SEATTLE – Digital Partners, a spinout of Kirlan Venture Capital, held a $30 million first close on Digital Partners III. A final close on the $75 million to $100 million-targeted fund is expected late in the second quarter of 2000, said William Tenneson, a managing director at the firm.
The fund will back some 20 to 25 seed- to early-stage information technology companies mainly in Seattle and Portland, Ore., with about 85% of the fund going toward IT companies and the remaining 15% focusing on health-care and bioinformatics deals. Investments will range between $2 million and $5 million over several rounds of financing, said Daniel Regis, a managing director at the firm.
Digital partners believes the Northwest is a prime region in which to invest because it has reached critical mass (VCJ, December 1999, page 33). Washington, which last year had $1.6 billion dollars invested in 115 companies, ranked the sixth state to receive the largest amount of venture capital, according to Venture Economics.
Digital spun out of Kirlan in the fourth quarter of 1999 because Kirk Lanterman, the founder of Kirlan, was no longer active in the day-to-day operations of the fund. Tenneson had been a manager of the most recent Kirlan fund, Kirlan Venture Partners II LP, and Regis had been a manager of all three of the firm’s funds. The two joined new comer, Managing Director Pamela Gaspers, most recently a managing director at FirstCorp Ventures in Seattle, to raise Digital Partners III. Prior to that, Gaspers was manager of business development at the Washington Research Foundation.
The Kirlan funds will now fall under the Digital name and continue to be managed by Tenneson and Regis. Kirlan Fund II, which closed October 1997 on $13 million, is committed to 15 companies, Regis said. At press time, four of the companies from Kirlan Fund II had held initial public offerings: N2H2 Inc. in July 1999, InterNAP Network Services Corp. in September 1999, Avenue A Inc. in February, and Tegic Communications Inc., which was purchased by America Online Inc. in December 1999.
With the Digital fund so much larger than previous Kirlan funds, the firm plans to lead most of its investments. Limited partners include Les Schwab Retirement Trust, as well as a blend of institutional investors, family trusts and high-net-worth individuals, many of whom are from the Northwest. Most limited partners in Digital’s first close were investors in Kirlan Fund II.
Digital Partners works with an advisory board consisting of veteran venture capitalist W. Jeffers Pickard, of Merrill Pickard Anderson & Eyre, technology expert Michael Slade, of Starwave, and communications specialist Joseph Walter of The Walter Group and McCaw Cellular.
The firm plans to hire an associate with a technology background in time to invest Digital Fund III, Tenneson said.