After Buying Out G.P.s, John Barry Mulls Adding New Limited Partners to Prospect –

NEW YORK – Nine months after venture capitalist John Barry of Prospect Street Ventures bought out his partners and revamped the firm’s focus, Prospect is considering adding new investors to its flagship vehicle, the $75 million New York City Discovery Fund.

Mr. Barry, who kept news of the buyout quiet until now, had been a partner at Prospect Street since 1990. He described the sale as “quite amicable,” adding that he made his former partners “an offer they couldn’t refuse.”

Many of Prospect’s former general partners remain at Boston-based high-yield firm Prospect Street Investment Management. Mr. Barry’s former partners – Joseph Cote, Richard Omohundro, Ronald Celmer, John Frabotta, Preston Carnes, Kevin Littlejohn and Dana Erickson – could not be reached for comment.

One of the main reasons Mr. Barry wanted to take control of the venture firm was to focus the fund’s investment strategy on information technology, a booming industry in Silicon Alley. Discovery Fund invests between $3 million and $5 million in companies that range from start-ups to later-stage.

“[VCs] have a historic opportunity here in New York similar to Silicon Valley 20 years ago or Boston 15 years ago,” Mr. Barry said. “We are leveraging off of the mushrooming growth in [New York’s] information technology and new media industries in the last two years.”

Under Mr. Barry’s leadership, Discovery Fund has made three new investments in Internet advertising company 24/7 Media Inc.; Web site technology business Comet Systems Inc.; and Internet navigation and community site The Mining Co. At press time, the firm was approaching a close on a fourth deal in the IT industry.

Deal flow in New York’s IT sector has been so good, in fact, that the firm at press time was considering raising additional capital from both existing and new limited partners to add to the fund’s current $75 million total. Current investors include the New York City Economic Development Corp., the Brooklyn Union Gas and Marketspan Inc. ERISA Pension Fund, Con Edison, the New York Power Authority and the United States Small Business Administration (SBA).

Existing L.P.s indicated that they will invest additional capital alongside new investors, Mr. Barry said. A decision about whether or not to raise new capital will be made in early 1999, he added.

If Prospect raises an additional $15 million, coupled with SBA money, Discovery Fund’s total commitments will reach $135 million. The vehicle at press time had committed about $50 million in 10 companies.

As part of its reorganization, the firm has moved its offices from New York’s Park Avenue to near Grand Central Station, and is looking to add new staff. Mr. Barry said there was no timetable for making new hires, but emphasized that he would be “flexible as opportunities come my way.”