NORTHBROOK, Ill. – KB Partners L.L.C. has invested in four deals following a $20 million March wrap of its first fund, KB Partners Venture Fund I, L.P.
The suburban Chicago-based firm backs start-up and early-stage companies in the Midwest, investing $500,000 to $3 million in each company over time.
KB mainly backs information technology, analytical instrumentation, Internet, medical devices and telecommunications enterprises but will remain opportunistic in its approach to investing, said KB co-founder Keith Bank. The fund held a first close on $12.2 million in June 1998.
Mr. Bank founded KB with Byron Denenberg in late 1996, and the pair built their reputation by using their own money and that of high-net-worth individuals to close three deals in 18 months. Messrs. Bank and Denenberg, who have known each other for about a decade, were angel investors before organizing the firm.
Mr. Denenberg created MDA Scientific Inc., a company that detects hazardous gasses released in the making of semiconductors, and then sold the business in 1988. He worked for MDA’s new owners for three years before leaving to become an angel. Mr. Bank was a shopping center developer who had an interest in technology investing. The two sometimes found themselves backing the same companies, so Mr. Bank approached Mr. Denenberg about creating a firm.
In spring 1998, the pair launched their fund, targeting wealthy individuals as investors. About three-fourths of KB Partners’ backers are from the Chicago area, and many are chief executives, entrepreneurs and investment bankers who can provide deal flow and contacts to talented managers. The fund features a 2.5% management fee and an 80%/20% carried interest split. Limited partners appreciated that Messrs. Bank and Denenberg put up 10% of the fund, Mr. Bank noted.
KB’s fund-raising pitch centered on Chicago’s need for early-stage funding, despite the stereotype that the Midwest lacks management talent and technological innovation, Mr. Bank said.
Most recently, KB Partners in April closed a $1 million investment in TraffiCop Inc., a suburban Chicago company whose software tracks the shipments of goods (story page 38). In January, KB put $1.5 million in U.Access, a Chicago company that uses unobtrusive telemarketing techniques, Mr. Bank said. Last summer, KB invested $500,000 in Cognitive Concepts Inc., an Evanston, Ill., maker of educational software.
The fund’s first deal, which closed in September 1998, was a $1.33 million investment in Orbit Commerce Inc., a Chicago-based provider of payment processing services to small- and medium-size retailers that sell goods over the Internet.