Alexander Hutton Raises Northwest-Focused Venture Fund –

SEATTLE/TACOMA, Wash. – Alexander Hutton, a boutique investment bank specializing in private equity and mergers and acquisitions, launched its first venture capital fund this fall, seeking $100 million.

The vehicle, Alexander Hutton Venture Partners L.P., will invest predominantly in information technology and health-care infrastructure companies in the Northwestern United States, said Chairman and Managing Director Kent Johnson, who expected the fund to reach a first close on at least $50 million in December and then a final close 60 days thereafter.

Although this is Alexander Hutton’s first fund, it is not the investment bank’s first foray into venture capital. Through its Alexander Hutton Capital unit, the group has placed some $63 million of individual investors’ money in 17 technology companies since mid-1995, although most investments have been made in the last two-and-a-half years, Kent said. “We refer to it as a virtual fund,” Kent said of the capital invested. He noted that the Alexander Hutton management team functions like venture capitalists, working with portfolio companies and taking board seats.

Alexander Hutton raised the $63 million from its network of about 600 angels, Kent said. The group decided to raise an actual fund to speed its investment process. Pulling money together on a deal-by-deal basis had taken the group as long as 45 to 60 days, he said, while traditional venture capitalists could complete their due diligence and simply write checks almost immediately. Also, investment decisions technically rested in the hands of individual angel investors, so in theory, angels could pass on a company supported by the Alexander Hutton team. Additionally, the investment bank found it difficult to secure a place in late-stage financings because companies at that stage of development preferred to work with venture capital firms rather than angels. Alexander Hutton is interested in all stages of investments.

“We see this area as a big opportunity and an opportunity that just needs some larger funds,” Kent said of the Northwest. Of the 17 investments the firm has made, 15 were in Washington and two in California. The managing director expects the new fund to invest about 70% of its capital in the Northwest – from Portland to Vancouver, B.C. – with Alexander Hutton taking a lead position. The remaining 30% will be invested elsewhere in partnership with other VC firms; Alexander Hutton does not plan to lead those deals.

Kent and his colleagues – Managing Directors Jerry Keppler and Mark Klebanoff, Senior Associate Tom Johnston and Associate James Thompson – are marketing the fund themselves, drawing on their private placement experience. The group is primarily targeting Northwest institutions, including university endowments and corporate pensions, but Alexander Hutton also is marketing the vehicle to European institutional investors. Kent expects three-fourths of the fund’s capital to come from institutions and one-fourth from individuals. Alexander Hutton partners, affiliates and advisers together are investing about $10 million in the vehicle.

The management fee is 2.5%, and the fund features a 20% carried interest split, after limited partners first receive an initial 6% in profits.

The $63 million “virtual fund” at press time was posting returns of 165% on an average holding period of slightly less than three years. Because the investment bank was acting as a placement agent rather than a fund manager, Alexander Hutton did not receive a carry on those profits; instead, the group was paid placement fees by the companies raising money. Companies that were backed by Alexander Hutton’s angel network included: Asterion Inc., AccountingNet Inc., Activate.net, Medifor Inc., Internet Transport Management Inc., Halosource Corp. and F5 Networks Inc.