Kansas City Equity Partners –

KANSAS CITY, Mo. – Nestled in the plains of Missouri, Kansas City Equity Partners (KCEP) is driven by its dedication to the entrepreneur – a hands-on strategy that pioneers trust, faith and a willingness to push the limits to growth and success.

“We first try to find the right entrepreneur, not just in talent, but in character,” said Bill Reisler, managing director of the regionally focused firm. “If you treat that person better than they expect, you get not just the results you expect, but better.”

For example, when the firm put $1.43 million to work in Build-A-Bear Workshop Inc. in 1999, the make-your-own-teddy bear outfit was just a single store in a St. Louis mall. Today, the company has 52 storefront workshops in 28 states, with plans to have 70 workshops open by the end of the year. It credits much of its direction to KCEP’s input.

“Bill Reisler chairs our audit committee and is very helpful in advising us on financing and accounting issues,” said Maxine Clark, Build-A-Bear’s chief executive. “They have also introduced us to other portfolio companies for information exchange and learning opportunities.”

Build-A-Bear was recently named the 2001 Retailer Innovator of the Year by the National Retail Foundation, and it received a Best Practices Award for Exceeding Customer Expectations in 1999 from Arthur Anderson.

“You have to treat the entrepreneur extremely well,” Reisler said. “It starts with an attitude. We don’t invest in situations where we believe we’ll be in conflict with management on many things. We believe our job is to support management. There are times when we disagree, but then we talk until we agree to disagree.”

In 1996, KCEP participated in Organized Living Inc.’s first round of venture funding. Alongside such investors as Invest America Venture Group, Kansas Venture Capital Inc. and White Pines Management LLC, KCEP pumped $2.55 million of capital into the company for its series A round. Five venture rounds and nearly $20 million later, the consumer-oriented retailer of organizational products has opened a chain of 16 stores across the country.

With two funds under management – KCEP Ventures I, a $33 million early-stage fund closed in 1994, now fully invested; and KCEP Ventures II, an $84 million balanced-stage fund closed in 1999 – the firm marshals its efforts in three areas: branded consumer/retail businesses, media and telecommunications plays, and business services.

Like many, KCEP sees thousands of business plans annually. While the firm expects to make only five new investments this year, well under 1% of what it reviews, it promises to respond to every entrepreneur that submits an idea – a practice that speaks of KCEP’s commitment to entrepreneurship and innovation.

“Venture capital has a reputation for being vulture capital,” said Mark Ferrel, Organized Living’s chief executive. “We’re all here to create value in the stock, but KCEP takes a humanistic approach: their integrity would be a strength, they’re good communicators, open-minded and hard-working.”

Drawing from its current fund, KCEP expects to put $15 million of new money to work before year-end. KCEP’s six-member investment team – David Schulte, Thomas Palmer, Terry Matlack, Abel Mojica, Jeffrey Teeven and Reisler – typically invests between $4 million and $6 million in companies valued between $10 million and $100 million over the course of their lifetime, and will always demand a seat on the company’s board.

Like most venture firms, KCEP has experienced its fair share of disappointments resulting from the Internet frenzy of the late 1990s.

In June, KCEP was forced to shut down Overland, Kansas-based NetSales Inc., a back-end provider of e-commerce transaction and business services, after realizing the company would not reach profitability in the near-term and was unlikely to find a buyer. NetSales had raised $49.8 million in six rounds of venture funding from backers like AOL Time Warner Investments, HarbourVest Partners LLC, J.P. Morgan Partners and Norwest Equity Partners.

One month later, Digital Archaeology Corp., a KCEP-backed provider of analytics for e-business, lost many of its original Lenexa, Kansas employees when Delano Technology Corp.- the publicly traded Canadian company that acquired Digital Archaeology in October – announced a restructuring prior to a weak earnings report for the quarter ending June 30.

“Digital Archaeology was an outstanding company sold to a publicly traded company which has performed poorly,” said Reisler. “At the time of the exit, we thought things were going extremely well, and then to watch it fall, that’s very disappointing.”

As a result, the firm has reevaluated its own investment strategy. In July, KCEP announced it would no longer invest in early-stage information technology companies. Instead, it will concentrate its efforts in the two areas where it already can claim expertise and a string of successes: branded consumer/retail businesses and later-stage media and telecommunications plays.

Founded by former Sprint Corp. Chairman Paul Henson, the firm was an early investor in Birch Telecom, a competitive local exchange carrier based in Kansas City. The company filed for a public offering in March 2000, but was forced to withdraw its IPO in May 2001 citing adverse market conditions. In the interim, however, Birch has launched service throughout the Southeast and bundled DSL and e-commerce packages to its existing voice and data offerings.

And late in July, the firm celebrated the $35 million IPO of Inergy Partners, a propane distributor based in Kansas City.

Still, KCEP is not ready to bathe in champagne. As the market tumbles and steadies over the next several months, the firm will dig in to support its portfolio companies and fund new entrepreneurs.

“People in different regions have different expectations,” Reisler noted. “Midwesterners are really trust-based. Trust is really important here.”

Following are some of Kansas City Equity Partners’ portfolio companies:

Airport Systems International Inc.(Overland Park, Kan.) design manufactures and installs microprocessor-controlled ground-based radio navigational aids used by civilian aircraft in navigating and landing.

Co-investors include Allsop Venture Partners.

AmeriTel Pay Phones Inc. (Lee’s Summit, Mo.) provides telephone service to correctional facilities.

There were no co-investors.

Birch Telecommunications (Kansas City, Mo.) is an integrated provider of service to small- and medium-sized businesses throughout the Southeast. It provides local and long-distance phone service, Internet access, Web hosting and business phone equipment.

Co-investors include Advantage Capital Partners, Kohlberg, Kravis, Roberts & Co. and White Pines Management LLC.

Build-A-Bear Workshop Inc. (St. Louis, Mo.) is a storefront workshop where customers create their own teddy bear.

There were no co-investors.

DiTrans Corp. (Irvine, Calif.) is a fabless semiconductor company focused on wireless communications.

Co-investors include U.S. Venture Partners.

Inergy Partners (Kansas City, Mo.) operates a wholesale propane marketing and distribution business.

Co-investors include Rocky Mountain Capital Partners.

Outlast Technologies Inc. (Boulder, Colo.) develops, markets and licenses temperature regulations fibers, fabrics and foams to premium quality brands for sport and outdoorwear, everyday wear, home products and footwear in North America, Europe and Asia.

Co-investors include Davis, Tuttle Venture Partners LP, Penny Lane Partners, Roser Ventures LLC, Sycamore Ventures and Walden Capital Management Corp.

Planet Alumni (Kansas City, Mo.) operates an online database for high school, college and military alumni.

Co-investors include individuals and an undisclosed corporate investor.

Three Dog Bakery Inc. (Kansas City, Mo.) produces all-natural dog treats — without added salt, sugars, chemicals or preservatives — through its chain of five bakeries.

There were no co-investors.

Warren Family Funeral Homes (Topeka, Kan.) operates a national chain of best-price funeral homes.

There was one undisclosed co-investor.

Kansas City Equity Partners is located at 233 West 47thStreet, Kansas City, Mo. 64112. Tel: (816) 960-1771. Fax: (816) 960-1777. The Firm’s web site is http://www.kcep.com.

Contact Carolina Braunschweig: