Friday, August 1, 2008

Draper venture fund Navigator calling it quits

By Christopher Calnan

Navigator Technology Ventures LLC, the investment arm of R&D hotbed The Charles Stark Draper Laboratory Inc., is winding down operations, and Draper plans to decide later this year whether to get out of the investment business entirely, a Draper official said this week.

The fund, established in 2000, made its last new investment in November 2004, when it reported a $1.5 million Series A funding of New Haven, Conn.-based HistoRx Inc.

Despite its proximity to cutting-edge technology being developed at Draper, Navigator made fewer investments in Draper technologies than expected by officials when the fund was created, said Joseph Wolfe, Draper’s vice president of finance. The firm also struggled because its portfolio companies took longer than expected to be acquired or to find other exit opportunities for investors.

Draper officials are expected to develop an alternative investment strategy later this year, which would then be presented at a board meeting in March 2009, Wolfe said.

Over its 8-year life, Navigator invested in 12 companies with a $25 million fund. Just three investments originated from Draper, and two of the 12 closed after running out of money. Chestnut Hill-based PLEJ Inc. shuttered its business in 2004 amid claims that CEO David Solomont siphoned off $1 million (a resulting court case was settled last year), and Boston-based Assertive Design Inc. closed in 2007, said Alain Hanover, one of Navigator’s two
managing directors. Hanover is now the CEO of Draper spinout Food Quality Sensor International Inc. in Lexington.

“For Draper, it was a very bold leap to them to get into Navigator,” said Hanover, the former CEO of Cambridge-based InCert Software Corp., which was acquired in 2002 by Chicago-based Geodesic Systems Inc. “They learned that there are big risks and big rewards in this game.”

Navigator sold three of its investments: Andover-based Sand Video Inc. was acquired in 2004 by Broadcom Inc. for $77.5 million. Lowell-based molecular researcher Polnox Corp. was sold to its founder this year. And Sudbury-based artificial kidney developer RenalWorks Medical Corp. — another of Navigator’s three Draper spinouts — was sold to Waltham-based Fresenius Medical Care Group North America last year.

Wolfe said the venture fund didn’t invest in the type of business Draper officials had envisioned when it launched.

“We found out we didn’t have a lot of (Draper) technology we were able to put in the public domain,” he said. “Only a small portion (of the portfolio companies) were based on Draper technology.”

Draper hopes to generate future spinout technologies in the biomedical and energy industries, Wolfe said.

While a fund’s closing isn’t a common occurrence, there have been several other closings in Massachusetts in the past three years.

In October 2007, HistoRx completed a $6 million venture capital financing in which Navigator participated. Rana Gupta, still listed on the Navigator website as a managing director, was appointed CEO of HistoRx in November 2007. Gupta declined comment and referred questions to Hanover.

HistoRx board member and investor Fred Morris, general partner with Wakefield-based Brook Venture Partners, said HistoRx “was not relying on additional funding from Navigator,” Morris said. “They were really funding early-stage tech opportunities, which is not what a lot of funds are doing.”