Internet Venture Fund Idealab Raises a Speedy $100 Million
Idealab Capital Partners, a venture capital fund started one year ago this week, is expected to announce today that it has completed raising about $100 million to invest in Internet start-ups.
“We have proved that attracting venture capital and intellectual capital for emerging Internet and technology companies is viable here in Los Angeles,” said Bill Gross, co-founder and managing director of ICP. Gross, 40, spends most of his time running Idealab, a high-tech business incubator based in the same Pasadena building as the fund.
“It’s very unusual that a new venture fund--not a spinoff of an established fund--could raise more than $100 million right out of the box,” said Bill Elkus, 47, the partnership’s other co-founder and managing director.
These two men may not look like revolutionaries, especially in casual shirts during a pasta lunch at the Gordon Biersch restaurant off Pasadena’s bustling Colorado Boulevard, but they are leading a revolution of sorts as key players in Southern California’s transformation into a home for tech entrepreneurs.
They believe their investments in promising start-ups can liberate this area’s would-be successors to Steve Jobs and Andy Grove from dead-end jobs in corporate America.
“There are millions of people who need to get unlocked from the stuffy organization,” Gross said. “We set examples [by financing successful companies] to make people believe that if others take the risk to start their own company, they can do it too.”
Gross is well-known for helping to launch tech successes such as CitySearch, which he helped found in 1996.
So far, Idealab’s venture capital arm has invested in 16 start-up firms. Of those, eight are likely to launch initial public offerings, or IPOs, by the end of this year, subject to market conditions.
That means investors will get a return on their money more quickly than in typical venture investments. Venture capitalists normally get their investment back when a firm goes public, and one or two years is a quick turnaround.
The fund has invested $45 million so far, and Elkus and Gross say they are making several new investments each month.
So far the fund has helped finance several Southern California companies, including an Internet toy seller, a cooking Web site and a company offering free Net access. Most but not all of the companies the fund invests in are local.
One of the fund’s investments, MP3.com, a firm that allows customers to download legal, CD-quality music over the Internet, announced last week that it plans to go public eventually, and another firm, GoTo.com, a leading pay-for-performance search engine, is in the midst of selecting investment bankers to underwrite its IPO, sources said.
Idealab Capital Partners is also increasing its staff. It recently added another venture capitalist to its team of Gross, Elkus and Jim Armstrong, 33, who joined last summer from Austin Ventures of Texas. The newest employee, William Quigley, 34, joined the firm from Mid-Atlantic Venture Funds, where he focused on communications, software and e-commerce. Quigley is in the process of relocating to Los Angeles from the East Coast.
The venture capital team believes it can spot promising firms early because it is based in the same Pasadena building that houses several Internet start-ups in the Idealab network, and the open-air environment allows for easy communication.
“Because we live inside Idealab, we get to know those companies before they need our money,” Elkus said.
Investors in Idealab Capital Partners include Merrill Lynch & Co.; an arm of CalPERS, the California Public Employees’ Retirement System; SunAmerica Inc.; Union Bank of California; Jefferies & Co., Los Angeles’ largest brokerage firm; and Times Mirror Co., which publishes the Los Angeles Times. One-third of the fund’s money is from wealthy families or individuals, while the rest comes from institutions. The fund has had a $5-million investment minimum, Elkus said.
Entrepreneurs looking for financing shouldn’t just mail in business plans. Idealab Capital Partners receives an average of 15 to 20 business plans a day--and rarely funds any company making such a pitch.
“If a person can’t find someone I know and respect and get them to champion their product . . . well, we want to see that they can get over that obstacle,” Elkus said. “It’s a crude test, but it’s a test nonetheless.”
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Debora Vrana covers investment banking and the securities industry for The Times. She can be reached by e-mail at debora.vrana@latimes.com or by mail at Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
