Interviews at The Entrepreneur Center @NVTC

Tania Anderson, for Bisnow on Business: What’s Grotech’s particular IT focus?
We have become increasingly focused in enterprise software, especially companies that are building software as a service. A second focus is telecom infrastructure. In that area, we’re especially spending lots of time in two areas. One is VOIP and IP convergence which is collapsing multiple network platforms into one single IP platform, and the other is mobile and wireless. A third area of focus is e-commerce.

What have been some of most recent deals?
Our most recent software as a service deal was in Chicago: a company called Field Glass Software, which is a software delivered entirely as a service over the Internet. It allows large corporations to procure services, conduct auctions, manage the cost, and pay off service providers. In VOIP, one of our leading investments now is Broadsoft, which is the carrier-based VOIP application software. In mobility and wireless, we’re an investor in Bluefire, which is a combination security and mobility play. In e-commerce, we’re the largest investor in a company called buySAFE. We are in the middle of trying to take a 6-year look at what’s happening next. We think these areas are good ones to invest in now and for the foreseeable future. But we need to stay ahead of it. One of the deals we did, which we probably would have considered a telecom infrastructure deal in our rubric but is more digital media, is Hillcrest Labs, which is the whole idea of advanced navigation for consumer electronics. In fact, that whole area of digital media may become a focus area at the same level as those other three.

Are you still most interested in companies in the Mid-Atlantic and Southeast region?
We feel comfortable that our best deal flow tends to come from the Mid-Atlantic and the Southeast. They’re easier for us to manage and we have better ability to help companies that are in those regions because we have better recruiter contacts and better deal flow sources. If we really like an area and like a company and do our research in that area and that company is in New England or Chicago or Minnesota, we’ll look seriously at it. We just don’t want to get too far afield because you can lose focus. We won’t do a deal in Silicon Valley. There are so many good firms there and so much smart money and the competition is so intense that there’s not much of an argument for what we add to the party.

What has changed in your life as a venture capitalist since the late 90s?
The kinds of deals that are getting funded now are much more realistic, centered on fundamentals like solving economic problems for companies that have real payback. The teams tend to be more seasoned and mature as opposed to smart young people in their first five years in the workforce coming up with a bright idea and raising money. The valuations on deals have gotten much more realistic and therefore lower. On the other hand, the exit opportunities are much longer. The IPO market went away in 2000 and in reality has never come back. You see some signs of life. There was a regional deal here called Vocus that is a nice company. But up until that deal went public in the third or fourth quarter of last year you didn’t see many software deals with $20 million in revenue just breaking even or making a little money going public at nice valuations. The Visicu deal, which is a Baltimore-based software company for emergency room operations in hospitals, looks like it’s getting well received in the IPO market right now. I think the kinds of e-commerce deals you’re seeing now are exciting. Some people talk about version 2.0 of the Internet. The Internet is a stronger, more robust communications vehicle than it’s ever been before. There are a lot more tools to develop good software and applications on the Internet. People are taking advantage of that to build realistic business plans and real ideas. The ultimate mistake that was made in the bubble is not that people mistakenly believed that the Internet would change a lot of businesses. It will and is. The mistake is that everybody thought it would happen in 12 months. It’s going to take 10 years. We’re in year 5 or 6.

How have lower valuations and slower exits changed the rate at which you make investments?
Our strategies with regard to that have been about the same. We will do roughly the same number of IT deals in a fund. Twelve to 14 IT deals in a fund is normal for us. We just have longer holding times than we used to. We’ve had time to adjust to these new realities and to get our LPs and our partners dealing with reasonable and realistic expectations of where we are.

Some people think this region still doesn’t have enough seed and early stage money. What do you think?
I never really believed it. Most of the complaints I’ve heard about seed money in the region have come from people looking for seed money with ideas that just weren’t a fit with the times. I understand that there isn’t, in relation to the number of companies and the number of opportunities, as much capital that is smart and savvy and willing to do the early stage life science stuff. Many deals here are getting done by folks outside the region with regard to life science. There’s a lot of effort going into trying to change that and bringing more focus here. In IT, after Boston and San Francisco, there’s probably no better market to raise seed money than here.

What got you interested in venture capital?
My first job in the world was as a naval officer out of college. I was involved in helping design, buy and install the first generation of transistorized electronics into nuclear powered submarines. It was a fascinating experience for me to be working day to day and see the terrific benefits of lower cost and less space being taken up, lower power consumption and less heat, all the benefits that could come from these technological innovations. It got into my skin and I wanted to be involved in innovation. Over the course of time I became involved with consulting and providing financial advisory assistance to young growing technology companies. Eventually after 10-12 years of doing that, in addition to my six years of work in the Navy, I felt like I had enough of a base of instinct and experience and contacts and relationships. I thought that I’d be willing to invest some of my own and other people’s money in what I felt were future trends. Some people I knew here at Grotech were looking to expand their technology investing arm at the time. It was a marriage of an opportunity and someone willing to put himself at risk to do it. Also, I was then and am now bullish on the region. We have a lot of talent in this region. I thought we were an undiscovered area. We’ve become well discovered when you generate companies like AOL and Ciena.

What’s the most interesting thing you’ve done in the last year?
This will sound offbeat, but I saw Venice and Rome for the first time for my 50th birthday.

What impressed you the most about them?
I think Venice is the most improbable city I have ever seen. If you see, not to be a doomsayer, what happened in New Orleans, it looks like something that can’t possibly survive as long as it has and yet it’s gorgeous and spectacular. What struck me most about Rome besides the fact that you can walk into any place and the food is fabulous, was how easy it was to get around central Rome. It’s a very big city, but in the historic part of Rome, you walk corner to corner and never run out of things that just are ‘Wow.’

Are there other places you particularly want to see?
I’ve never been to China. And as a businessman I feel a strong need to have a better instinct for the country than I do. I’ve never had time. I’ve had plenty of opportunities but haven’t taken advantage of them. It’s an awful big part of what’s going on right now.

Do you have any kind of Italian background?
No, but I studied the Italian language for 6 months and had a load of fun pretending to talk to the waiters.

And they understood you?
Assolutamente.  :)

[This interview conducted by Tania Anderson for Bisnow on Business.]