An Inspiration in a Tough Market

The venture fund-raising market got off to its slowest start in 17 years in the first quarter, so why is Rami Elkhatib smiling?

Well, you would be smiling too if you had just raised $150 million. Elkhatib, a onetime investment banker and tech entrepreneur, broke the happy news last month as part of the launch of his new firm, Olympus Capital Partners. Based in Silicon Valley, the venture firm will focus on late stage and growth stage cleantech and IT deals.

From beginning to end, Elkhatib says, the fund-raising effort took about two years. Even after such a long haul, he remains cheerful.

“Challenging times like these create opportunities,” he says. “Investing in a weak economy often leads to strong outcomes.”

These certainly are weak times for new VC firms. Though rising numbers from the final quarter for 2009 had many hopeful that 2010 would see a rebound in venture capital fund-raising, the National Venture Capital Association reported that Q1 was slowest quarter for fund-raising since 1993. VCs raised just $3.6 billion in the first three months of this year, compared to $5.2 billion in Q1 2009 and $7.1 billion in Q1 2008, according to the NVCA report, which was based on data from Thomson Reuters (publisher of VCJ).

Of the 32 funds raised in Q1, only five were new funds, with the largest being a $50 million vehicle raised by Longwood Founders Fund.

The NVCA and other industry observers believe that many firms are waiting until the exit market improves before embarking on their fund-raising efforts.

“Whether you’re a new or established firm, without a doubt this is a tough environment,” Elkhatib says. “The industry is contracting, not expanding. So I’m feeling great that I was able to work with a small set of LPs to get our fund done.”

Elkhatib, previously a general partner at Southeast Interactive Technology Funds in Raleigh, N.C., says he spent much of last year raising the fund from a small group of LPs that he had previous relationships with. Most of the LPs are based overseas, he says. He declined to disclose details, but he says that the anchor LP is a “large international asset management firm.”

Elkhatib expects Olympus to invest in 10 to 12 companies over the next five years, putting about $7 million to $15 million to work in each company.

Joining him at Olympus are Venture Partners Debra Schilling and Charles Ho. Ho previously co-founded a Brazilian company that recycled materials from waste packaging and ran a manufacturing operation in China for the Lithcon Group. Schilling was previously CFO at Horizon Ventures and Aspen Ventures.

Olympus’s coming out last month coincided with the announcement of its first deal, a $41.5 million Series C round for Solexant, a solar technology company based in San Jose, Calif. Solexant previously raised more than $22 million from Trident Capital, Firelake Capital, Medley Partners and X/Seed Capital. Olympus Capital Partners led the Series C round and was joined by new investors DBL Investors and Birchmere Ventures, as well as all existing investors.

As part of the investment, Elkhatib and Cynthia Ringo, managing partner of DBL Investors, have joined Solexant’s board.

The industry is contracting, not expanding, so I’m feeling great that I was able to work with a small set of LPs to get our fund done.

Rami Elkhatib

“I had been watching the progress of Solexant throughout our fund-raising process,” Elkhatib says. “I expect we will see energy efficiency deals like this much more frequently around here.”

Olympus Capital Partners

Founded: 2009

Location: Menlo Park, Calif.

Fund: $150M

LPs: Undisclosed, but anchor LP is an asset management firm.

Focus: Late stage venture capital and growth equity investments in cleantech and information technology companies.

Investments: Has done one deal to date: Solexant, a San Jose-based developer of thin firm photovoltaic technology.

Founder and General Partner: Rami Elkhatib. He was previously a GP at Southeast Technology Funds, where he served on the boards of several portfolio companies, including Pixel Magic (acquired by Dai Nippon), Waveguide Solutions, Elumens Corp. and Arsenal Digital (acquired by IBM).

Venture Partners: Charles Ho and Debra Schilling.

Did You Know? Before he became a venture capitalist, Elkhatib co-founded Datacme Software, held senior management roles at Oneworld Software Solutions and was a technology investment banker at UBS Warburg.

Source: VCJ reporting