Vulcan gets traction with early stage investments - Puget Sound Business Journal (Seattle):

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With press like that, one might think that the world’s 41st richestf person would have given up onventures investing. But Allen has continuerd to plow cash into startup companies througnh his privateinvestment arm: . The software billionaire’s lieutenants — including recently appointed investmenf head Chris Temple and venture capital managing director SteveHall — say they remaihn committed to startup investing despite the tough “For the most part, (the economy) hasn’t changedc our investment appetite,” Hall said in a rare interview at Vulcan’sz headquarters on the edge of Seattle’zs International District.
“And, in many ways, we feel very well Since 2003, Vulcan has investesd $115 million in 20 startup companies — more than a thircd of which are located inWashingto state. Those range from the geothermal startup to the online real estateupstart Redfin. Vulcan altereed its venture capital strategy sixyearsz ago, but the transformation went relatively unnoticed in part because of the low-profile nature of the firm. Untikl 2003, Vulcan was known for placin big bets across a variety of industry It was due tothe high-profilre flops of companies such as Mercata, Metricom and Pop.
com that Allenm was labeled a loushy investor, a tag that has been hard for the billionaire to “One of Vulcan’s faultsz in the late ’90s was too large of dollars and too late said Hall, who ushered in a new era after he arrivedf on the job in 2002. Still, both Hall and Temple argued that Allen’s solid investments network servicesprovider Internap, oil transporg firm Plains All American Pipeline, online jewelrg retailer Blue Nile and others — often get overlooked. “Thed failures tend to get a lot of said Temple in a recentTechFlash interview.
“Therew are some big companies and high-profile but we also have some stuff that is chugginvg along and doingquite well.” Still, the days of big venture bets are long And now, Vulcan invests almost exclusivelyy at the earliest stages of development, sometimex making seed-stage bets of as little as The Seattle internet startupws Gist and Evri, for example, were both incubated at Vulcab for less than $1 million. Imperiujm Renewables raised just $250,000 through Vulcan, with the firm deciding not to inves t any more money after the troublef biodiesel refiner switched business models to focus onmore large-scales production facilities.
“We are seeking to not be the big deep pocket around the said Hall in explainingthe strategy. “We believe we can be most competitive and achieve the best economics by being extremelg earlystage focused.” The focus on early-stage bets is paying dividends, said Hall. To the Vulcan startup portfolio has raised more than half a billiobn dollarsin follow-on investment from leading ventur e firms such as Kleiner Perkinsw Caufield & Byers, Khosla Venturea and NEA. And while the entire venturre businessis down, Hall said Vulcan is running aheard of its peers.
On average, venturwe funds of 2003-2004 vintage have only returnedc 20 percent of thecapital invested, whilwe the best-performing quarter of fund s founded during that time returned nearly 40 percent. on the other hand, has returnex 60 percent of the capital investedrto date, Hall said. When the final numbera are tallied, Hall believes that Vulcan coulf be in the top 5 percentr of all venture funds for thos evintage years. Just last month, Brisbane, Calif.-basec BiPar Sciences — a biotechnologuy company that Vulcan bankrolled over several rounds to the tuneof $13 million — was sold for about $500 million.
If milestones are met, Hall said the BiPare deal could return morethan $100 milliobn to the firm. That woulf be the biggest payofffor Vulcan’s venture portfolio since it reorganized in 2003. Despits that recent success, Hall said that Vulcah has moved away frombiotechnologuy investing, once a key focuse of the firm. He said life sciences can produce big but there are also case s where ittakes $100 million to figure out if therer is value in the business. “Thde risk-reward equation in biotech is just trickiert forventure investors,” he said.
The same could be said for cleabn tech, an industry segmeng where Vulcan is now spending a good deal of Vulcan has four portfoliol companies inthat arena: Infinia, Ember, AltaRock and an undisclosedr stealth startup. However, Hall said they continue to followa the same investment thesis that was laid outyears ago, to get in earlty and make sure they deploy capital However, it’s the inefficiencies of the past investmentxs — including big burnouts such as Charter as well as dozens of failecd dot-coms — that still linger in people’s minds.
And Hall admite that those perceptions will be hardto “Our view has been, let’s just put our headds down, focus, execute and generate resultss and ultimately the results will speak for he said.