Departure of Alta Directors Leaves IT Fund Up in the Air

Last month’s disclosure that Mike Boich and Khaled Nasr were leaving San Francisco-based Alta Partners to join InterWest Partners (as first reported in PE Week, 4/18/05 issue) could have been a lot worse. Alta Director Robert Simon was also invited to join Menlo Park, Calif.-based InterWest, a source close to Alta told PE Week.

But Simon, a former venture associate at Sierra Ventures, decided to remain at the San Francisco-based firm out of loyalty to Alta founders Jean Deleage and Guy Nohra and to finish the remaining investments out of the firm’s current allocation to IT startups. Alta now sports just two investment professionals (Simon and Garrett Gruener) who focus on IT and 11 investment pros who specialize in life sciences.

Simon is “a fiercely loyal friend,” says one longstanding industry insider. “Though he wanted to stick with his other friends who were joining InterWest, he wasn’t about to leave Alta and make it look like they had a massive defection or some kind of problem on their hands, so he stayed.”

However, another source speculates that Simon will depart before the end of the year as Alta’s IT investments wind down. Whether Simon stays or goes, it seems unlikely that Alta will move forward with plans to raise its first IT fund following the departures of Boich and Nasr.

“Alta IT would have been our first dedicated IT fund,” says a senior member of the firm. “We never even went to the market with it, just did pre-marketing. And while LPs told us that they liked Alta, they wanted to see more realizations from our IT group before committing.”

Nasr and Simon were recruited to Alta in 2000 to help build the IT practice, which at the time consisted of Gruener and Marino Polestra.

Boich, who has founded and run several hardware and software companies, joined Alta in 2003, and the firm seemed poised to join the ranks of such venture firms as InterWest and Seattle-based Frazier, which manage separate funds for IT and life sciences.

But besides the departure of Boich and Nasr, even Gruener is rumored to be eyeing other opportunities. In 2003, Gruener, a founder of AskJeeves, ran for governor in the California recall election (he received 2,562 votes). Gruener has degrees in political science and is said to be planning further efforts in politics.

The IT team’s efforts resulted in a portfolio of nearly 20 IT portfolio companies for Alta, according to the firm’s website. Among its current IT investments is Aegis Semiconductor Inc., which is developing a platform for dynamic optical components; Xelerated Inc., a fabless semiconductor company; and nCircle Network Security Leading, a provider of enterprise class security management.

Past IT investments include Be Inc., the PC maker which raised about $65 million from Alta and other investors, according to The MoneyTree Survey from PricewaterhouseCoopers, Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association. Be later focused on an operating system and was acquired by Palm Computing for $36 million in 1999.

Alta also backed CyberGold Inc., a provider of ecommerce technology. It raised $23 million before it merged with Inc.

Alta, though, has had plenty of success in life sciences to brag about. The firm saw 10 of its life science portfolio companies last year launch public offerings, including EyeTech Pharmaceuticals ($136 million IPO); CoTherix Inc. ($30 million IPO); and Renovis Inc. ($66 million IPO).

The firm has recently raised two new life science funds – Alta Capital Partners IV, a $185 million fund, and Alta Bio Pharma III, a $290 million fund. With those two new funds, Alta has about $1.5 billion under management.

InterWest raised a $600 million IT fund last year. Flip Gianos, InterWest’s senior semiconductor investor, had invested in two of Boich’s startups, a graphics chip firm called Rendition, acquired by Micron in 1998, and Radius, a computer peripherals company that went public in 1990.