, needing several deals like this one to make up the $2.1 billion.
Still, NEA 10 is one of the best performing venture capital funds raised in the same year, backing 124 companies with 15 having IPOs and 33 being acquired, while five of them have made six to 11 times the initial investment.