PHILADELPHIA – Liberty Venture Partners (LVP) was founded in 1996 by Karen Gryga, Thomas Morse and David Robkin on one very basic principle: investing in entrepreneurs.
“There are some philosophies out there where the venture firms get comfortable with the market opportunity and the product or service addressing that opportunity,” Gryga said. “And they think, well the right team isn’t there, but it’s the right product and we’re gonna go with it.”
Gryga noted that even though the entrepreneurs may not ultimately mature in the position they hold when LVP invests, the objective is to keep the entrepreneurs involved with the company long-term. “If you invest in the right people, as well as the right market and product, that’s really the best way to go.”
Liberty Venture Partners primarily targets series A and B investments with a geographic focus on the Mid-Atlantic region, which it defines as Southern Connecticut to Northern Virginia. However, Gryga noted the firm will look at deals opportunistically throughout the U.S.
Gryga said the firm is experiencing a tremendous amount of deal flow within the Mid-Atlantic region, so it does not have a need to go outside the region.
“In Philadelphia we are seeing a lot of opportunities, even in the western suburbs and in all of New Jersey. Obviously, there has been a shake-up in the local VC environment with Safeguard [Scientifics Inc.] and ICG [Internet Capital Group] and their affiliated funds, so we are seeing a lot of opportunities,” Gryga said. “While there are a lot of very strong venture firms in the area, there are lot of companies that would have only gone to Safeguard and that’s not the case now.”
LVP seeks investment opportunities in the areas of wireless services and enabling technology, Internet technology and services, information technology and health care. “Our investments in those industry spaces tend to be very software-based, while our health-care deals tend to be either in the health-care IT area or medical devices,” Gryga said.
To date, the firm has raised two funds: the $50 million Liberty Ventures I LP, which closed in 1996; and the $100 million Liberty Ventures II LP, which closed earlier this year.
In raising its second fund, LVP formed a strategic relationship with two of its limited partners – Commerce Bank, a regional bank serving Pennsylvania, New Jersey and Delaware, and Janney Montgomery Scott, a Philadelphia-based brokerage firm.
Gryga explained the essential component of the strategic relationship. “We provide them with deal flow and they provide us with deal flow, and because of who they are and the nature of things they look for, LVP tends to see deals that come out of Commerce Bank and Janney Montgomery first before anyone else sees them,” she said.
On the flip side, LVP introduces Commerce Bank and Janney Montgomery as another service option to its portfolio companies. “In some of our previous investments, Commerce Bank has been able to do more things for our portfolio companies than it would have otherwise done had we not been investors. Commerce is able to stretch its guidelines a bit because there is a comfort level with LVP being an investor in the company,” Gryga explained. “It’s a way for us – in addition to our years of being in the business and network of contacts – to bring additional options to companies.”
In Janney Montgomery’s case, the brokerage firm is able to provide young companies with investment banking services when they are not able, or mature enough, to capture the attention of the top-tier investment banks. And when the companies do reach that maturity level, LVP and Janney pursue their contacts to make the introduction.
With the first fund, Liberty Ventures I LP, which is fully invested in about 20 companies, LVP focused primarily on series A deals.
Now with its second vehicle, Gryga said the firm is taking advantage of the current market environment and focusing on opportunities that look more like B rounds. “That’s really companies with established products and customers and some proof points in their business model.”
Gryga said Fund II is expected to have a mix of investments, with 40% of the capital going toward series A deals and 60% toward series B deals. The fund plans to make about 20 to 24 investments. To date, four investments have been completed. Gryga added that investments from Fund II would be allocated among its four industry groups with 33% for health-care, 25% IT, 25% telecom and 17% Internet-related.
Adapting to the Market
Gryga said LVP is a very active investor. “We lead over half of our deals, and even in the deals where we are not the lead investor, we tend to go to all of the board meetings and be very active and involved.”
The firm typically makes investments in the range of $1.5 million to about $5 million over the life of the investment.
Gryga said that even during the so-called mania of the last two years, LVP tried to maintain the typical industry metrics in terms of the length of investment time, the amount of money reserved to support its portfolio companies and the types of business models it wanted to embrace.
