It took seven years and five days to raise, jokes Roger Novak.
That’s seven years to build an early-stage venture capital firm, a portfolio of startups and a reputation and five days on the road to close a fourth fund with $150 million.
For all the difficulty young firms are having trying to raise funds, Novak Biddle Venture Partners proves that the process can be virtually painless if you have the experience and track record.
“We have a net IRR of 50% on all three funds,” says Jack Biddle, co-founding partner of the Bethesda, Md.-based firm. “That’s what matters to investors.”
Biddle and Novak peddled an old strategy to new investors. The first time they told their story, back in 1997, it took nine months to raise a $30 million.
“Find deals that others aren’t looking at,” Novak says. “Make money on the margins. Limit the number of board seats a partner can take, and work each portfolio company really hard to extract value.”
“Identify the pain points in large corporations. Ask, is this technology providing a better mousetrap?” Biddle adds. “Corporations still have problems to be solved, but they have a strong, well-deserved wariness about doing business with startups. A startup needs to have a value proposition that’s compelling and comes with a quick payback to the customer.”
Of Novak Biddle’s 31 portfolio companies, one has registered to go public this year and 10 have been acquired. The company that’s in registration is online learning systems developer Blackboard Inc. of Washington, D.C.
The firm’s story brought 10 new investors into the fund. New limited partners include ATP Private Equity Partners, the Howard Hughes Medical Institute, Northern Trust Private Equity Fund, Park Street Capital, the University of California, the University of Indiana, the University of Notre Dame, the Virginia Retirement System and the Virginia Tech Foundation. The list of return investors includes Commonfund Capital, FLAG Venture Management, Silicon Valley Bancshares, the Treasurer of the State of North Carolina, the University of Richmond and Verizon Investment Management Corp.
Novak Biddle will invest as much as $10 million in each portfolio company, putting as little as $100,000 into the company’s earliest stage. The firm is looking to fund new companies developing information security technologies like voice-recognition tools and encryption devices. It also plans to fund startups that are developing large-scale databases, advanced signal processing technologies, advanced materials and wireless sensor networks. Some of these are technologies spun out of DARPA or federally funded research projects.
“We want to back the smartest people in the field, and sometimes, the government or the military or the intelligence community is that person,” Biddle says.
The firm’s scope is not limited to Washington and the Mid-Atlantic region. It plans to invest in companies in Boston and California and places in between.