No-nonsense Novak-Biddle thrives in Mid-Atlantic

The Mid-Atlantic region doesn’t get as much VC attention as Silicon Valley, but it has been lucrative for Novak Biddle Venture Partners. Thanks to several successful exits through IPOs and acquisitions, the firm recently closed on its largest fund to date.

Novak Biddle’s fifth fund raised $227 million, $77 million more than it raised for its previous fund in 2004, but it could have raised substantially more because interest was so strong, says firm co-founder and General Partner Jack Biddle. He notes that his firm’s first fund, a $30 million vehicle raised in 1997, has returned 3.6X cash to its investors, while its $60 million second fund is in the black, which is an accomplishment, Biddle says, given its 1999 vintage year.

The firm, based in Bethesda, Md., is looking to capitalize on the Mid-Atlantic region’s wealth of research, especially innovation coming from government labs. “What is the government best in class in?” asks General Partner Philip Bronner. “Large scale databases, wireless plays, data analysis. When you look at our investments, they often mirror the areas the government is most interested in.”

Novak Biddle is also working closely with the University of Maryland and Carnegie Melon University (CMU). For example, it recently helped launch widget syndication services startup Clearspring, whose founders came out of the master’s program at CMU.

Tough team

Perhaps the most notable thing about Novak Biddle is its hands-on approach and no-nonsense attitude. If a portfolio company needs a CEO, one of the partners can, and will step in. “We’re not a very bureaucratic organization,” says General Partner Tom Scholl. “We believe in the Socratic method of deal diligence: talking it through with the entire team. Anybody can do a deal, but everybody recognizes it as your deal, so if it screws up, it’s your problem.”

We believe in the Socratic method of deal diligence: talking it through with the entire team. Anybody can do a deal, but everybody recognizes it as your deal, so if it screws up, it’s your problem.

Tom Scholl, General Partner, Novak Biddle Venture Partners

The firm has recorded some sizable exits in the past few years. Last year it saw a 30X return on its investment in N.E.W. Customer Service Companies, which services consumer warranties, firm co-founder Jack Biddle says. N.E.W. sold to buyout shops Berkshire Fund and FS Equity partners for $1.2 billion. That’s the second time Novak Biddle has sold the company for a profit. It also participated in a buyout in 2004, where TH Lee Putnam Ventures and Freeman Spogli bought the company and Novak Biddle kept a stake in it. Novak Biddle had provided expansion stage investment to N.E.W. in 2000, when the company had $50 million in revenue and was close to breaking even. The business took off after Novak Biddle’s investment and it started to generate the cash flow that attracted buyout pros.

Active investor

Novak Biddle invested $44 million in 26 companies last year, according to Thomson Financial. Among the companies it backed are security software startup Revive Systems, which raised a $1.8 million Series A round, Internet music site eMinor ($2 million Series A), and surveillance software company ObjectVideo ($8 million Series E).

In closing its fifth fund, Novak Biddle promoted four professionals to general partner: Philip Bronner, Andrea Kaufman, Tom Scholl and Joy Binford. The firm also hired Janet Yang as a principal. She previously worked with a China-based IT company and San Francisco-based VC firm Draper Richards.

The new fund also features a dozen new limited partners, including Carnegie Mellon University, Georgetown University, Kenyon College, Pantheon Ventures, Princeton University and the University of Virginia. Previous investors that re-upped include Notre Dame, Silicon Valley Bank, the University of Richmond and Virginia Tech.

Startups in the Mid-Atlantic raised $332 million from VCs during the third quarter, up slightly from the $321 million raised during the same period in 2005, according to The MoneyTree Survey by PricewaterhouseCoopers, Thomson Financial (publisher of VCJ) and the National Venture Capital Association. In comparison, VCs invested $1.9 billion in Silicon Valley startups during the third quarter.

Novak Biddle Venture Partners

www.novakbiddle.com
Founded: 1997
Headquarters: Bethesda, Md.
Fund Name: Biddle Venture Partners V
Fund Size: $227M
Fund Target: n/a
Sample LPs: Carnegie Mellon University, Georgetown University, Kenyon College, Pantheon Ventures, Princeton University and the University of Virginia. Previous investors that re-upped include Notre Dame, Silicon Valley Bank, the University of Richmond and Virginia Tech.
Management: General Partners E. Rogers “Roger” Novak, Jr., A.G.W. “Jack” Biddle III, Andrea S. Kaufman, Philip L. Bronner, Tom Scholl.
Focus: Early stage information technology, especially government and university spinouts.
Exits in 2006: Sold physical security company SafeView ($23M in VC) to L-3 Communications for an undisclosed amount in March; took optical component maker Luna Innovations (Nasdaq: LUNA) public in June; sold warranty service company N.E.W. Customer Service Companies to Berkshire Fund and FS Equity partners for $1.2B in August.
Did you know? Roger Novak and Jack Biddle were introduced by New Enterprise Associates co-founder Frank Bonsal in 1997.