Gagen Snubs VC, Heads To Buyouts

Martin Gagen, who was a fixture of 3i Group for more than 20 years before he resigned last year, is returning to investing. But you won’t find him anywhere near venture capital.

Gagen has joined the advisory board of WHI Capital Partners, a Chicago-based buyout firm focused on the lower middle markets. WHI Capital – a subsidiary of William Harris Investors Inc. – invests between $10 million to $70 million in revenue-generating companies. Gagen says the firm plans to invest about $100 million over the next three to five years.

Gagen says that he is returning to investing via buyouts and not venture capital because he has become skeptical about venture returns. “Most venture funds are heading for average or poor returns,” says Gagen, who resigned from 3i in August. At the time, Gagen said he wanted to pursue personal goals and to remain living in California, which he calls his adopted home.

Gagen – who came over from the United Kingdom about seven years ago – also said he planned to earn a master’s degree in philosophy and history at Stanford University. In the coming years, he said that he intended to obtain a Ph.D. and leverage his 30 years of entrepreneurship and international business experience to mentor and teach.

But he says that he joined WHI Capital because he finds the market space and opportunities for smaller buyouts “very interesting.” WHI Capital focuses on smaller buyout deals. But unlike many private equity firms that replace existing management with new executives upon investing, WHI Capital maintains that relationships with incumbent management teams are crucial to deals. Gagen, too, says that the “CEO swapping” that frequently goes on in venture-backed deals is a practice that the venture community needs to rethink.