VC Firms Lure Investment Analysts –

SAN FRANCISCO – As venture capital firms shift their staff-hungry eyes from Wall Street’s investment bankers to its research departments, analysts are finding that private equity is promising something just as valuable as a shot at personal fortune – a life.

When Keith Benjamin, a former senior Internet analyst and managing director at BancBoston Robertson Stephens, learned that he soon would become a father, he decided to make a lifestyle change. With workdays that typically started at 4:30 a.m. and ended at 7 p.m., plus half days on the weekends, Benjamin wanted to avoid dying from a heart attack, a fate that his father had suffered.

So Benjamin accepted an offer to become a general partner at Boston-based venture firm Highland Capital Partners and open the company’s West Coast office. By making the change, which took place in November, Benjamin joined the growing ranks of analysts who are abdicating sometimes high-profile but always demanding investment bank research positions for the relative independence of venture capital.

“I will probably make less money over the next couple of years as a venture capitalist, but I will be ending up building an equity base so that, long term, I’ll make at least as much as I did before,” Benjamin said. “I will not work weekends anymore. I’ll come home less beaten up and be more alert when I read stories to my son.”

Analysts moving from the sell side to the buy side is nothing new. Benjamin’s father did the same years ago when he switched to managing private funds from an analyst’s job at Lehman Brothers. But recently, instead of taking the familiar route to hedge funds or other large institutions, analysts are getting snapped up by the growing number of venture capital firms.

About 100 new venture capital firms were created in 1999, bringing the total number of such U.S. groups to roughly 600, said Jesse Reyes, director of Venture Economics Information Services, a sister company of VCJ. “In the third quarter alone, the industry poured $13 billion into dotcoms,” he said. “That’s more than any other single year and that is definitely creating a lot of interest in this kind of expertise.”

Recruitment Fires Ablaze

Among the most recent crop of analysts-turned-venture capitalists are Bill Burnham, who left Credit Suisse First Boston in August to join SOFTBANK Capital Partners as a general partner, and Danny Rimer, who left Hambrecht & Quist in November to join the Barksdale Group.

Private equity firms have long courted investment bankers for their rainmaking prowess. These days, however, it is the analysts who hold the key to understanding new technologies and often influence deal flow.

“There has been a dramatic transition in the role of analysts,” said Gene Shen, a managing director and head of the global financial institutions group at the executive recruiting firm A.T. Kearney. “These days analysts tend to be the first in the know, and as a result, they tend to be as much analysts as deal originators.”

Of course, sell side firms are not the only ones losing talent to the venture capital field. Steve Harmon, a former senior analyst at Internet.com Corp. and a Jupiter Communications veteran, founded San Franciso-based e-harmon.com, a private venture capital and investment firm last August.

Harmon, who said he had been getting job offers from Wall Street and venture capital firms for the last few years, thinks staying on the buy side is key.

Along with the firm’s president, James Hartmann, a former executive at Merrill Lynch & Co. and a veteran of the Securities and Exchange Commission, Harmon is in the midst of evaluating investments and plans to announce the names of several new team members he has recently recruited from where else? Wall Street.

Meanwhile, Benjamin, who said his previous one-man job is being filled by “numerous” people, has yet to find office space for the new business. Still, he managed to invest in Fatbrain.com Inc., and is about to seal a second deal.