It’s not the size of the investment that counts, it’s the advice that comes with it. That’s the philosophy behind River Cities Capital Funds. Touting itself as a venture firm that provides more than money, River Cities closed its third fund with $158 million.
“We started raising this fund in early 2001 and wound up closing in June 2002,” says Ted Robinson, a managing director at River Cities. “We had set the target at $150 million, but we would have taken as much as $250 million. In the end, we are happy to have achieved our goal.”
River Cities, based in Cincinnati, invests primarily in the Midwest and Southeast and focuses on first and second institutional rounds. Its target markets include information technology, health care, communications and manufacturing. Fund III will invest an average of $2 million into each of five or six deals per year. When all is said and done, River Cities expects to put about $5 million into each portfolio company, with a maximum of $10 million.
“Five or six deals a year is manageable, and, in terms of stage, we will be diversified but have a bias toward first and second rounds,” Robinson says.
He would not name the firm’s limited partners, however, he says that River Cities secured $106 million from the Small Business Investment Company program, while the remainder came from high-net worth individuals and institutional investors.
The firm was born out of corporate consulting firm Mayfield & Robinson, which served entrepreneurs in the greater Cincinnati area for more than 15 years. “My partner and I advised clients about strategic planning and financing,” says Robinson. “During that period we made a number of investments in companies and recognized that the area was an under-served market in terms of venture capital.”
Fund III will follow the path of its predecessors. Fund I raised $45 million in 1994. Fund II was raised in 1998 and closed with $94 million. Both funds are fully committed.
Thus far, Fund III has made six investments. It made its first investment in September 2001, putting $2 million into Smart Signal, a company that monitors the condition of products that have maintenance requirements, like jet engines. The fund’s other deals include a $1.6 million investment in Construction Software Technologies, a Web site for the construction industry; a $1.5 million investment in Evault, an online data back-up service; and a $2 million investment in CrossMedia, a Web-based marketing service.
Robinson says the firm may grow out of its relationship with the SBIC when it raises its next fund. “We will be less dependent on the SBA, because we will have probably maxed out our leverage with them by then,” he says. “We will always try to maintain some sort of SBIC qualification, but I think we will have a larger component of private equity.
“The SBA is an attractive source of capital and favorably priced. There is no reason not to use their capital, but now we have enough history and a track record that will allow us to raise more substantial private capital.”
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