General Partner Notes –

New $100M Fund To Feed RSS Startups

A $100 million fund was launched in late June to focus solely on making investments in RSS startups, the relatively new but fast-growing technology that’s based on the “really simple syndication” Web publishing format.

Whether the new Boston-based firm, called RSS Investors, is ahead of or behind the spread of RSS remains to be seen.

The new RSS venture fund, whose focus includes OPML and the newly proposed Microsoft extensions to RSS, will target sectors related to news aggregation, blogs and new classes of search engines. Aggregation applications that collect data in the financial and medical industries will strongly be pursued, according to the firm’s press release.

The new fund’s team is comprised of Steve Smith and Tom Crowley, both of whom previously worked at GE Capital as managing directors; John Palfrey, an Internet law expert at the Berkman Center for Internet & Society at Harvard Law School; Jim Moore, a technologist and formerly a senior fellow at the Berkman Center; and Richard Fishman, a senior vice president at the small venture outfit MacAndrews & Forbes.

At least one LP is sold. Ritchie Capital Management has given the team its first close of $20 million toward its goal, which Palfrey characterizes as realistic.

“We spent a lot of time modeling things and looking at where opportunities lie for RSS technologies,” he says. “Also, if you look at all the software companies that are trying to work RSS into what they are doing, one could construe our mandate quite broadly.”

The team is meeting with companies, but has not made any investments. Palfrey suspects the firm won’t be long in pulling the trigger on a deal.

“The move from a more static HTML-based Web to a more dynamic, syndication-based Web is going to be highly impactful,” he says. “We’ll see more than enough startups in which to invest in.”

He did not say how long it might take to spend $100 million on RSS. Though a growing number of enterprises, such as Microsoft, are embracing RSS, there are not any throngs of RSS startups beating down the doors of VCs. And those RSS companies that do exist, are just now receiving backing, typically in undisclosed and presumably small amounts.

For example, Feedster, a two-and-a-half-year-old search engine for blogs and RSS feeds-which is partly backed by such Internet entrepreneurs as Excite co-founder Joe Kraus and Tribe Networks founder Mark Pincus-just this summer announced that it had moved past the seed stage to raise a Series A round. Selby Venture Partners led the investment. The round size was not disclosed.

Constance Loizos

Intel Inside China with $200M Fund

The world’s largest chipmaker is planting its roots deeper into China and Asia.

Intel Corp. (Nasdaq: INTC) has established the Intel Capital China Technology Fund with a $200 million investment. It will put money into Chinese technology companies developing hardware, software and services that are building out the Internet infrastructure in the world’s most populous country.

Cadol Cheung, a managing director of Intel Capital Asia Pacific and head of venture capital investing for Intel in China, told VCJ that the new fund demonstrates the level of Intel’s commitment to China and shows “our awareness of the important growth in the IT industry taking place here.”

Cheung says that he and his team of seven investment professionals are eager to begin investing from the new fund. Intel Capital has offices in Hong Kong, Shanghai and Beijing. The VC unit made its first strategic investment in China in 1998 and has backed about 50 Chinese companies since. Eleven of Intel Capital’s portfolio companies in China have gone public or have been acquired. Current Intel Capital investments in China include BCD Semiconductor Manufacturing Ltd., an analog power integrated circuit design and manufacturing company; Comlent Holdings Inc., a radio frequency chip maker; HiSoft Technology International Ltd., a software outsourcing company; Maipu Holdings Ltd., a router and data communications company; and Pollex Mobile Holdings, a cellular phone software applications provider.

Cheung said that there are no plans for Intel to launch more country-specific funds at present. But, the company is certainly eyeing Southeast Asia for expansion.

“Intel plans to stimulate local technological innovation and the continued growth of China’s IT industry,” says Intel President and CEO Paul Otellini, in a prepared statement. “We will invest in Chinese companies to accelerate technology adoption locally and to foster development of innovative technologies with potential for global distribution.”

Otellini and Intel Capital President Arvind Sodhani were at a ceremony in the firm’s Beijing offices to celebrate Intel’s 20 years of working in China when the new fund was launched in June. It was Sodhani’s second visit to China since becoming president of Intel Capital earlier this year.

– Jerry Borrell

Flywheel Ventures Rolls On

Early-stage venture firm Flywheel Ventures of Santa Fe, N.M., closed its first institutional fund with $31 million in commitments, slightly more than its target.

About half of the new fund’s investments comes from New Mexico state investment entities. Overall, investors in Flywheel I include the Kauffman Foundation, New Mexico State Investment Council, McCune Foundation, Hunt Holdings, New Mexico Small Business Investment Corp. and New Mexico State University Foundation.

The fund will invest in seed and early stage information technology located primarily in New Mexico, Colorado and Arizona. The firm maintains offices in Santa Fe, Albuquerque, N.M., and Menlo Park, Calif.

The firm’s partners expect to use the fund to lead initial investments of between $100,000 and $1 million. The fund should support between 15 and 18 companies.

The fund will be managed by Trevor Loy, founder and managing partner, General Partners Scott Caruso and Kim Sanchez Rael and Senior Associate Chris Traylor.

The team sports a strategic advisory board that includes Stewart Alsop of New Enterprise Associates and Erik Straser of Mohr Davidow Ventures.

– Alastair Goldfisher

Energy VC Contango Seeks More Power

A new venture group that sprouted from an oil and gas company is the latest fund-raiser to go after clean technology and alternative energy investments.

Houston-based Contango Capital Management announced in June that it is raising its second fund, which has a target of $50 million. The group closed its first fund earlier this year with $8.25 million. And Contango hopes to close Contango Capital Partners II by the fourth quarter.

The firm was formed by Contango Oil & Gas Co. (AMEX: MCF), which has a 32% interest in Contango Capital. The VC group also counts Sullivan Interests as a limited partner in its first fund.

Contango Capital’s first fund focused on hydrogen generation technology and fuel cell products, but the firm has broadened its investment scope with its second fund. Contango Capital plans to invest in clean energy technologies that include hydrogen, solar and wind power, fuel cell and other portable power products and energy storage and conversion technology. The partners generally seek to invest between $3 million and $5 million per investment, but will look at deals that require as little as $500,000.

Contango Capital’s first fund is approaching the 75% invested stage and Managing Partner Rogers Herndon says that the firm is ready to begin investing the new fund as soon as it is closed. He adds that while the fund-raising is in its early stages, the group is getting a “warm reception” from pensions and endowments it has met with.

It could be that the LPs have noticed that venture investment in clean energy has steadily grown. Clean technology investing comprised $1.2 billion, or 5.8%, of the $21 billion in venture capital invested across all industries in 2004, according to the Cleantech Venture Network. Plus, last year saw an increase of 3.4% in clean technology investing from the year before.

“Energy is going to be a big factor in terms of overall technology advancement,” says Herndon, who was previously a managing director of Bank of America’s energy power trading business. He was also a managing director of PSEG Energy Resource and Trade and a vice president in Enron. He joins founding Managing Partner John Berger, also a former Enron executive, who has served as an advisor to venture capital firms as well as the Federal Energy Regulatory Commission.

Contango Capital’s portfolio from its first fund is comprised of companies in the fuel cell industry.

The portfolio companies include Jadoo Power Systems, a Folsom, Calif.-based provider of fuel cell and portable energy products for law enforcement, military and media organizations that closed an $11 million Series C round earlier this year; Prontonex Technology, a Southborough, Mass.-based power cell provider; portable power integrator Synexus Energy; and Orem, Utah-based Trulite, which develops lightweight hydrogen generators for fuel cells.

–Matthew Sheahan