September 11, 2007 in Business

Venture capital firm rethinking its focus

By The Spokesman-Review

Spokane venture capital firm Northwest Venture Associates will not seek to raise a new fund, focusing instead on overseeing its existing portfolio and aiding local companies, its managing partner said Monday.

NWVA will support its investments in 16 existing companies, including local corporations SprayCool and World Wide Packets, using what’s left of a $133 million fund raised in 2000, said Tom Simpson. But the four-person firm won’t invest in any new businesses, he said.

“It’s our view that the venture model for traditional, early state investing is somewhat confused and broken right now,” Simpson said. “There’s too much investor money out there chasing young companies, and the valuations have just gotten too high.”

Simpson said NWVA last year “very quietly and selectively” shopped a different concept to institutional investors – putting money into “middle-market,” possibly non-technology-focused companies with roughly $10 million to $50 million in revenues that need money to grow. But institutional investors – such as the state pension plans, college endowments and family trusts that typically fund venture capital – weren’t interested, he said. NWVA abandoned an effort to raise $100 million to $150 million toward that aim.

There are fewer potential investors and more reasonable valuations for companies in that niche, Simpson said. Instead of relying on an initial public offering or a buyout, investors in more established companies would make money through dividends or distributions.

Simpson said NWVA has made such investments in the past, such as in Seattle-based gourmet kitchenware company Sur La Table Inc. NWVA also invested $5 million in Bellevue-based veterinary hospital chain Pet’s Choice Inc., which animal health care company VCA Antech Inc. of Los Angeles bought.

Simpson declined to say how much of the Northwest Venture Partners III fund remains. Jon Eliassen, former CEO of the Spokane Area Economic Development Council, said Simpson has identified a missing piece of the funding puzzle. Startup companies can get money, but without a steady stream, it becomes difficult to grow, he said.

“You need to have the patient money, and venture capitalists, by definition, have never been patient,” Eliassen said.

Any future, local investments could use project-specific money or a new fund, Simpson said.

NWVA has never seen an IPO, but several of its investments have been purchased. One success was the 1998 sale of Packet Engines to French telecom giant Alcatel for $325 million. America Online bought Seattle-based Tegic, another investment, for $300 million.

“Overall, I feel very good about the investments that we’ve made and the future for the portfolio,” Simpson said. NWVA will let the lease expire on its Seattle office after a former partner left in June. Another partner there will operate from home.

Simpson also works closely with John Pariseau, general manager of local angel investment group WIN Partners LLC, who works out of its offices.

“Now we’re really going to be focused, you know, more on opportunities in the Spokane area,” Simpson said. “We can bring in a variety of resources to young companies in Spokane, whether it be capital or whether it be just helping these young companies.”

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