NORTH ADAMS, Mass. – Village Venture Services Inc., a holding company that plans to build and help manage a network of early-stage venture capital funds, publicly announced its launch at the end of June. The company, which was founded in January, received $80 million in venture funding in mid-May. Village Ventures was created by Matt Harris, who managed The Berkshire Capital Investors, and Bo Peabody, who founded Tripod Inc., and was most recently a vice president at Lycos Inc.
“Our goal is to make it possible for small locally focused, early-stage funds to operate efficiently,” said Harris, the company’s chief executive officer. “We believe that many opportunities exists at the early-stage level and we also think that at the early-stage level, venture capital is a local game,” he added.
Village Ventures currently has five funds in its network. Those funds are operating in the Champlain Valley region of Vermont, the Pioneer Valley region of Massachusetts, Berkshire County, Mass., Portland, Maine, and Worcester, Mass. Each fund has local managers chosen by Village Ventures and a target of $10 million. The funds will target local investors as limited partners. Village Ventures helps each of the local management groups with the fund raising process. Currently all of the funds are technology focused; though Harris said each fund would try to leverage industries and innovations particular to its geographic region. All of the funds in the network have a 2% management fee and an 80%/20% carried interest structure. A Village Ventures employee will also sit on the investment committee of each of the company’s funds, Harris added.
Village Ventures will invest along side the funds in its network. “We will invest $0.50 on the dollar, up to $5 million over three years,” Harris said. The company will also keep capital in reserve, so it can invest in a second round of financing for portfolio companies that need more funding. “Once we make an investment in one of our fund’s companies, we will take an active role in that company’s development. We probably would not seek additional sources of funding for these companies. We may operate them sort of following the CMGI model,” Harris added.
Harris said Village Ventures plans to expand across the country and should announce another cluster of funds by the end of the summer. Cities under consideration include Nashville, Tenn., Charlottesville, Va. and Providence, R.I., he said. By the end of the year or the first quarter of next year, he anticipated that Village Ventures would have a network of 10 to 15 funds and would have made second round investments in five to seven of its fund’s most promising portfolio companies.
The company will support its network of funds with a range of what Harris termed fund services. “A small venture fund is like a small business; so we want to take stuff like legal issues, accounting, finance, marketing and public relations, operations issues like telephony and connectivity and technology off our funds’ plate, so they can concentrate on making investments,” he explained. These services will be provided at no cost to the funds in the network.
Village Ventures will also offer what it calls venture services to its funds’ portfolio companies. This Village Ventures group will offer portfolio companies recruiting services, Web design services and technology help critical to getting a start-up off the ground, Harris said. Companies can use venture services at their discretion, either paying in cash or in equity, he added.
Investors in Village Ventures’ recent round of financing included Bain Capital and Highland Capital Partners, which each invested $25 million, and Sandler Capital Management which provided $24 million in funding. Additional investors included Bain & Co., FleetBoston Financial Corp., Middlebury College and some individual investors. Harris anticipated Village Ventures raising a second round of financing in the late fall. He said the company would likely want the second round to be in the neighborhood of $150 million to $200 million. Harris said an initial public offering could be in Village Venture’s future. “We know we need to raise capital for our whole life and at some point, an IPO may be the cheapest way to do this,” he said.
Harris said he does not think Village Ventures will ever launch its own venture fund. “We think this is the best way for us to discover the winners that are out there,” he said.