Merus Capital, the venture capital firm co-founded by Google Inc's former head of mergers and acquisitions, is preparing to raise a new $100 million fund, according to a limited partner of the fund.

The firm, based in Palo Alto, California, is still investing in start-up companies out of its initial fund of roughly $40 million, but plans to raise a second fund in early to mid-2011, said the limited partner, who wished to remain anonymous.

The plans to start a second fund come as a new generation of fast-growing Internet start-up companies, such as online coupon provider Groupon and social gaming firm Zynga, moves into the investor spotlight. Earlier this month, microblogging sensation Twitter raised $200 million in new funding from several venture firms.

Merus, which was started in November 2007, has focused its investments on early-stage software companies that develop tools to help large, Internet-connected businesses operate more efficiently. That formula netted at least eight investments in the first fund, including Chai Labs, a startup that was founded by ex-Google executive Gokul Rajaram and, according to media reports, was acquired by Facebook earlier this year.

Merus was founded by Salman Ullah, Google's former Vice President of Corporate Development, and Sean Dempsey, who worked with Ullah in the group responsible for Google's M&A. Before that, the pair worked in Microsoft Corp's corporate development group along with fellow Merus co-founder Peter Hsing.

Reached by phone, Merus' Dempsey declined to comment on the firm's future fund-raising plans.

The total amount of money raised by U.S. VC firms declined year-on-year in 2008 and 2009, and will most likely show another decrease in 2010, according to Mark Heesen, president of the National Venture Capital Association.

Still, there have been a couple of high-profile new venture funds raised in recent months, including a $250 million fund focused on social Internet companies at Kleiner Perkins Caufield & Byers and a $650 million fund announced in November by Andreessen Horowitz.

According to the National Venture Capital Association's Heesen, the increasing number of acquisitions of start-up companies and the improving outlook for the number of initial public offerings are providing the limited partners of venture firms with returns on investment that will help raise future funds.

What we're seeing is that checks are now being sent back to LPs and I think that will give them some positive encouragement to reinvest in venture, he said.

(Reporting by Alexei Oreskovic; Editing by Gary Hill)

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