SYOSSET, N.Y. – Unlike other private equity firms, the investment professionals of Northwood Ventures do not consider themselves technologists. Instead, they take pride in being generalists who can focus on a wide range of sectors, including wireless communications, the Internet, retail and consumer-oriented companies.
“Our preference is to do things we understand,” said Hal Wilson, a managing director at the firm, and for the most part that means avoiding software and hardware companies, as well as real estate deals.
The firm avoids backing companies that develop new technologies because successful IT deals require a high level of cutting edge expertise, President Peter Schiff said.
Taking a more general investment approach gives Northwood greater flexibility to respond to market conditions and attractive new ideas, allowing the firm to “move from one area to another depending on what we believe will be successful,” Schiff said.
Founded in 1983, Northwood engages in early- to late-stage venture capital deals and buyouts, as well as industry consolidation plays in the United States and abroad. Foreign investments typically involve communications companies that have headquarters in the states, such as Formus Communications Inc., a Denver-based wireless communications company that is pursuing wireless service opportunities in Europe, particularly in Poland and Germany, Schiff said. About 70% of the firm’s capital under management is devoted to venture capital and 30% to buyouts, but those figures can change depending on market conditions, Wilson said.
Northwood consists of three investment professionals: Schiff, Wilson and Associate Paul Homer. Schiff, who founded Northwood in 1983, previously worked in the corporate division of Chemical Bank, now known as the Chase Manhattan Bank, and before that in the venture capital divison of E.M. Warburg, Pincus & Co. Wilson joined Northwood in 1991 after working as a vice president in the investment banking division of Merrill Lynch & Co. Homer, who previously had worked as a financial accountant in the finance division of Learningsmith Inc., joined Northwood in 1999. While all three refer to themselves as generalists, Schiff tends to focus more on the wireless industry and Wilson on consumer-oriented companies. Northwood sources its deals independently or through referrals, and its small staff cuts out a lot of red tape, leaving the three men to focus attention on their portfolio companies, Schiff added.
Northwood’s two funds, Northwood Capital Partners LLC and Northwood Ventures LLC, total more than $200 million and invest side-by-side, Wilson said. Both vehicles back venture capital and buyout deals. “Really, it’s simpler to just think of them as one entity, even though, technically, they are two separate funds,” he said.
The funds started out as traditional vehicles, but were converted into evergreen funds based on the interests of the firm and its limited partners, Wilson explained. “This eliminates the complication of fund raising, because we just roll our profits back into the fund,” he said. “This means we can just focus on our portfolio companies and new opportunities.” Wilson declined to name any of the firm’s limited partners.
Northwood invests in venture and buyout deals ranging from $1 million to $10 million over the life of a company. Schiff said Northwood prefers early-stage deals because the firm can have the most influence on a company and get better valuations at that level of development. The firm usually avoids start-ups because of the risk involved, he said.
Northwood has backed more than 100 companies in its nearly two decade history, Wilson said. The investment team does not prefer one exit strategy over another and would opt for an initial public offering or an M&A depending on the company, Schiff said.
Northwood Ventures is located at 485 Underhill Boulevard, Syosset N.Y. 11791-3419. Tel. (516) 364-5544, fax: (516) 364-0879. The firm’s Web site is http://northwoodventures.com/.
Following are some of Northwood Ventures’ portfolio companies:
Buca Inc. (Minneapolis) operates 34 family style Italian restaurants named BUCA di Beppo. Bucca completed its initial public offering in April 1999, raising $42 million.
Co-investors included Norwest Venture Capital and Brand Equity Ventures.
Caribou Coffee Company Inc. (Minneapolis) is the nation’s second largest non-franchised coffee company, operating 130 stores in the Midwestern and Southeastern U.S..
Co-investors included Oak Investment Partners, Global Retail Partners LP and Catterton-Simon Partners LP.
Cell Pathways Inc. (Horsham, Pa) is a pharmaceutical company that develops and markets products to prevent and treat various cancers.
Vulcan Ventures, Jackson Partners and Technology Partners were co-investors.
Dick’s Sporting Goods Inc. (Pittsburgh) operates 83 sporting goods superstore in the Eastern and Midwestern U.S. The company recently spun off a separate entity for its e-commerce business.
Co-investors included Oak Investment Partners and Global Retail Partners LP.
Eldorado Bancshares Inc. (Laguna Hills, Calif.) is a community bank with assets of $1.4 billion. Eldorado’s April 1999 IPO raised $25 million.
Madison Dearbon Partners Inc. was a co-investor.
journeylink.com inc. (Tempe, Ariz.) is an Internet portal for the recreational vehicle community.
Mercantile Capital Partners was a co-investor.
MariTEL Corp. (New York) is a provider of VHF marine wireless telecommunications and is developing MariNET to deliver mobile voice and data communications to all segments of the maritime community.
American Tower Corp. was a co-investor
The McGraw Group Inc. (Richmond, Va.) is an industrial distributor, providing equipment and service solutions to assembly and manufacturing industries.
Columbia Naples Capital LLC was a co-investor.
The Museum Company Inc. (Fairfield, N.J.) is a retailer of museum-related reproductions and replicas and has 84 locations.
Co-investors included GE Capital Equity Capital Group.
Satcom International Group PLC, (Londonderry, Ireland) is a telecommunications company that provides satellite data services to selected European markets.
There were no co-investors.
TeleCorp PCS Inc. (Arlington, Va.) operates mobile wireless communications systems in a number of U.S. markets and Puerto Rico.
Chase Capital Partners, M/C Venture Partners and OneLiberty Ventures were co-investors.
VeloCom Inc. (Englewood, Colo.) is building competitive local exchange carrier (CLEC) operations in Latin American markets, with the goal of becoming a dominant provider of voice, data and Internet services in under-served markets.
Co-investors include Intel Corp., Telecom Partners, Centennial Fund, Janco Capital Management LLC, Mellon Ventures Inc., Dolphin Communications and Toronto Dominion Capital (USA) LP.