RESTON, Va./CHAPEL HILL, N.C. – In an effort to capitalize on the flourishing Internet sector in the Mid-Atlantic and Southeastern United States, Draper Fisher Jurvetson in early January launched the Draper Atlantic Venture Fund, the latest of several early-stage, geographically-focused satellite funds the firm has launched in recent years.
Draper Atlantic was formed to take advantage of deal flow created by entrepreneurs who left jobs at the area’s information technology giants such as MCI Worldcom Inc. and America Online Inc. to start their own companies. The fund has offices in Reston, Va., headed by former InteliData Technologies Corp. President and Chief Executive John Backus, and in Chapel Hill, N.C., run by venture capitalist James Lynch.
The $30 million-targeted vehicle will invest in seed- and early-stage Internet, e-commerce, new media and communications companies, from Philadelphia to Atlanta. Draper Atlantic prefers to be the first major investor to commit to a business, filling the gap between angel investors and larger VC firms, Mr. Backus said.
“[The Mid-Atlantic started to have a couple of big companies create a lot of money for a lot of people, many of which are ready to go out on their own,” he explained. “The same thing happened in Silicon Valley in the past 20 years.”
Draper Fisher’s founder and Managing Partner Tim Draper said the high volume of deal flow produced by Washington, D.C., entrepreneurs necessitated opening an office. “We really want to be close to AOL,” he explained.
Draper Atlantic is the latest in a series of “franchise funds” Draper Fisher has launched in areas with potential for venture investments. The Los Angeles-based Zone Ventures, a vehicle slated for IT companies that bring content to the Internet, recently closed on about $25 million and is considering raising another $25 million to $50 million next summer. Salt Lake City-based Wasatch Venture Fund has raised approximately $20 million to invest in Utah, California, Arizona, Nevada and other Western states. And Timberline Ventures, a Portland, Ore.-based vehicle focused on the Pacific Northwest, expects a $30 million close this spring.
All of Draper Fisher’s prior vehicles originally had an IT focus, but Mr. Draper said each subsequent vehicle will concentrate more specifically on the Internet. “We are working to develop a franchise network,” he explained. “It is our belief that growth in the Internet can happen from anywhere … the Internet is changing the entire economy of the planet. That’s not only going to happen from Silicon Valley.”
The model for Draper Fisher’s franchise fund was Polaris Fund, a $6 million venture vehicle focused on IT companies in Alaska and the San Francisco Bay area, which was raised almost a decade ago and managed by Messrs. Draper, Lynch and James Yarmon. Two former Polaris portfolio companies, Medior and Redgate Communications, were later sold to America Online.
“What [Polaris] did was give me the sense that you can manage a VC fund from a distance,” Mr. Draper said.
Draper Atlantic will be managed by Messrs. Lynch, Backus and Draper, with plans to add one or two associates in the near future. “This is the first time there really is a bridge between Silicon Valley and Northern Virginia,” Mr. Backus said. “I think it’s a plus when you’re an entrepreneur in this area, and we can say we’ve sold companies to Yahoo and AOL.”