SAN FRANCISCO – Dorset Capital, a new venture capital and buyout firm focused on consumer companies, held a first and final $71 million close in late June on its inaugural fund.
The firm was formed last spring by three former investment bankers from Montgomery Securities, now known as Bank of America Securities.The transition to private equity by John Berg, Jeffrey Mills and Mark Saltzgaber, all of whom worked on Montgomery’s consumer side, illustrated the trio’s preference to make investments rather than act as agents.
“The key is control,” said Mr. Saltzgaber, a principal at Dorset, where Mr. Mills also is a principal and Mr. Berg is managing partner.
Named after Dorset, Vermont, a quaint town where Mr. Berg owns a house, Dorset shares an office with the late-stage focused Weston Presidio Capital, which has co-investment rights with Dorset’s growth-stage venture deals, management buyouts and recapitalizations. Dorset will back retail, “e-tail,” direct marketing, branded products, restaurants and consumer and business services companies, Mr. Saltzgaber said. Deals will average $3 million to $7 million each, and Dorset’s investment professionals will take board seats on their portfolio companies, he added. No more than 20% of the fund will back one particular company, and the vehicle will be split between buyouts and venture capital for a total of 12 to 15 deals over a three to five year investment period, he said.
With a dollar-for-dollar matching investment option with Weston Presidio, Dorset also can invest in bigger deals than its $71 million fund otherwise would allow. That said, Weston Presidio is not obliged to invest in any of Dorset’s deals.
Weston Presidio had been trying for years to bring Mr. Berg to the firm, said Weston Presidio Managing Director Michael Lazarus, but Mr. Berg wanted to found his own organization. Having a close relationship with Dorset will give Weston Presidio access to the deal flow generated by the extensive network Mr. Berg built in the course of his investment banking career, Mr. Lazarus said.
The new firm raised its capital from four institutions – FLAG Venture Management, through its Next Generation II L.P. fund, the Commonfund, Chase Capital Partners and buyout group Investcorp – as well as from individuals who hold or have held leadership positions in top consumer companies. All limited partners are domestic, Mr. Saltzgaber said.
Savio Tung, who is Investcorp’s New York coordinator, said the group’s investment in Dorset is part of its strategy of spreading its network. Investcorp hopes to occasionally co-invest with Dorset or to skim off opportunities too large for Dorset. Mr. Tung has known Mr. Berg for many years and was not concerned about Dorset’s first-time fund status.
“I liked the fact that he [Mr. Berg] is based on the West Coast and he has a very good network with many CEOs of specialty retailers and consumer-brand companies, ” he said. “And that fits us because we are also fairly active in investing in these types of companies, so we expect this to be a mutually beneficial relationship.” Although Chase and Investcorp do not have one-for-one matching guarantees for Dorset’s buyout deals, the groups might have opportunities to dig into their deep pockets to co-invest, Mr. Berg noted.
Dorset’s strategy is to give entrepreneurs access to the trio’s expertise as former investment bankers, as well as to the operating backgrounds of limited partners who can introduce portfolio companies to potential managers, distribution channels or partners. “I have told every one of those limited partners that this is not a passive investment,” Mr. Berg noted.
The private equity firm has a seven-member strategic council comprising L.P.s who will help the firm target investment areas, Mr. Saltzgaber said.
Messrs. Saltzgaber, Mills and Berg can devote themselves to their first fund’s portfolio companies because they have no previous investments to manage.
FLAG was introduced to Dorset by Weston Presidio, the only consumer-oriented private equity group the fund-of-funds manager has backed, said FLAG Managing Partner Peter Lawrence. FLAG was impressed by Mr. Berg’s experience and by the relationship between Dorset and Weston Presidio, which will offer support, knowledge of the venture capital marketplace and advice on deals structuring.
Although FLAG’s Next Generation funds are designed to back new firms, they require fund managers to carry some experience from a previous firm.
Mr. Lawrence predicted that Mr. Berg was a “natural venture capitalist,” but said time would tell once Dorset had endured a full investment cycle.