Q: We’ve seen many venture firms expanding into new regions, from Southern California to China. Has any of that geographic boom hit the Ohio Valley?
It really has not. I’d say that there was some boom in the Internet bubble period, when some of the coastal investors were prospecting and a few new funds came into being. But the story we’ve seen since then has been one of retrenchment. That’s where Chrysalis Ventures sees opportunities, because there are a lot of great companies here in the Midwest and South.
Q: But why are coastal firms backing away from your regions, but opening offices in LA and Beijing?
Early and expansion stage venture capital is a face-to-face business, and travel logistics to this part of the country has become more difficult post-9/11. There also is power in clustering for different industry sectors. But, again, that’s why we see so much opportunity not just here in the Midwest, but also in places like Texas and Florida. We’re close and can get there faster and more often.
Q: Do LPs also overlook the Ohio Valley and the Midwest?
A: No, I don’t think it applies to fund-raising. I think it’s more about how the VC goes about serving the entrepreneur. Big institutional pools of capital are looking for opportunities all over the U.S. and all over the world. You may get a meeting or two because you’re physically close to an LP, but they’re looking at returns, sourcing strategies and differentiation more than anything else.
Q: You raised $143 million for your second fund in 2001, and are closing this one with $163 million. Why not grow more than that?
We targeted $150 million because we feel that’s the right size for the stage and kind of industries Chrysalis invests in. Since 2001, we’ve grown our group of investment professionals. We now have three managing directors and 12 investment pros in total, compared to six overall when we started the 2001 fund. We’ve also expanded to cover more territory, and have also evolved in terms of sector. In health care, for example, we’re now very focused on finding opportunities that benefit from a shift toward consumer-directed health benefit designs.
Q: A lot of venture capitalists try to avoid public boards, both because of time commitments and potential liabilities related to such positions. Why, then, do you serve on the board of Humana as non-executive chairman?
There are several reasons to serve on the board of Humana, which is a $25 billion health benefits company. First, it’s a great example of how a successful, entrepreneurial company can be built in this region. My dad is one of two founders, so there are both financial ownership and pride and relationship issues that make me want to be engaged.
This board also provides me with a useful perspective on trends in the health care industry. Humana is a huge buyer of clinical and administrative services, including IT. As with serving on private company boards, the key is to always be cognizant that first and foremost you owe a duty of loyalty to the company.