Rutberg Attempts to Institutionalize Capital Raising –

SAN FRANCISCO – Ex-banker, Bryan Rutberg, recently applied his experiences from that industry to form Rutberg & Co., an institutional research firm and placement agency for private technology companies. Rutberg left UBS Warburg as an executive director and the head of domestic Internet investment banking.

“There was this perception that if you saw a bank involved [in a private placement] there’s usually a reason a taint on it,” Rutberg said. He thinks his group will approach the market from a new angle that won’t raise suspicions about the deal.

With cutbacks in banking business, Rutberg gets questions about why he chose to start a bank now, particularly a bank that focuses on the venture industry. He thinks the weakness in the market and the firm’s process will play into its favor.

Sandy Miller, managing director at 3i, said the model is unique in its independence from an investment bank and in its focus on research coverage of private companies. Miller acts as an advisor to Rutberg & Co. and called Rutberg one of his young stars when they were formerly at Montgomery Securities. Miller also co-founded Thomas Weisel Partners.

First off, Rutberg & Co. is not planning to float any offerings. The firm will only run research and broker deals, so it won’t need the assets of an investment bank that engages in principal transactions. The firm will generate revenue as a placement agent for later-stage deals worth $10 million to $20 million.

Compared to initial public offerings and acquisitions, the fees on $10 million placements would not thrill most bankers, probably most interested in agenting the deal to build a relationship with the company for more lucrative future deals. However, a small shop can turn a decent profit on agenting deals if it can build efficiencies in its process.

The firm plans to find its deals through its research arm. Rutberg said the team of one director and two analysts will open sector coverage on wireless technologies and material sciences (semiconductors, nanotechnology, optics, etc.). The firm plans to expand into Internet infrastructure, enterprise software and biotechnology as it increases staff.

The research process in wireless technologies, for example, might start with the largest 1,400 private wireless deals of the last year or so. The analysts will funnel that group down to about 600 companies in sub-sectors they find interesting, and then, they will look at salient trends to shake out about 25 or 30 companies to pursue.

After fundamental due diligence, the bankers in the firm plan to approach these companies, offering their agenting services for raising the company’s next round.

At the same time, the firm will publish regular research reports on private companies, organize sector-focused conference calls and offer access to its analysts. John Mecklenburg will lead the institutional sales arm of the bank, building relationships with late-stage VCs and learning their deal preferences.

Miller said this model will transform agency to a strategic business based on quality due diligence rather than a business where a company contacts an agent who shops the business around the market without really taking any ownership.

Interestingly, Rutberg started thinking about the concept when online-shopping portal Dealtime Ltd. approached his group at UBS Warburg trying to raise $25 million in a private placement. He brought together the syndicate, but Rutberg felt the process would be more efficient in a different environment.

“Warburg just wasn’t really structured to be in the private placement business,” Rutberg said. “But I just thought it was a fantastic and efficient business to be in.”

Miller said he thinks the concept has relevance on both the buy-side and sell-side of the venture industry.

This market has created new skeptics among old investing friends, and operational responsibilities have limited time VCs have to raise capital for their companies. VC firms have outsourced several functions, such as legal, human resources and marketing. Rutberg thinks capital raising may be another function in which they may accept help.

Miller believes in Rutberg’s prospects and respects his entrepreneurial skills. Rutberg continues to raise operational capital from individual investors, but he has no plans to raise a venture fund of his own.

The firm will receive standard fees in cash and warrants. As the research gets rolling and the deals start to close, he plans to expand the team.

“On the banking side, the amount of talent available out there right now is tremendous, and they are hungry,” Rutberg said. Any branch office plans would probably take the firm to Boston rather than to New York, which is logical with the firm’s private focus.