Chrysalis Ventures recently closed its fourth fund with $163 million in capital commitments, beating its $150 million target.
Limited partners include Morgan Stanley, Credit Suisse and the Kentucky Teachers’ Retirement System. The Louisville, Ky.-based firm focuses on early stage opportunities in the Midwest, Ohio Valley and South. It primarily invests in health care services and technology, media and communications and business services.
David Jones, one of three managing partners at the firm, says the new fund size is just right.
“We actually targeted $150 million because we feel that’s the right size for the stage and kind of industries Chrysalis invests in,” Jones says. “We like to be the lead in a company’s first institutional round.”
The new fund, Chrysalis Ventures III, came together rather slowly. When it held a first close on $48 million in March 2006, Chrysalis had seen just one exit from its previous fund, $143 million Chrysalis Ventures II, which was raised in 2001. After that, it racked up another three exits.
To date, fund II has invested in a total of 23 companies, four of which have been acquired, according to Thomson Financial (publisher of VCJ):
• Asterand Inc., which provides tissue samples to biopharmaceutical companies for research, was acquired by Pharmagene Laboratories Ltd. for $23.5 million in September 2005. It had previously raised $15.2 million in VC.
We’re looking at companies that are going to build a stream of cash-flow around technology — but not as creators of IP so much as builders of businesses around IP. These are companies that can become self-sustaining with investment of around $10 million to $20 million in equity.
• Genscape Inc.
, which provides information to energy companies, was acquired by DMG Information Inc. for $196 million in April 2006. It had previously raised $3.5 million.
• Midi Inc.
, which develops compliance and ethics online learning programs to corporate enterprises, was bought by SAI Global Ltd. for $45 million in January 2007. It had previously raised $8.25 million.
• And Advanced Academics Inc., which offers accredited secondary education courses online, was purchased by DeVry for $27.5 million in October 2007. It had previously raised $19.3 million.
Chrysalis has invested in at least four companies from fund III so far, according to Thomson. It has backed Digitalsmiths Corp., a digital video search technology company, Mobile Armor, a provider of enterprise mobile data security software, SinglePipe Communications, a wholesale VoIP provider to CLECs and other Internet service providers, and Chronicity Inc., which operates centers that provide treatment for ADHD and related disorders.
Jones says the firm’s strategy is to invest in “companies that are going to build a stream of cash-flow around technology—but not as creators of IP so much as builders of businesses around IP. These are companies that can become self-sustaining with investment of around $10 million to $20 million in equity.”
With so many startups in the Midwest and South and so few local venture firms to service them, Chrysalis sees plenty of deal flow. “Early and expansion stage venture capital is a face-to-face business, and travel logistics to this part of the country have become more difficult post-9/11,” Jones says. “We’re close and can get there faster and more often.”—Dan Primack and Lawrence Aragon