Proposed Investment in Tenaya Capital VI Fund

Memorandum to: State Investment Council
From: Timothy Walsh, Director
Subject: Proposed Investment in Tenaya Capital VI Fund

The New Jersey Division of Investment is proposing an investment of $40 million in Tenaya Capital VI Fund. This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.

Tenaya Capital, LLC is a venture capital investment partnership focused on investments in mid- to late-stage venture backed technology companies. Tenaya is the successor to Lehman Brothers Venture Partners, which was spun out of Lehman Brothers as an independent firm in February 2009. The Fund will be managed by the same core investment team and will continue to execute the same investment strategy of Tenaya Capital IV – $300 million of parallel partnerships formed in 2003 (“Fund IV”) and Tenaya Capital V – $365 million of parallel partnerships formed in 2007 (“Fund V”).

Tenaya is currently raising Tenaya Capital VI, L.P. (“Fund VI”) targeting $300 million with a hard cap of $400 million. Fund VI targets equity investments ranging from $5 million to $10 million with follow-on financings bringing the total to $10 million to $15 million per company in roughly 30 companies. Tenaya has historically invested in Software, Internet, Communications, IT Infrastructure, Electronics and other emerging technology sectors.

The Division of Investment (“Division”) Staff and its private equity consultant, Strategic Investment Solutions, undertook extensive due diligence on this proposed investment. We completed the same due diligence process as with all the other alternative investment opportunities presented to the Council.

As part of its due diligence process, staff determined that the fund engaged Lazard Frères & Co. LLC (the “placement agent”) as third-party solicitor in connection with the potential investment. Staff has determined that the placement agent and its representatives met the registration, licensing and experience requirements set forth in the Division’s Placement Agent Policy dated July 09, 2009 (the “Policy”). Pursuant to the Policy, the fund has disclosed the contract between the fund and the placement agent, specifying the scope of services to be performed by the placement agent and the fee arrangement between the placement agent, the general partner and any other third party.

We will work with representatives of the Division of Law and outside counsel to review and negotiate specific terms of the legal documents to govern each investment. In addition, each proposed investment must comply with the Council’s regulation governing political contributions (N.J.A.C. 17:16-4).

Please note that this investment is authorized pursuant to Articles 69 and 90 of the Council’s regulations. The Tenaya Capital VI Fund will be considered a venture capital investment, as defined under N.J.A.C. 17:16-90.1.

Formal written due diligence reports for the proposed investment were sent to each member of the Investment Policy Committee and a meeting of the Committee was held on September 8, 2011. In addition to the formal written due diligence reports, all other information obtained by the Division on the investment was made available to the Investment Policy Committee.

We look forward to discussing the proposed investment at the Council’s October 13, 2011 meeting.

Source: State of New Jersey State Investment Council