David Dame wants you – and his corporate overseers – to know that he holds no ill will toward Cleveland. Dame, who grew up an Army brat, has spent the past six years of his nomadic life in Northeastern Ohio as a managing director of Key Principal Partners (KPP), KeyCorp’s private equity investment arm. And he would have stayed put had Key not asked him to head an expanded venture capital practice named Key Venture Partners.
“I really enjoyed my time in Cleveland,” Dame says. “But when you’re talking about investing growth capital into technology companies, it makes the most sense to be either near Boston or on the West Coast.” Dame quickly moved his family to Weston, Mass., and leased some space in neighboring Waltham for Key Venture’s offices.
Boston won out due to what Dame perceives to be a regional dearth of growth capital for companies halfway between products and profits: “We have noticed a polarization going on in venture capital. Early-stage firms have refocused on early stage and the later-stage firms have gone later. On top of this, many institutional and corporate investors dropped out of the expansion, or growth, arena when the bubble burst, creating a void of small, growth-stage investors.”
Helping Dame with the Boston territory is co-managing director Ted Mocarski, a Nautic Partners co-founder who was introduced to Dame by KPP advisor Joe McCullen. The team will be fleshed out by associates Matt Brennan, Vaibhav Nalwaya and Brody Stout.
“We’re already looking at deals, and expect to close two before we move into our new office in January,” Mocarski says.
Over lunch at Bertucci’s in Waltham, Dame is quick to point out that Key Venture Partners is not as new as it may appear. The firm actually was born during the Internet bubble, when KPP realized that it could no longer ignore the burgeoning technology bandwagon. The later-stage shop hired Dame away from IBM’s Emerging Technology Group and immediately put him to work investing in companies like Xyvision and TechBooks.
Dame’s initial capital pool was a $70 million vehicle that featured KeyCorp as its sole limited partner. The fund mostly avoided the business-to-consumer plays that felled other 1999 alumni, and now stands fully committed with 12 portfolio companies. None of those investments has gone belly-up, although Key was severely diluted in the cases of Printcafe Software Inc. and PlanetPrint. Dame says that the fund has one portfolio company in registration (Open Solutions Inc.), and that the initial $70 million will generate a positive return.
IPO Queued Up
Based on both Dame’s track record and a continued desire to diversify via venture capital, KeyCorp approved a plan earlier this year that resulted in Key Venture Partners. The new group has $100 million in committed capital from KeyCorp, which is expected to last for at least the next two years. Mocarski says that the group may consider outside fund-raising in the second quarter of 2005, but that the parent bank will always be welcome as a backer.
Before a new fund can be raised, however, there is the matter of investing the current fund. Key Venture Partners will invest in a wide range of technology companies, with Mocarski focused on communications and Dame targeting IT.
“Our strategy is somewhat unique,” Mocarski says. “We are expanding our venture investing when many are reducing venture exposure, we are focusing on communications and IT/software when many are moving to health and biotechnology, and we are focusing on leading small expansion- stage investment opportunities when many are moving back to early stage and to later stage with larger deal sizes.”
They will invest between $3 million to $10 million over the life of a portfolio company, and Key will either lead or co-lead the initial round. It’s looking for startups that have proven business models, customer traction, room for growth and are at or near EBITDA breakeven. The firm may also provide subordinated debt financing through its continued relationship with KPP, which recently raised $78 million for its second mezzanine fund.
“When early-stage firms like North Bridge and Matrix are looking for guys to lead growth financings for their portfolio companies,” says Mocarski, ” we want to be who they think of.”