01 Oct West Coast VC Establishes Midwest Presence in Madison
Frazier brings new ideas, strategies and experience to Wisconsin
MADISON, WI. – Seattle-based Frazier Technology Ventures (FTV) is in the process of closing a Venture Capital (VC) fund called “FTV II”, which will focus on Information Technology (IT) investments in what the firm refers to refer to as the “Northern States” region of the United States. Frazier has secured a $60-million commitment from the State of Wisconsin Investment Board (SWIB), which approved the investment earlier this year. The investment is split into two parts according to SWIB, $50 million for the Frazier investment fund and another $10 million that is to be made available in side-by-side investments that are restricted to Wisconsin-based investments. The firm has already opened a temporary office at the law firm of Foley and Lardner and is still in the process of identifying a suitable “Midwest Hub” location in downtown Madison. Gary Gigot, general partner, and Peter Zaballos, vice president Midwest, spoke recently about their firm’s investment strategies, goals, focus and operating experience at a public event hosted by Accelerate Madison.
“The Northern States Fund” will cover an area that spans Oregon and Washington through Wisconsin and into Michigan and Ohio. Zaballos pointed out that the northern states region accounts for 28% of research institutions, and 20% of the technology employees in the United States yet only represents 8% of U.S. venture capital investment.
Frazier Technology Ventures’ mission is to become a leading venture firm in the northern states, known for discovering category-defining technology and transforming it into companies of lasting value. “The new Frazier Technology Venture Fund II will be similar to the firms Emerging Technology Fund, but with within an established VC structure,” said Gigot.
Gary Gigot, a native of Green Bay, a Packers season-ticket holder and former Microsoft vice president, with extensive marketing, investing and entrepreneurial experience commented, “Technology opportunity is right here in the Midwest and we need to marry the right VC capital, with the right people with the right operating experience with the right investment syndicates.”
“We looked long and hard at where there are opportunities emerging for category defining new technology firms,” Zaballos added. “We believe that this is a technology-rich area that has been overlooked.”
The State of Wisconsin Investment Board (SWIB), which directs the investment strategies for the Wisconsin Retirement System Trust Funds, has invested in Wisconsin-based VC’s as a part of a policy set in 1999 in which it pledged to set aside more pension funds for local start-ups.
“SWIB’s conscious decision to invest in local tech firms comes after a study it performed last year concluded that there is a good opportunity for venture capital based investments in Wisconsin. One of the goals of the new funding was to entice a national-caliber VC player to establish a permanent presence in Wisconsin to help expand the existing VC community in the state and support emerging technology companies,” said Monica Jaehnig, SWIB’s portfolio manager.
In a report to the Governor and Legislature in 1999, SWIB set a goal to make between $2.2 and $3.9 billion in new investments Wisconsin by 2004. SWIB has already completed $3.5 billion in new investments in the past three years. SWIB recent Wisconsin initiatives include a commitment to explore venture capital investments in high-technology companies located in Wisconsin and throughout Midwest.
”The focus of this round of technology funding is a bit different than the 1999 round, in which SWIB committed $45 million in an effort aimed mainly at emerging biotech and healthcare companies,” added Jaehnig. “Our new investments are designed to fund the growth of technology companies, but this time the term ‘technology’ is being more broadly defined,” she said, adding that Wisconsin’s reputation as an emerging biotech center has become well-known and that other kinds of promising tech firms should not be left out of the picture. SWIB is hoping that more than just Madison’s cluster of biotech firms can get a piece of the action this time, citing promising technology start-up scenes centered around the Milwaukee School of Engineering and spin-offs from Cray in the Chippewa Falls as examples.
Frazier’s Investment Strategy
The Frazier team believes it is different from other venture capital firms in that it has unique operational expertise in business strategy, product development and technology assessment, as well as technology marketing, spanning major technology companies. The partners experience spans an impressive resume ranging from Microsoft, Real Networks, Visio, UUNET, AT&T, LSI Logic, to biotechnology firm Immunex. “Our operational expertise will be valuable here in Madison,” commented Gigot.
Frazier was founded in Seattle 12 years ago by Alan Frazier, former CFO of Immunex Corp., until recently has focused exclusively on healthcare, raising five funds worth over $750 million. But last year it started a new broader technology VC fund, as well.
The firm’s investment strategies revolve around the concept of market-defining technologies. Firm officials say they desire to see proof of market demand, a clear and large technology category that will create foundation for a “big company” in five years, and that does not need a large capital infusion for success. They believe in building self-sustaining operating companies, with tight business controls and focus for the management team. Frazier is unique among many other VC’s in that its exist strategy for return on investment is not dependent on taking the company public.
The firm is actively looking at investments in the areas of enterprise technology, wireless services and applications, IT industry infrastructure including telecommunications as well as searching out and identifying breakthrough technologies in areas such as fuel-cell technologies.
Frazier prefers to commit to early-stage investments in a lead or co-lead position on investments but, is willing to look to re-capitalize existing companies with good ideas that might have missed on their initial business execution, according to Gigot. Frazier likes to manage only a few active positions at one time, as they tend to take an involved and active role with their portfolio companies. According to the firm partners they are seeking 5-10 investments that they can work with during “A, B, and C rounds of financing
Why IT Investments. Why Now?
“Market demand is still there for technology. There are some great opportunities ahead that perhaps are as big as opportunities we have seen before,” said Gigot. “Some large categories create big opportunities to create big companies.”
Madison: A Midwest Hub
Peter Zaballos a technology-company veteran with over 20 years of technology marketing experience will lead Frazier’s Midwest investment efforts. In addition to top management roles at Real Networks and Vision, Zaballos has worked with LSI Logic, and C-Cube and has been involved with venture investments including those made by Sequoia Capital, Moganthaler, and Accel Partners.
Zaballos said that the Madison location will become a great technology hub for the Midwest. Company presentations will be linked via a videoconference link with the firm’s headquarters in Seattle to take advantage of the vast pool of resources and experience in that office. Zaballos is looking to identify and grow market-making companies in the Midwest and use Madison as a center of operations and he hopes to have an entrepreneur-in-residence program at Frazier’s new offices.
”FTV Madison’s hub is where midwestern technology firms will go for evaluation, and development of businesses,” said Zaballos.
Midwest Hub: Operational Strategy
Frazier Technology Ventures will offer some new and unique approaches to venture capital investing in the Midwest. In what might like seem like a daunting promise, Zaballos claims that the firm will be responsive to unsolicited inquires for investment. He stated that it is his intention for the company to respond to all inbound opportunities that are presented to the firms. This differs from other organizations that do not provide even an acknowledgement that a business plan was even received or read. According to Zaballos, the firm will provide constructive feedback regardless of the investment decision.
Zaballos will also be scouting for technologies and investments that might be synergistic with the Frazier’s healthcare and biotechnology investment fund. “Our healthcare partners will visit the Madison area to look at healthcare and medical device opportunities,” he said.