LA JOLLA, Calif. – While some venture firms tout their worldwide reach and international networks of affiliate funds, Enterprise Partners has become a success by just staying put. The firm invests 85% to 90% of its capital under management in its own backyard: Southern California, said Drew Senyei, general partner.
“If you look at the California economy, Southern California accounts for two-thirds of the state’s gross domestic product,” he said, adding, “and the area is vastly under served. Silicon Valley has something like 160 funds operating there, while there are only 10 funds where we are…and we probably get better valuations on the companies we invest in.”
Founded in 1985, the firm engages primarily in early-stage venture capital deals, though it also invests in some seed-stage companies. “Our ideal scenario is to invest early, achieve a significant ownership role in the company and then do a Series B or corporate round at a significant value,” Senyei said. The firm employs this strategy because of the results it generates, he added. “If you look at our returns, we have done quite well. The real inflection in value creation comes between Series A and Series B rounds,” he said, noting, “we want to create value and then do the next round.”
Enterprise focuses on companies in information technology and health care. The firm started as a pure health-care investor, but made a strategic shift about six years ago to include IT companies in its portfolio of investments, because IT was a hot, growing area of activity, Senyei said.
Today, approximately 80% of the firm’s current fund will go to backing IT companies, while the remaining 20% is devoted to health-care deals. On the IT side, Senyei said the firm currently sees opportunities in the telecom equipment area, as well as in the software and services arenas, like San Mateo, Calif.-based portfolio company iAsiaWorks Inc., an Internet service provider for Asian markets, which went public in early August.
The firm has not abandoned the health-care space altogether, Senyei said, because it still sees attractive opportunities in that area, including deals that combine the firm’s two areas of focus. “A lot of funds have broken the IT and health-care chasm and don’t invest in both – but besides diversifying our portfolio risk, we think there will be cross pollination between the two, which will improve health-care delivery,” he added.
Enterprise Partners investment team consists of 10 professionals: General Partners Jim Berglund, Tom Clancy, Bill Stensrud, Ron Taylor and Senyei; Venture Partner Carrie Stone; Chief Financial Officer Andy Chedrick; and Associates David Lee, Katherine White and Ron Olsen.
The firm sources the majority of its own deals through business plans it receives and referrals from its network of friends and professional service providers, Senyei said. The firm also recently invested in ideaEDGE Ventures, a San Diego-based accelerator for Internet start-ups to help increase its deal flow. “This should provide us with broader bandwidth for really early-stage companies, because we will invest in the Series A rounds in some of the companies that graduate from ideaEDGE,” he added.
Enterprise likes to invest in a company’s first institutional round of funding, Senyei said, adding the firm generally likes to co-invest with one partner. “We like to invest with people who carry their fair share of the work….we don’t like to deal with people who only give money,” he said. The firm almost always takes a board seat, Senyei added. “Early stage companies need a lot of attention,” he said. Although the firm does not try to micro-manage its portfolio companies, “We give a lot of practical advice. The health of a company sometimes is in inverse proportion to the number of venture capitalists on its board.”
To date, Enterprise Partners has raised five funds. Enterprise Partners I closed on $30 million in 1985. The $66 million Enterprise Partners II closed in 1989, while Enterprise Partners III closed on $113 million in 1993. In 1997, Enterprise Partners IV raised $222 million. The fund is fully committed backing 38 companies with an average deal size of $5.2 million.
Last year, the firm closed on $313 million for Enterprise Partners V. Senyei said this fund will make investments ranging from $5 million to $15 million in size over the life of a deal. The fund has completed 12 deals for a total of $74 million so far. The vehicle will likely be fully committed in the next 12 months, Senyei added.
Enterprise Partner’s limited partners include: The Ford Foundation, Columbia University, Yale University, General Motors Corp. Pension Fund, Silicon Valley Bank, Salomon Smith Barney Venture Opportunity Fund, Commonfund Capital Partners, Endowment Venutre Partners, HarbourVest Partners LLC and Pacific Life & Annuity Co. as well as 65 president and chief executive officers of California-based companies. Many of the individual investors are former CEOs of companies backed by Enterprise Partners. Senyei said the CEOs form a network of faces recognizable to local entrepreneurs, as well as being a pool of potential board members and source of possible deal opportunities.
Senyei said Enterprise does not worry about its portfolio companies’ liquidity events. Instead the firm focuses on building the companies. “We always build companies to be stand alone and have enduring value. If you do that, the exits take care of themselves,” he explained.
Following are some of Enterprise Partners’ portfolio companies:
Active.com Inc. (La Jolla, Calif.) is an Internet Web site that provides information and registration services for more than 8,000 participatory sports events annually.
Co-investors included Ticketmatser Online-CitySearch Inc. and Kettle Partners.
AirFiber Inc. (San Diego) develops solutions to high-bandwidth last mile connections in the telecommunications infrastructure.
Co-investors included Foundation Capital, Nortel Networks and QUALCOMM Inc.
Be Here Corp. (Cupertino, Calif.) supplies immersive imaging solutions, developing still and moving image technology across multiple distribution platforms.
Co-investors included Eastman Kodak Co., Totem Investment Partners LLC, Intel Corp., Philips Corp. and Wasserstein Adelson Ventures LP.
DNA Dynamics Inc. (Del Mar, Calif.) is an online provider of products and services to the genetic disease community.
Co-investors included Tullis-Dickerson & Co. Inc. and Kingsbury Associates.
eAssit.com Inc. (San Diego) is an Internet-based customer relationship management outsourcing operation.
Co-investors included Infinity Capital and VantagePoint Venture Partners Inc.
Elitra Pharmaceuticals Inc. (San Diego) develops novel antibiotics and antifungals.
Co-investors included Mayfield Fund, Walden Group and InterWest Partners.
Ensemble Communications (San Diego) develops wireless infrastructure equipment for high-speed local access applications.
Co-investors included Institutional Venture Partners, Crescendo Ventures, Digital Microwave Corp. and ADC Telecommunications Inc.
INetCam Inc. (San Diego) develops video server software packages for real-time video streaming that is not application or hardware specific.
Co-investors included ACTT Inc. and Totem Investment Partners LLC.
NuVasive Inc. (San Diego) is developing ultra-minimally invasive surgical device system for spinal surgery.
Co-investors included Domain Associates LLC and Kleiner Perkins Caufield & Byers.
Sourcemine Inc. (Venice, Calif.) is an application service provider matching corporate buyers and individual sellers of media and media services.
Co-investors included The Sprout Group and Infinity Capital.
Thinque Systems Corp. (Universal City, Calif.) is an enterprise software vendor supplying mobile workforce productivity applications to the consumer packaged goods market.
Co-investors included InnoCal LP, Bay Partners, Apex Investment Partners, Encompass Group and TransCosmos USA Inc.
Enterprise Partners is located at 7979 Ivanhoe Avenue, Suite 550, La Jolla, Calif. 92037-4543. Tel (858) 454-8833, fax: (858) 454-2489.
The firm’s Web site is http://www.ent.com/.