Blue Chip Venture Building to $300 Million –

CINCINNATI – Seeking $300 million, Blue Chip Venture Co. held a first close on Blue Chip IV at $175 million in December. If the firm does not reach its target in the meantime, it will continue fund raising until the end of May, said John McIlwraith, one of three managing directors.

Investors from the $235 million Blue Chip III participated in the first close of Blue Chip IV, and in January, the firm began marketing the fund to new investors.

McIlwraith said “a number of investors are re-evaluating their [venture capital] allocations,” but Blue Chip had maintained its part in many of those changing allocations.

McIlwraith thinks his firm’s Midwestern focus may have differentiated it from its competition. Blue Chip invests half its capital around the Great Lakes and Ohio Valley regions and half on the coasts.

“Our strategy has not been to open more offices but to build strategic relationships with these [other VC] funds,” McIlwraith said from Cincinnati, the firm’s sole office.

The firm has strategic relationships with five VC firms in the Midwest. On the coasts, the firm had preferred to invest with other VC firms and referred entrepreneurs, but Blue Chip recently added a venture partner on each coast to source deals and help its portfolio companies.

Adnon Durrani, a former investment banker and merchant banker, is now the firm’s representative in Stamford, Conn., while Alok Mohan, former senior executive at NCR Corp. and chief executive officer at Santa Cruz Operation Inc., is in Santa Cruz, Calif.

Blue Chip IV will target early-stage investments in information technology, infrastructure and telecommunications companies. McIlwraith said the firm also invests locally in health care and other industries, but it is avoiding restaurants and retail stores.

Blue Chip IV has already invested in Ohio-based Knowledge Development Centers Inc., a company that rents technology-enabled classrooms for corporate training. The fund has also taken a stake in insurance-network Innovative IT Solutions out of Ann Arbor, Mich.

McIlwraith said the firm plans to invest in 30 companies for Blue Chip IV and expects initial investments to range from $1 million to $20 million, with an average total investment from $7 million to $10 million.

The firm currently has six partner-level professionals, the two venture partners and four associates. The firm’s first two funds raised $44 million and $129 million. Between the four funds, the firm has invested in over 85 companies. McIlwraith estimated Blue Chip has been the lead investor or co-lead in 75% of its portfolio companies.

McIlwraith said the general partners are investing a typical amount in Blue Chip IV. The management fee is scaled over the life of the fund, but it should average around 2%. Unlike some firms, Blue Chip is staying with the 80%/20% carried interest structure, and the firm will not touch the proceeds until the investors physically have their principal in hand.

“I like the fact we think our terms are good for investors,” McIlwraith said, calling it the firm’s Midwestern way of thinking.

McIlwraith declined to name any limited partners in the fund. He said half the LPs are pensions and endowments, a quarter are corporate entities, and the other quarter are individuals. Of the fund’s $300 million target, he expects $200 million to come from existing investors and the rest to come from new investors.

In January, the Ohio Police and Fire Pension Fund, a previous investor, announced it had invested in the fund.