Blue Water Launches Venture Capital Fund
The new fund represents one of the largest local sources of venture capital for the region's budding entrepreneurs
P> Four experienced hands in the finance and high-tech business sectors believe in the Netplex so much they've quit their daytime jobs and rented prime real estate in the hub of the Internet to launch a venture capital fund. They're betting the proverbial farm that Northern Virginia will make them and a handful of entrepreneurs rich.
America Online's headquarters is just across the street. A major office for SAIC is within honking distance. Scores of telecommunications and software firms have set up shop in the area -- some of them among the hottest high-tech startups in the nation.
"This region is underserved from locally based private equity services," says Hank Barratt, one of the managing directors for Blue Water Capital LLC and a former partner with Pittsburgh-based CEO Venture Fund. Barratt and his associates are in the final stages of raising $20 million for their first fund, known as Blue Water Strategic Fund One.
"All of us have quit our jobs to do this," says Kim Cooke, a former trial lawyer in Michigan and partner in Blue Water. The other partners are Reid Miles, formerly a vice president with Advance International Inc., Arlington, Va., and Michael Acheson, formerly with Acheson Industries in Port Huron, Mich., who will be based in the Detroit area. Will Priester, the chief financial officer for Blue Water, also brings valuable experience to the group, having worked as a top financial officer for the biotech startup MedImmune Inc., Gaithersburg, Md.
"Between us we've got 72 years of experience -- banking, investment banking, venture capital, law, marketing, business development, general management, and production and manufacturing," says Miles.
That should come in handy as the fund looks for profitable companies with $5 million to $25 million in annual revenues and a solid management team. Barratt figures there are hundreds of potential candidates around the Beltway -- although the fund will also set its sights elsewhere. The partners will be eyeing companies in Michigan and around the Toronto area. Like the Washington region, both areas are underserved by venture capitalists but have strong high-tech sectors.
Michigan, in particular, is the site of the fund's other office -- as well as the source of its name and potential fund contributors. The company takes its name after the Blue Water region where Lake St. Clair flows into Lake Huron. The entire state has just one venture capital fund of $10 million -- and a clutch of high-tech companies serving the many needs of the auto industry.
But this area, which ironically may be the beneficiary of government downsizing, will be a prime focus. "Downsizing is a good thing," says Barratt. "It's taking away the safety net. You've never had real commercial risk here -- the government takes care of it."
Blue Water plans to invest no more than 10 percent of its entire fund in any one company. The fund will focus primarily on companies in telecommunications, software, multimedia and advanced materials. "We're looking for companies with a sustainable market advantage," says Miles.
With an initial fund of $20 million, the partners would manage investments of about $2 million each for a portfolio of 10 companies. The group will put a cap on this first fund of $100 million -- provided they can get investors to pony up that amount.
The launch of the Blue Water Strategic Fund adds to the already growing list of financial resources available to entrepreneurs in the region. Baltimore-based New Enterprise Associates is the largest venture capital firm in the nation as measured by the number of investments made in 1995 -- 108, according to a recent study by Coopers & Lybrand. But the firm focuses many of its investments outside the region, and among the top 20 most active venture capital firms tracked by Coopers & Lybrand, New Enterprise Associates is the only one with its headquarters in the region.
Still, the increasingly high profile of high-tech entrepreneurs in the Washington region is attracting more capital -- venture capital and other types of private investment. According to the Venture Capital Journal, there has been an 80 percent growth in venture capital dollars invested in the region since 1991. The Silicon Valley Bank, a savvy institution with a hand in venture capital since the days when Steve Jobs started Apple Computer in his garage, opened a branch in Maryland recently -- Silicon Valley Bank, East. CEO Venture Fund, based in Pittsburgh, has an office serving the region. Boston-based Edison is opening an office in the District of Columbia. Boles & Co., based in Reston, Va., is focusing on brokering strategic mergers and acquisitions in the region's multibillion dollar high-tech services sector -- an area where Carlyle Group has a strong presence.
In the meantime, high-profile entrepreneurial successes have stimulated broader interest. Mark Warner, running as a Virginia Democrat for the U.S. Senate, parlayed his own money and that of his associates into hundreds of millions of dollars at Columbia Capital, Alexandria, Va. Columbia made its mark financing wireless communications ventures. Internationally recognized players in software and telecommunications have made hundreds of millions for venture capital companies from outside the region. Regional companies with highly successful public offerings include America Online Inc., Vienna, Va.; UUNET Technologies Inc., Fairfax, Va.; PSINet Inc., Herndon, Va.; CyberCash, Reston, Va.; and Omnipoint Inc., Arlington, Va.
"When I first came here from Detroit, I just saw so much opportunity," says Cooke.