CHICAGO – Internet accelerator NetFuel was recently launched to capitalize on the creation of a high-technology industry in the Midwest, said Principal Alicia Eastman. “Basically, the idea is that the Midwest is under-represented in the venture capital and entrepreneurial community… but there are an abundance of high-tech jobs in Chicago and a lot of universities in the area, which are the raw potential for a successful entrepreneurial community,” she added. NetFuel was founded by Clay Pew, who previously was a senior consultant at the consulting firm Monitor Co., Chris Quinn, senior vice-president and general counsel at e-commerce start-up ShopExpert.com, and Michael Liddell, co-founder of WebYes, an information technology outsourcing company, which was sold to Breakaway Solutions Inc. in June 1999.
NetFuel plans to back about eight to 12 seed-stage Internet infrastructure companies per year, Eastman said. NetFuel will invest between $500,000 and $1 million in each of its portfolio companies, with the goal of preparing the companies to receive a first round of venture funding, Eastman said. NetFuel has already established partnerships with some venture capital firms that could provide additional funding for its portfolio companies. She declined to identify the VC firms.
In order to facilitate a company’s development, NetFuel will provide its portfolio companies with networked office space, a dedicated strategy team, interim executive management and access to an advisory board, made up of successful entrepreneurs and venture capitalists. While Eastman acknowledged that there is not a large difference between NetFuel’s model and that of an incubator, she said the difference that did exist was significant. “Incubators are more focused on facilities, while we, as an accelerator, are focused on a company’s strategy and development,” she added.
Eastman declined to identify the members of the board, beyond saying they were executives drawn from Draper Fisher Jurvetson, Breakaway Solutions Inc., Brainrush and Fob.com. The accelerator will also provide its portfolio companies with reduced rate access to NetFuel’s partner companies, which are professional service firms that can provide the portfolio companies with legal, tax, recruiting and public relations help. Eastman also declined to identify NetFuel’s partner companies.
In return for its intensive support, NetFuel will only back businesses that are willing to give the accelerator a controlling interest of at least 25% of the company’s equity – a figure which towers over the amount of equity usually taken by other accelerators and incubators. “We think this reduces the universe of deals that we can invest in, but we also believe that what we provide is so massive in terms of support that 25% is actually a relatively small amount of equity,” Eastman said. In addition to this, Eastman explained that since NetFuel is planning on holding its own initial public offering as an operating company, securities law requires that it hold 25% equity in its portfolio companies. Eastman declined to disclose NetFuel’s schedule for achieving its IPO.
NetFuel’s operations will be funded by the $20 million it is planning on raising from a collection of angels and VC firms. To date the company has raised $6 million from angel investors, and expects to raise the additional $14 million over the next several months from VC firms. Eastman declined to identify any of the investors in NetFuel. She said the company would raise additional capital when it had completely invested its initial $20 million in funding. NetFuel is also planning on establishing a Boston office sometime in the next six to 12 months, she added.