New Venture Capital Comes to the Netplex
The $50 million firm includes some of the godfathers of venture capital
Minimize your risks and don't make dumb mistakes. It may sound like a simple recipe for success in the venture capital investment business, but a lot of people will get trapped by the hype of high-tech deals and lose a lot of money, says Jack Biddle, the co-founder of a new Netplex venture capital partnership.
Biddle, 35, a former software industry CEO and turnaround specialist, is diving head-first into the early stage venture capital arena with his partner, Roger Novak. With the help of some of the biggest names in venture capital and high-tech business, Novak Biddle Venture Partners L.P., Reston, Va., plan to fill the gap for early stage IT companies and government contractors with assets and technologies poised for commercialization.
"We believe we can put money in Washington," said Novak. "This area is not Silicon Valley, but we're at the beginning of a growth ramp and there is tremendous opportunity."
Novak and Biddle have each invested $250,000 to $500,000 in their partnership. Their fund, which will total $50 million, and will target companies with less than $5 million in sales.
They will consider IT companies across the country, but expect most of their deals to come from the Netplex.
So who will get their money?
Biddle and Novak's view of an entrepreneur is someone who is crazy and insane yet driven. The entrepreneur could be so involved with their business that they don't know who the president of the United States is, Biddle said, half-jokingly. But the two plan to be very selective about their investments.
Novak and Biddle have raised $10 million in one month from their advisory panel and limited partners. The partnership also has a preliminary commitment for $25 million from a local institutional partner.
Novak and Biddle have extensive backgrounds in venture capital and managing technology companies. Novak, 47, is a general partner of Grotech Capital Group in Timonium, Md., a $200 million venture capital firm. Last year he directed two large initial public offerings of Secure Computing Corp. of St. Paul, Minn., and Verity Inc. in Mountain View, Calif.
Biddle has been credited with restructuring InterCAP Graphics, Annapolis, Md., a graphics software company that reported a $1.8 million loss in 1990. He was originally brought in to close down the company, but ended up turning it around.
The two met five years ago when Novak was planning to invest in InterCAP Graphics but passed on the opportunity. A year ago, when Novak realized the venture capital potential in Northern Virginia, Biddle was recommended to him as a good accomplice to form a venture capital partnership. For the past six months, the two have been eyeing prospective companies and attracting high-level executives and venture capitalists to serve as investors and advisers in the partnership.
They have attracted seven venture capital and high-tech pioneers to sit on the firm's advisory panel, a group of high-level entrepreneurs who will counsel Biddle and Novak on their deals. The group includes Frank Bonsal, co-founder of New Enterprise Associates in Baltimore, one of the largest venture capital firms in the country; Gideon Gartner, founder and CEO of Gartner Group of Stamford, Conn., and GIGA Information Group in Cambridge, Mass.; Alan Peyser, founder and CEO of Cable & Wireless, Vienna, Va.; and Dendy Young, CEO of Government Technology Services Inc., Chantilly, Va.
The panel has committed a total of $1.5 million to the partnership. Another group of 19 pre-offering, individual limited partners will each invest between $100,000 and $1 million, according to Biddle. They include Dr. Gene Amdahl, founder of Amdahl Corp. in Sunnyvale, Calif., and architect of IBM's 360 mainframe; Lou Brown, founder and CEO of Autometric in Alexandria, Va., Ideas Inc. in Columbia, Md., and chairman of Micros Systems in Beltsville, Md.; and John Maguire, founder of Software AG NA Inc. in Reston, Va.
"One of the hardest things about venture capital is that good ideas are a dime a dozen," said Biddle. "In the past, Washington has had good ideas, but didn't have the people to grow the ideas."
The firm is looking at 10 potential deals and is ready to invest in two companies ? a document management company in Michigan and a Northern Virginia semiconductor company that is still in the idea stage. Biddle says the firm will make between 15 and 20 deals, providing $2 million to $3 million in venture capital to each company. The firm also plans to make $100,000 investments in companies that need money to develop business plans.
"The game of venture capital is that two out of 10 prospects carry a portfolio," said Biddle. "If you're doing earlier stage deals, the risk is high but the return is even higher."
Venture capital firms around the country are realizing that high return. The Price Waterhouse National Venture Capital Survey, which reflects 439 U.S. venture capital firms for the first quarter of 1996, reports that venture-backed investments jumped 48 percent compared to the first quarter of 1995. The first quarter totaled $2.2 billion in venture capital investments, compared to $1.49 billion for the same period a year ago.
Over the past two years, technology companies have attracted the lion's share of venture capital investments. The first quarter of 1996 results showed that biotechnology, communications, electronics, environmental, medical instruments, computer, semiconductor and software companies accounted for 63 percent of all companies receiving funds.
Some $350 million of venture capital was invested in the Netplex in 1995, according to the National Venture Capital Association, Arlington, Va. The association represents 230 venture capital firms, which is 85 percent of all VC financing in the United States.
Venture capital in Virginia is going to computer software companies, and venture capital in Maryland is going to medical devices and biotechnology.
Novak and Biddle call themselves conservative with their money and have recognized information technology companies as the best investments, not biotechnology. They see more opportunities in information technology, especially in the Netplex.