Mountaintop Due Diligence –

When you climb 19,000 feet into thin air with someone, you get a pretty good idea what they’re made of. Venture capitalist Dan Levitan and entrepreneur Richard Tait made just such a journey six years ago to the snows of Mt. Kilimanjaro. So it’s not really that surprising that Levitan co-led a $21 million round in April for Tait’s board game company, Cranium Inc.

When the pair made their journey up the mountain, Levitan was an investment banker with Schroder & Co. in New York earning $2 million a year and Tait was a software developer with Microsoft.

“When you go through something intense like climbing mountains at high altitudes, it causes you to have a great deal of self-reflection and it creates real bonds between people that share the experience,” says Levitan. “For me, I was turning 40 years old and certainly it provided me with the self-confidence to make the next move and try something different.”

Weeks after his return, Levitan surprised his co-workers by resigning and heading for the West coast. Having been seduced by the Pacific Northwest after working with Howard Shultz on the IPO of Starbucks, Levitan moved to Seattle. Before long, Levitan and Schultz founded Maveron LLC, a consumer-focused venture capital firm.

“There’s still a belief out here that miracles can and do happen,” says Levitan, reflecting on his new surroundings. “People are more skeptical on the East Coast, and in New York in particular. I would say that Howard and his team couldn’t have created Starbucks if there was a resident skepticism that a cup of coffee was just a cup of coffee.”

Tait had his own miracle in mind when he returned from Africa. He left Microsoft less than a year after his trip to Africa to pursue his dream of becoming an entrepreneur. He and Alexander co-founded Cranium and created the wild board game for “dating yupsters” that combines charades, trivia, tunes, and more. It is now the fastest selling independent board game in U.S. history.

Tait and Whit self-funded the company for five years. When Cranium needed growth capital, Tait and Levitan came together again for another adventure. Maveron co-led the company’s $21 million Series A round of financing.

“I think it’s easier to invest in a business like Cranium when you see the growth in their revenue as opposed to some of the businesses that are in the technology world,” says Levitan. “It’s often hard to envision investing in technology companies given the enigmatic growth on their top line and the market meltdown in terms of the exit valuations of these businesses. In that sense, I guess this is easier.”

Cranium, a profitable company with sales that are currently in the “middle double-digit millions,” has grown more than 50% every year since it was founded in 1998, Levitan says.

The Series A round will help Cranium with its mission to take on the industry giants like Hasbro Inc. and Mattel Inc. “Really what we’re focused on right now is establishing ourselves as the leading games company in the world,” says Tait. “We’re fast on that path.”

Tait and Alexander met at Microsoft. In 1997, after toying with the idea of starting a dot-com company, they decided to design a board game that would eventually become Cranium. “Cranium is this merger of the operational excellence, focus and passion around products that we learned at Microsoft,” says Tait. “In fact, we used some of the same techniques to develop our games that we used to develop software.”

Part of Cranium’s success lies in its distribution strategy. Most games sell at toy stores, but Tait noticed that Cranium’s target audience, 25 to 35 year-olds, were much more likely to be found in latte lines at the local Starbucks. Knowing that Levitan, his mountain climbing buddy, had worked with Schultz, he decided to give him a call. In November of 1998, Starbucks started selling Cranium in its 1,500 coffee houses nationwide. It was also sold at Barnes & Nobles and on Amazon.com.

In addition to their distribution partnership, Tait worked closely with Schultz on issues of branding and marketing strategies for Cranium, so when it came time to raise money, Maveron was a logical candidate.

TPG Ventures, a Palo Alto, Calif.-based firm, co-led the deal. Both Maveron and TPG have high-profile companies in their portfolios. Maveron has invested in eBay, Motley Fool, Potbelly Sandwich Works and Drugstore.com. TPG has backed J. Crew, Ducati, Continental Airlines and Burger King.

Cranium stands to benefit from its investors’ prior investments. As a result of the deal, Peter Neupert, the chairman of Drugstore.com, joined the company’s newly formed board, along with Dave Whorton, a general partner with TPG, Alexander, Levitan and Tait.

Cranium, which employs 53 people, plans to hire 20 new employees in the near future. It unveiled two new products for release in 2003-Cranium Hullabaloo, a game for kids that’s full of tunes and twists of all kinds, and a new “guess what I’m thinking” game for the whole family. It also plans to triple the number of international versions of its flagship game and expand into 10 new markets around the world next year, including Belgium, Ireland and Spain.

While it is unlikely that Cranium could become a billion-dollar company with board games alone, it plans to take its brands into related markets. Levitan and Tait see no limits as to how high it can climb.