SAN FRANCISCO – Armed with a network of 30 corporate limited partners, ties to a multimedia incubator, a string of venture partners and a soon-to-be-closed $400 million investment vehicle, Allegis Capital already is slicing deep into convergence of computers, content, communications and commerce.
Since 1996, the San Francisco-based firm, with offices in Silicon Valley, Los Angeles and New York, has defined itself through its Media Technology Ventures (MTV) family of funds.
Now with its fourth and largest fund to date, the firm will continue to make early-stage plays into companies building out the digital economy – media-rich content, wireless and broadband infrastructure and communications technologies.
While the firm’s sector-defined focus is not original, Allegis historically has shied away from institutional LPs, opting instead for corporate backers. With new, international investors like France’s Societe Generale and Singapore Technologies Engineering Ltd. joining existing backers like American Express Co., The Boeing Co., J.P. Morgan & Co. and Sun Microsystems Inc. in the new fund, Allegis is leveraging the assets of its LPs to create a web of resources and partnerships to propel a start-up through turbulent economic times.
“Allegis has a strong track record with corporate LPs, and a process in place to leverage intellectual capital – in brand, domain expertise and relationships throughout the supply chain,” said Mark Klopp, managing director of digital business ventures for Eastman Chemical Co. and a limited partner in MTV IV.
Although the chemicals giant has already made 14 direct investments and spun out three companies, its stake in Allegis is its first investment in an institutional venture capital fund. While Eastman is a mid-stage investor, limited to strategic plays with a marketable commercial product, Allegis is a seed- and early-stage investor, identifying and making moves into companies closed to the traditional corporate investor.
For a corporate investor like Eastman Chemical, the Allegis funds are an early reach into companies with a possible strategic fit. The brand name, sales channels and market due diligence that corporate investors bring to the table lend a mark of credibility to the portfolio and mitigates risk for the investor.
“Not only do we help them in the beginning when [Allegis is] in the due diligence process, but once the investment is made they’ve got the leverage of technology, media and retail companies that want to help them with their portfolio companies,” said Kenneth Bronfin, senior vice president and deputy group head of Hearst Interactive Media. Hearst is an investor in the first three MTV funds.
Both sides, however, are essential to the value creation process, synchronizing opportunities and meshing different cultures with different agendas.
“We want strategic relationships to be formed first and let the equity relationships follow,” said Robert Ackerman, co-founder and general partner said of Allegis Capital. “Let the companies get to know each other, see if there’s a common set of objectives and goals. Only then does then does it make sense to bring a corporate investor in.”
Indeed, Ackerman said, about 80% of the family of funds’ portfolio companies receive direct follow-on investments from its corporate LPs. Corporate LPs also provide deal flow, due diligence and strategic guidance to the firm.
Strategic guidance and deal flow also come from the firm’s band of venture partners. The most recent addition to the firm’s roster of venture partners is Leo Hindery, chairman and chief executive of Global Center Inc., the Internet commerce and network solutions subsidiary of fiber optic player Global Crossing Ltd. Hindery is Global Crossing’s former chief executive. Venture partners also include Gordon Radley, president of Lucasfilm Ltd. and Philip Monego, chief executive of Technology Perspective and the former chief executive of Yahoo!
Spanning the Entire Lifecycle
While the band of venture backers brings years of contacts and experience to the firm, Allegis also has forged a link into companies just as they’re beginning to bloom in a partnership with Egg Company 2 (EC2), the University of Southern California’s digital media incubator.
Funded exclusively by the Walter Annenberg Foundation, EC2 supplies office space, production facilities, technical support and networking opportunities for companies developing new media content or communications technology. Supporting start-ups that range from e-commerce sites like Mixx Entertainment Inc. to the stereoscopic imaging systems of StereoVision Imaging Inc., the MTV funds have been a partner since the incubator’s founding in 1995, said Jessica Lucas, a spokeswoman for the incubator.
Although Allegis has never taken an equity stake in any of the incubated companies, Allegis Managing Director Jonathan Funk once kept an office on site and continues to provide advice and expertise to the start-ups. Together, Allegis and EC2 host panels and forums advising start-ups on how to secure venture backing.
Allegis will close the fourth MTV fund over the next several weeks, splitting its LP stakes for the first time between corporate and institutional investors. With powder to charge, the firm will begin its international expansion. An outpost is slated to open in Singapore over the next three to six months. At the same time, it will continue to beef up its investment staff before heading back into the digital economy.
Following are some of Allegis’ portfolio companies:
BizRate.com (Los Angeles) provides e-commerce services for consumers, and market research and rating services to the places they shop, via the Web. It also collects consumer feedback and transactional information to create quality of service metrics for retails.
Co-investors include Chase H&Q, HarbourVest Partners LLC, Mission Ventures and Vignette Inc.
iBeam Broadcasting Corp. (Sunnyvale, Calif) operates a satellite-based network of distributed servers to deliver high-volume Internet traffic, streaming media applications and services for independent content providers and corporate customers.
Co-investors include Accel Partners, Crosspoint Venture Partners, Intel Corp., Liberty Media Group and Sony Corp.
IdeaForest.com (El Segundo, Calif.) has created an online arts and crafts community that includes chat rooms as well as a e-commerce portion.
Co-investors include North Castle Partners, Rustic Canyon Ventures and Tarrant Venture Partners LP.
InfoGear Technology Corp. (Redwood City, Calif.) develops technology that will enable Internet access through low-cost, easy-to-use smaller footprint devices and through an existing base of telephone users. It also focuses on software for Internet appliances and their related services.
Co-investors include Cisco Systems Inc., Indosuez Ventures, Labrador Ventures and New Enterprise Associates.
Medscape Inc. (New York) is a clinical information company supporting integrated Web portals for various medical specialties as well as a provider of digital health records.
Co-investors include CIBC Oppenheimer & Co. Inc., Hearst Communications, Highland Capital Partners, Patricof & Co. Ventures Inc. and Soros Fund Management.
MPower Communications Inc. (San Francisco) is an online sounding board for defined contribution plan participants. Combining qualitative and quantitative analysis of fund and investment options, the firm provides fund-specific advice.
Co-investors include Capital Z Investment Partners, GE Equity, Mellon Ventures and Norwest Venture Partners.
Quokka Sports Inc. (San Francisco) produces and broadcasts interactive sports programming over the Internet.
Co-investors include BA Venture Partners, Crosslink Capital, MediaOne Group, Stanford University and Trinity Ventures.
Talk City Inc. (Campbell, Calif.) provides integrated communities, produces online events, conducts online marketing and hosts online meetings for businesses and consumers.
Co-investors include Cox Communications Inc., Flatiron Partners, Highland Capital Partners and Starbucks Corp.
Virage Inc. (San Mateo, Calif.) develops visual information retrieval technology, imaging and graphics software, offering customizable, Web-based solutions that allow users anywhere to catalog, find and manage their media assets.
Co-investors include Granite Ventures LLC, Reuters Group PLC, Sutter Hill Ventures, Thomson-CSF Ventures and Weston Presidio Capital Management.
Allegis Capital is located at the China Basin Landing Building, 185 Berry Street, Ste. 3600, San Francisco, Calif. 94107. Tel: (415) 977-0500, Fax: (415) 977-0502. The firm’s web site is at www.allegiscapital.com.