Ten years after securing its first pool of investment capital, Chrysalis Ventures of Louisville, Ky. has not lost sight of its founding mission: investing in young Midwestern and Southeastern niche companies whose competitive advantage is not defined by technology alone.
Now armed with $143 million of committed capital in its fourth early-stage venture fund, Chrysalis Ventures II LP, the firm’s three managing directors are already scouting the region for companies in the business services, financial services, health care, media and entertainment sectors.
“We won’t invest in cutting-edge technologies – we won’t pick among the boxes or PDAs,” says Bob Saunders, one of the firm’s managing directors. “We look for under-mined areas of opportunity where everyone isn’t – especially service plays to second or third tier ex-urban markets.”
Those might include companies like Genscape Inc. of Louisville, the first investment out of Chrysalis Ventures II LP. Genscape, founded by a team of former energy traders, feeds real-time power supply data to energy traders using wireless devices that measure how much energy is flowing through the power lines that ring a power plant. Chrysalis led the company’s Series A round with a $3.55 million last November. Also included in the fund’s portfolio is Zoom Culture Inc. Based in Chapel Hill, N.C., Zoom Culture uses college students and the Internet to create original TV content like the late-night NBC series Hip Hop Nation: Notes From the Underground. With Chrysalis’ help, the company closed a $7 million Series B round in the first week of May.
After making a $1.5 million to $5 million initial investment, the firm will invest up to $9 million in each portfolio company through subsequent rounds of financing. While the bulk of its portfolio includes regional plays in the Midwest and Southeast, it will occasionally stray as far away as California to close a deal.
“There’s a lot of interest in regional funds – if you think about it, all the Silicon Valley firms are regional Northern California firms, but none of them can be lead investors and do the hands-on investing in early-stage companies here. This is an under-ventured part of the country,” Saunders says.
Although its investment philosophy has not changed in the 10 years since closing its first venture deal, Chrysalis’ investment landscape has. One of its first investments was in an Oklahoma amusement park owned by Premier Parks, which went on to buy the Six Flags chain, and is now the largest regional amusement park operator in the world. The firm went on to invest in regional communications plays like Tritel Communications of Jackson, Miss., now owned by AT&T Wireless, and a Kentucky-based radio station operator, Regent Communications, now owned by Clear Channel Communications. Now companies that drive Chrysalis’ portfolio “solve pain rather than fill a need,” Saunders says. They might package voice applications for customer call centers like NetByTel of Boca Raton, Fl. does or make digital receipts for purchases made on- or offline like AfterBot Inc. of Atlanta does.
Still, the firm’s investment criteria have not changed: It is looking for companies with strong management teams whose competitive advantage is more than a patent or intellectual property.
“We ask, Who is the customer? Why will they pay? How much will they pay? How much pain is there?'” Saunders says. “That’s the analysis we go through – it’s more toward services and less toward cutting-edge technologies.”
Saunders will manage the fund alongside managing directors Irv Bailey and David Jones.
Chrysalis Ventures began fund-raising last spring with a $100 million target and held an initial close on the fund in July. Limited partners in the fund include Ft. Washington Capital, Security Benefit Life, the State of Kentucky Commonwealth Fund, the University of Kentucky and the University of Louisville.
Contact Carolina Braunschweig at Carolina.Braunschweig@tfn.com