Tough Times Spawn Opportunities For Washington VCs

Washington, D.C. – The U.S. venture capital business has been slogging through a rough patch. The first quarter of 2008, according to the National Venture Capital Association, saw just five initial public offerings by venture-backed start-ups. Meanwhile, just 56 venture-backed firms were sold or merged, down from 82 and 104, respectively, in the first quarters of 2007 and 2006.

The principals of RedShift Ventures, a Washington, D.C.-area venture capital firm, don’t gloss over the problems. “It was just brutal,” says general partner Mark Frantz, of the first quarter. “I don’t see a lot of indicators on the horizon that are going to change that,” adds Richard Harris, another general partner and RedShift’s founder.

But from RedShift’s view, the tough outlook for making money on the back end hasn’t dampened entrepreneurial activity on the front. “We see a tremendous amount of deal flow,” says Harris.

Paradoxically, Harris suggests one reason for all this opportunity is corporate skimping on research and development. “In this economic environment,” explains Harris, “large companies seem less interested in funding cutting-edge research than they are just shoring up their core businesses.”

Full story at Forbes.com

Tiny Battery, Big Biz

Washington, D.C. – In early 2008, Littleton, Colo.’s Infinite Power Solutions plans to begin high-volume production of batteries not much bigger than postage stamps. Like players before kickoff, execs at Infinite, now 25 employees strong, are in full chest-pounding mode.

“Our flexible, rechargeable, thin-film batteries will boldly go where no batteries have gone before,” says Timothy Bradow, Infinite’s vice president for marketing and business development.

Key to the boldness: the defense and intelligence market. Bradow and Chief Executive Raymond Johnson believe certain federal customers will pay $50 to $100 per battery. They and their investors have maneuvered to get Infinite up and running with a surge of public sector demand.

So what’s a thin-film battery? Batteries, or devices that convert chemical energy to electrical energy, are essentially three items: a positive electrode, a negative electrode and an electrolyte that separates the two. In the lithium-ion batteries that power cellphones and laptops, the electrolyte is a liquid or a polymer gel.

Thin-film batteries, by contrast, use a glassy, inorganic solid for an electrolyte. The technology was pioneered in the 1970s at Stanford University, developed subsequently by the Department of Energy at its Oak Ridge National Laboratory, then released for commercial use starting in the 1990s.

Full story at Forbes.com

Beltway Money Man: Jon Kutler

Being buried alive can change your view of making money.

Prior to December 2005, Jon B. Kutler fit the profile of the hard-charging investment banker. A Harvard business school grad and founder of a successful aerospace and defense boutique, he had worked on hundreds of deals. Long hours and constant travel were his companions–and fond ones, given the money he made.

One afternoon in December 2005, though, Kutler found himself under six feet of snow, buried by an avalanche on the last run of the day during an Austrian ski vacation. It took 45 seconds for him to pass out and 20 minutes for rescuers to dislodge his head. By the time he reached the hospital, his body temperature was 89 degrees.

“Your life flashes before your eyes,” says Kutler, 50, of those 45 seconds of consciousness trapped beneath the snow. “None of my thoughts related to investment banking.”

So in March 2006, Kutler turned a new chapter. He quit the banking outfit he had started, sold in 2002 to New York’s Jefferies Group, and turned his attention to private equity. He put up $70 million of his own money to found Admiralty Partners.

But in contrast with today’s private equity environment, where big players are raising billions and closing massive deals, Kutler had no intention of building another financial empire. “I rarely travel,” he says, “except for vacations.”

Out too are the long hours at the office. In their place, Kutler says he substituted more time doing charitable work with his wife and more attention to their two teenage kids. A U.S. Naval Academy grad who majored in engineering, he became a trustee of the California Institute of Technology. He also helps oversee the Jet Propulsion Laboratory, NASA’s center for robotic research of the solar system, which Caltech manages.

The scaled-back schedule means less time for scrutinizing deals. With Admiralty, Kutler gets plenty of pitches sent his way but invests in just one or two a year. His targets are usually companies with sales in the range of $25 to $250 million.

Full story at Forbes.com

Breaking The Grip On Storage

WASHINGTON, D.C. – This week, Washington hosts FOSE, a government technology convention that draws 25,000 attendees. Among the 400 companies exhibiting are government contracting giants like Cisco Systems and Motorola.

But the event also has its share of scrappy upstarts looking to gain ground on bigger competitors. Boulder, Colo.’s LeftHand Networks, an information storage concern, is one.

“[FOSE] gives us a great forum,” says LeftHand chief executive William Chambers, 46.

Full Story at Forbes.com

The Entrepreneurs’ New Friends

WASHINGTON, D.C. – Not all business folks are worried about the Democratic takeover of Congress. Venture capitalists, for example, are welcoming Nydia Velázquez, D-N.Y., as the new chairwoman of the House Committee on Small Business.

“We feel she really understands the positive impact of venture-backed companies,” says Emily Mendell, a spokeswoman for the National Venture Capital Association (NVCA). Full story at Forbes.com

VC Builds Inside The Beltway

WASHINGTON, D.C. – Two years ago, venture capitalist Hans Kobler and his partners at Digital Power Capital persuaded several smaller-portfolio companies to merge into a Washington-headquartered entity, ICx Technologies, focused on the detection and surveillance markets.
How’s that decision working out? “Terrific,” says Kobler, 41, ICx Technologies’ chief executive officer.

We doubt he’d tell us otherwise. Still, for entrepreneurs and venture investors interested in the homeland security market, ICx Technologies’ approach bears observation.

Full story at Forbes.com

Spinning Red Tape Into Gold

WASHINGTON, D.C. – For a D.C.-area private equity shop, Valhalla Partners goes light on the public sector experience. Among these VCs, you won’t find any former cabinet officials or intelligence big wigs looking to trade on a fat Washington rolodex. Nor do they sound all that enthusiastic about investing in companies catering to the federal government or its big contractors.

“Government is capricious,” says Arthur Marks, a Valhalla co-founder and general partner.

Yet there’s no aversion at the Vienna, Va.-based outfit, which has $440 million under management, to making money off opportunities that the government creates, namely through red tape.

Full story at Forbes.com