Deep in the throes of raising a $200 million fund, six-month-old venture firm GrandBanks Capital just sealed its second deal. Formed in partnership with Softbank Venture Capital to focus specifically on early-stage investments on the East Coast, the Boston-based VC pumped new money into enterprise software firm Concentric Visions Inc. last week.
GrandBanks Capital co-led the $8.1 million Series B transaction with Sigma Partners and Series A backer Internet Business Capital (IBCC). I-Group/Hotbank, a Softbank Corp. affiliate, also participated.
JJ Healey, who joined GrandBanks Capital as a venture partner earlier this year, and Sigma Partners Managing Partner Robert Davoli received seats on Concentric’s board of directors as part of the financing.
“This is a company that is arguably proprietary deal flow for us,” explained Charles Lax, a managing general partner with GrandBanks Capital who is also a general partner and co-founder of Softbank Capital Partners. “It was initially funded by our incubator [I-Group/Hotbank], and we’ve been tracking it from that initial funding round.”
After GrandBanks Capital got in on the deal, Lax called Sigma’s Davoli, whose VC resume includes such firms as Internet applications provider Vignette Corp. and data storage firm Storage Networks Inc. “It was obvious to us that [Bob was] the best guy in town, so we brought the deal over to him,” Lax added. “He liked it even more than we thought, and split the deal with us.”
Although the transaction is on the small side, Concentric CEO Garth Rose said the company actually took 50% more capital in this round than it had originally planned due to the economy’s roller coaster performance over the past year.
“In this economy, and with so many second round financings being done, we decided to take some money for a rainy day,” he explained.
This latest infusion is designed to carry Concentric to cash flow positive, which Rose said he expects the company to reach by the third quarter of next year.
Healing The Pain Of Rich Media
Essentially, Concentric exists to help large corporations deal with the commonplace pains associated with using rich media content on their Web sites, including video, flash animation and audio clips.
“One of our customers wanted to put a product up on their Web site, and they were doing it with flash animation. Just doing one product took them three months and $60,000,” Rose explained. “The company has 200 products. Can you imagine the pain of putting all those up on the site, then having the product manager come back and say, now we have a new version, we have to update everything?”
Moreover, the Boston-based company is attempting to corner a rapidly growing market. Rose said research indicates that approximately 14% to 18% of companies already have rich media-enabled browsers, a figure that is expected to soar to 66% by year-end.
To meet such growing demand, Concentric is planning to increase its payroll to 70 employees from 40 by the end of 2001, with most of the hiring being done in its sales and marketing and engineering divisions, Rose said.
He added that he sees the company as more of a possible public play than an acquisition target, because he believes the value of its technology which currently operates independently of such dominant rich digital multimedia devices such as RealNetworks Inc.’s RealPlayer and Apple Computer Inc.’s QuickTime could potentially be stifled if it were integrated with those services. However, Rose said he is keeping a vigilant eye on Wall Street, and will only make a move toward the public markets if and when their overall performance improves.
Fund-Raising In Stealth Mode
In addition to Concentric, GrandBanks Capital also added another Boston-based company to its portfolio back in January. The firm which has been fund-raising basically in stealth mode since its launch earlier this year participated in a $20 million Series A deal for business-to-business networking play Coradiant Inc. along with Doll Capital Management and Sandlot Capital.
Since the fund hasn’t officially closed, Lax said he could not legally talk about it unless it was in the context of a deal. He did say, however, that Softbank launched an East Coast-centric investment vehicle because it had seen enough deal flow of late, especially in New York and Boston, to do several GrandBanks Capital funds.
Still, despite a seemingly overflowing pot of deal opportunities, the new fund’s investment pace has been a bit slower than originally anticipated.
“Originally, I thought this was going to be a 12-month fund, but it could be 18 months or longer,” Lax said. “I’m not sure [the pace] is going to speed up. It’s all a function of when we get an [upturn] in the public markets.”
For the most part, GrandBanks Capital’s territory will extend up and down most of the Eastern seaboard from Canada to as far south and west as Austin, Texas.
“The more time we spend with our companies, the better they perform,” Lax explained. “We don’t want to be spending more time on a plane than with our companies. [With this investment scope], we can literally see a portfolio company and be home sleeping in our beds that night if we want to.”
Lax declined to comment on the fund’s average investment size, but Concentric’s Rose said he believed it was less than $10 million per company.
So far, GrandBanks Capital has seven partners on board, including a few from Softbank and other affiliated firms, Lax said.
Contact Robyn Kurdek at Robyn.Kurdek@tfn.com