Founders Fund raises $200 mln institutional fund

SAN FRANCISCO, Dec 17 (Reuters) - Venture capital firm Founders Fund has raised its first-ever institutional fund, totaling $220 million to be invested in as many as 20 early-stage start-ups.

The new fund, Founders Fund II, is a substantial increase over the original fund of $50 million, which was raised from personal investments by the managing partners and outside investors, the managing partners said on Monday.

Started by Peter Thiel, Ken Howery, Luke Nosek -- all co-founders of online payment system PayPal -- and Sean Parker, a co-founder of online music site pioneer Napster, Founders Fund is aiming to shake up the entrenched world of Silicon Valley venture capitalism, Parker said.

"As the asset class of venture capital has professionalized, you get a lot more partners in the venture capital business coming through finance tracks, MBA tracks, or operational backgrounds," Parker said on Monday. "This is very different from the early days of venture capital."

Napster is the online music sharing site that was eventually shuttered after a vigorous legal battle started by record companies over copyright infringement. Online auctioneer eBay Inc bought PayPal for $1.5 billion in October 2002.

Founders Fund will also continue to offer Series FF stock, which is starting to catch on in the venture capital industry as a way to allow founders to sell some of their stock long before their companies go public or are sold.

Series FF stock allows start-up founders to convert those shares to preferred shares, which are then typically offered to investors in subsequent rounds of venture funding.

The idea is to align founders' financial interests more closely with investors, who are often able to liquidate their holdings more easily than company founders, Founders Fund managing directors said.

Founders Fund, started in 2005, has so far invested in social networking site Facebook, Geni, Powerset, Ooma, Quantcast, Slide and others, according to the firm. (Reporting by Duncan Martell, editing by Richard Chang)