U.S. Portfolio Cos. Head Overseas –

NEW YORK – According to industry theory, venture capitalists not only provide entrepreneurs with funding, they bring marketplace knowledge, management skills and a large Rolodex to the table. And lately, some of these VCs have been flipping through those Rolodexes to find international investors in an effort to open overseas opportunities for their domestic portfolio companies.

“It’s a differentiating factor if you can take them [portfolio companies] to 20 countries where you have relationships on the ground,” said Dana Callow, managing general partner of Boston Millennia Partners. Boston Millennia has taken domestic portfolio company executives to their meetings with European limited partners for the better part of a decade.

“This year, we took five companies over, and we had 15 that wanted to go,” Callow said.

Boston Millennia hosts an annual meeting in Europe and one in the U.S. every year. Callow said a live presentation from a chief executive officer makes a bigger impression about Boston Millennia’s portfolio than a PowerPoint presentation or a quarterly report.

“In Paris, we got a standing ovation for two [portfolio companies’] presentations,” Callow said. “One CEO did not present well, and it did not surprise LPs when a change was made six months later.”

These presentations and the personal introductions behind the scenes give LPs the opportunity to make direct follow-on investments, to consider acquisitions and to establish strategic partnerships.

Opportunity Arbitrage

Focus Ventures also recently began taking a few of its entrepreneurs East to meet Asian LPs in a program they call Opportunity Arbitrage. General Partner Jim Boettcher said a July meeting in Hawaii featured a panel meeting where representatives from three companies discussed their operations with representatives of 15 Focus investors from Asia.

“If you’re a big company, you’ve got an office over there and you’re getting regular reports,” Boettcher said. Small companies, however, often miss out on this insight into international markets, but these companies got a chance to find out how an Asian expansion might meet their business needs.

The Asian investors on the panel talked about their technology interests and asked the CEOs how the portfolio companies planned to expand in Asia.

Before inviting a company to the meeting, Boettcher said Focus has to feel confident the company’s products will compete well in international markets and has to be confident the companies’ managers and engineers will take advantage of the introduction.

Among the relationships developed in the July meeting, the managing director of Focus investor Mingly Corp. took an interest in Rapid5, which produces telecommunications equipment for two U.S. carriers. Upon returning to the U.S., Boettcher followed up with Mingly’s managing director and its Silicon Valley-based Executive Director, Fred Schwarzer. Boettcher also made sure Rapid5 made the appropriate communications with Mingly.

Mingly recommended Rapid5 to the executives of a subsidiary, Longbridge, which is a systems integrator, telecom product developer and distributor of telecom equipment based in Beijing. Longbridge management visited Rapid5, and although no deal has been consummated, real interest has developed on both sides.

“The fact that Focus believes in this company gives it the initial Good Housekeeping Seal,” Schwarzer said. “The pre-existing relationship with Focus is a significant help to both parties in the situation.”

“I think just a Rapid5 going there [to China] by itself without any pre-existing base there-that’s pretty tough,” Schwarzer said. “If you reverse the situation with an unknown Chinese company and an unknown Chinese product trying to get in to speak with a WorldCom, I think it’s equally difficult.”

Success Stories

Callow said VCs have to handhold the personal relationship and ensure both sides follow through on their conversations. Simply handing the company off to a European contact does not pass the trust on to an investor with the same impact as a personal introduction.

About eight years ago, Callow took Josef von Rickenbach, chairman and CEO of Parexel International Corp., to a meeting in Zurich.

“His fund had excellent relationships with his investors in Europe, and he introduced me to some of those,” von Rickenbach said. “As a pretty direct result of those relationships, we ended up with three venture capital investors in Europe-two of them through him and one we already knew. Having these names on our resume gave our clients confidence.”

“Now, we have more people on the ground in Europe than in the U.S.”

Von Rickenbach won’t give Callow total credit for Parexel’s European success. The company already had an office in London, and several executives, including von Rickenbach himself, had strong European ties. That only goes to prove Callow and Boettcher’s comments about carefully screening the companies to take abroad.

An expansion into the international markets will be expensive for most companies and distract them from their domestic business plans. Callow said the companies have to be ready to follow the meeting with the execution of an international strategy-like Parexel has.

“If you take the average high-tech entrepreneur to Europe, it would probably not be very successful,” von Rickenbach said. “If you have a management team with a global perspective and you can finance it globally, you have an absolute advantage. If you have a venture capitalist who has never left California, forget about it.”

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