Intermediary Finds Niche In Tech Investing –

With nearly two decades of private equity investing experience under his belt, Douglas Schmidt is banking on his background to help make his new venture a success. In July, Schmidt announced the formation of Chesapeake Capital Consultants, a Mid-Atlantic-based intermediary boutique firm designed to operate as a liaison between investors and technology companies. According to Schmidt, the difference between Chesapeake and the intermediaries is the consultant services his firm offers.

“In June 2002, I began to see that much of the tech boom was characterized by a serious lack of technology understanding -firms invested in tech companies without a rudimentary knowledge of the underlying technology and trends,” Schmidt said. “I began laying out my business plan by trying to combine investment banking with managerial strategy, like a McKinsey or a Bain, but as I worked on that concept, I began to realize that the companies and firms really needed more than just advisory services.”

What Schmidt says is needed is hands-on consulting. Chesapeake will provide technology and strategy consulting, including technology assessment, product management and development and business and marketing strategies.

“In former times, buyout funds made all the decisions using in-house resources. Individual partners had to fix problems themselves. But technology investing changes that approach. It is impossible for a firm to know all that it needs to know. It’s the difference between the research ethic of a Bill Miller at Legg Mason Value Trust and that of a stock picker. Institutional investors demand a methodology along with results.”

Joining Schmidt on Chesapeake’s team is co-founder Alden Hart, an advisor and consultant for private equity firms and technology companies; Rick Garvin, a technologist previously with BTG, Adrenaline Group and Opion; and Peter Buchanan, a strategist with experience in business and operations planning previously with General Electric, British Telecom, Operon Partners and Deloitte & Touche.

Additionally, Chesapeake is in search of “a dedicated private placement specialist,” because Schmidt sees the next two years as fertile ground for the M&A and private placement market.

Chesapeake, with six clients already under contract, is catching the eye of some of the private equity industry’s heavy hitters. “Doug will be a beacon, he’s the ideal guy for this job,” said Edward Mathias, managing director with The Carlyle Group. “The big investment banks cannot take on anything but the largest deals. The smaller deals don’t have the fuel they need to feed the engine. And the timing couldn’t be better, with the huge ongoing shakeout in the banking and consulting business.”

According to Mathias, Chesapeake’s challenge “will be picking the right companies to work with. But this is fertile territory,” he counters, and points to the enormously high minimums and astronomical fees charged by the large investment houses as a way for Chesapeake to swoop in and pick up small- and middle-market deals to work on.

“Almost every LBO firm is a technology investor to some extent. If a company in any industry does not have good technology, then it is not competitive,” he said.

As for Schmidt, his enthusiasm for his new endeavor is palpable. “I’ve had one foot in the private equity world, and the other in investing banking for a long time. My Wall Street training and emphasis on regional banking have made me a student of the industry.”