“We’re dealing with the difficulties that everyone else is dealing with now because it’s a very difficult financing environment. We have companies looking for follow-on financing, but we are not in a situation where we needed to reserve more for portfolio companies or we didn’t reserve enough because we tried to keep that very traditional framework around it,” Gryga said. “At the end of the day we are very pleased, we are experiencing the same portfolio shake-out that everyone else is. It’s a traditional portfolio shakeout: there are winners, losers and those in-between. In hindsight, we’re happy with the way we did things during the mania. We went into each opportunity with an investment thesis, some thing that we thought was a viable business model. We didn’t throw money at the wall to see if it would stick.”
When evaluating potential investments, LVP usually looks for a company that has certain characteristics of going public; however, with the current state of the VC market, the firm has diversified its focus.
“We are now considering opportunities that we think are M&A opportunities, not necessarily opportunities that will reach the public market, which is a little different for us,” Gryga noted. “Previously, we’ve said the M&A route may make sense, but we will only invest in those companies that have the characteristics that go public. We have tempered that back a bit.”
Giving Back to the Community
Through its co-founders’ activities, LVP supplements its VC role by being involved in the local community, which has contributed to its stable track record, and helped deal flow.
Gryga does her part by serving as Chairman Emeritus of The Greater Philadelphia Venture Group, as well as through her involvement with the Bellwether Technology Partnership, whose goal is to raise the visibility of the Philadelphia region in terms of entrepreneurial activities.
“We’re here for the long haul, this is a lifestyle,” said Gryga. “We really enjoy what we do and plan on being around for a long-time and in the process we plan to help, not only the companies we invest in, but the community as well.”
Following are some of Liberty Venture Partners portfolio companies:
Synchronoss Technologies (Bethlehem, Pa.) is a business service provider of hosted OSS environments to tier-one telecommunications service providers, network equipment makers and emerging service providers.
Other investors include ABS Ventures, Ascent Venture Partners, Adams Street Partners and Rosewood Venture Group.
kinkos.com (Alexandria, Va.) is an online business and document solutions center that puts the customer in control of online tools, expert advice and Kinko’s network of more than 1,000 digitally connected branches.
Other investors included Flatiron Partners, Clayton, Dubilier & Rice and J.P. Morgan Partners.
MEDecision Inc. (Wayne, Pa.) is a provider of technology-based clinical decision support and transaction management solutions to managed-care payers in the health-care industry.
Other investors included Grotech Capital Group, DWS Investments GmbH, the State of Michigan Retirement Systems and Philadelphia Ventures Inc.
Melard Technologies Inc. (Armonk, N.Y.) is a provider of a full line of professional services and a breadth of mobile and wireless hardware and software solutions.
Other investors included GSM Capital and New England Partners.
Requisite Technology Inc. (Westminster, Colo.) enables e-commerce companies to organize product and service information for consistent Web-based finding and buying.
Other investors included Bowman Capital, Comdisco Ventures, Hamilton, Robinson & Co., Mohr, Davidow Ventures, Oracle Corp., Philadelphia Ventures Inc., SAP AG, Sequel Venture Partners, Sumitomo Corp. and Trinity Venture Partners.
Tickets.com Inc. (Costa Mesa, Calif.) is a business-to-business ticketing solutions provider for live events. The company facilitates the sale of tickets by enabling venues and entertainment organizations with proprietary and cutting-edge software, retail outlets, call centers and interactive voice response systems.
Other investors included Clearstone Venture Partners, General Atlantic Partners, International Capital Partners, Cox Communications Inc. and Excite Inc.
USA.NET (Colorado Springs, Colo.) is a global e-messaging service provider, offering customers a complete suite of reliable, highly available and scalable outsourced messaging solutions.
Other investors included ABS Ventures, American Express and J.P. Morgan Partners.
Liberty Venture Partners is located at One Commerce Square, 2005 Market St., Suite 200, Philadelphia, Pa. 19103. Tel: (215) 282-4484, Fax: (215) 282-4485. www.libertyvp.com.