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Sandie Allen
Friday, November 28, 2008
New tech-focused investment funds dismiss down economy
By Efrain Viscarolasaga
MHT managing editor Rodney Brown on NECN: 22 tech companies give back to community
MHT reporter Efrain Viscarolasaga on NECN: Green tech brings jobs back to Mass.
How is the economic crisis affecting tech companies?
Say what you want about the horrible economic conditions — a handful of tech entrepreneurs are launching investment funds, perhaps betting on the notion that there’s nowhere to go but up.
Two of the funds are first funds — Genovation Capital in Waltham and Clean Energy Investment Partners in Winchester — formed by longtime Boston-area entrepreneurs. At least two other funds are being launched by established venture capitalists, including a new fund for Atlas Venture of Waltham and a new firm, called Kepha Partners LLC, from former Highland Capital Partners partner Jo Tango, according to federal documents.
Genovation Capital, which expects to begin raising money in the new year, was formed by Jeff Binder, Dave Fellows, and Vin Bisceglia, all veterans of the communications industry. The threesome now expects to bring its expertise to the investment side. All of them concede that times are tough in the financial sector but say that the timing is perfect to begin building a portfolio.
“The gears of innovation never stop, no matter what the macroeconomic environment is, and they (new companies) all are going to need capital, guidance and advice that we think we can bring,” said Bisceglia. “These are interesting times, and most great companies are birthed during these kinds of challenging times.”
Bisceglia and Binder point to their previous venture, video-on-demand technology developer Broadbus Technologies Inc., as an example. Broadbus was founded in 1999 but didn’t land its first round of funding ($12 million) until the heart of the communications’ dark period in October 2002. Broadbus was eventually sold to Motorola Inc. in 2006 for $181 million.
Different kind of green fund
In the clean energy space, former MathSoft Inc. CEO and Convoq Inc. co-founder Chuck Digate has launched Clean Energy Investment Partners. Like Genovation Capital, Digate’s new firm will focus on early-stage companies, but in the clean energy space — and project development companies, specifically.
Digate was among the first batch of technology executives to receive a crash course in the clean energy industry through the New England Clean Energy Council’s Clean Energy Fellows program. He said that the clean energy sector is an area that will keep thriving, regardless of the current economic trends. “I think there is a massive opportunity now, particularly with the new administration, but even in the absence of it, for developing clean technology,” said Digate.
Upstart firm Kepha Partners has successfully raised $94.7 million of a $100.2 million fund, according to documents filed with the U.S. Securities and Exchange Commission. Tango declined to discuss his plans for the fund, but Kepha’s portfolio now contains two startups: Nashua, N.H.-based data migration firm AutoVirt Inc. and Acton-based wireless video company Azuki Systems Inc. Both of those are also backed by Boston-based Sigma Partners LLP. Sigma’s Bob Davoli sits on the boards of both companies with Tango, whom he also worked with on the board of Westborough-based data storage provider Exagrid while Tango was at Highland. “He works his deals hard. He helps with the company in terms of helping find people to fill slots,” Davoli said.
Longtime VC firm Atlas Venture is also in the process of raising a $500 million fund — its eighth. And another group, Acton-based Roundstone Healthcare Partners LLC has also been on the funding hunt, raising a $2 million tranche of a $20 million round aimed at investing in hospital debt, according to public regulatory filings. Roundstone also invests in medical-related technologies, such as an automated solution to process worker’s compensation claims.
According to Tom Baumlin, general partner in charge of business management at Roundstone, officials there see opportunities in the health-care space. “You’ve got a lot of things changing there,” he said.
Fundraising in the trough
The trend of raising investment cash was surprisingly brisk through the first three quarters of this year, although the real economic dropoff occurred in October. Nationwide, venture capital firms raised $19.7 billion over the first three quarters of the year, a 3 percent increase over last year, according to industry publication Dow Jones Private Equity Analyst.
History supports the theory that innovative companies can be found and incubated during tight economies. During the last downturn in 2001 and 2002, companies such as Konarka Technologies Inc., Luminus Devices Inc., BladeLogic Inc., Maven Networks Inc., EqualLogic Inc. and Segway Inc. were founded and have since become stalwarts of their industries. And some, such as EqualLogic (sold to Dell Inc. for $1.4 billion), BladeLogic (sold to BMC Software Inc. for $800 million) and Maven Networks (sold to Yahoo Inc. for $160 million) have already brought returns to their investors.
Mass High Tech staff writers Galen Moore and Marc Songini contributed to this report.
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