Milestone Equity Seals $11M Deal

Like day traders and profitless Internet companies, incubators lost their luster soon after the dotcom bubble burst. As a result many, including onetime Internet high-rollers CMGI Inc. and Internet Capital Group, tried in vain to transform themselves into so-called “operating companies” to avoid being lumped in with their struggling incubator brethren. Their ruse didn?t work, however, and all they got for their troubles were plummeting share prices as Wall Street turned its collective back on them.

Nonetheless, a few incubators are still trying to beat the system and, perhaps, reform it. One such company, Falls Church, Va.-based Milestone Equity Partners even managed to complete a round of venture financing, a feat almost unheard of in these times of unprecedented investor skepticism and scrutiny. Still, it is possible there is some shame left in backing incubators, as the investor who anted up the money did not wish to be named.

Milestone nabbed $11 million in its latest round, and it plans to use the proceeds to build a national network of incubators across the country. In addition to the incubator housed at its Northern Virginia site, Milestone is launching accelerators in Phoenix, Ariz., and Blacksburg, Va., and is in the process of rolling out additional facilities in major markets throughout the country, including New York, Philadelphia, Chicago and Denver. The firm intends to target tech startups for its incubation program in each of these cities.

Nelson Cooney, a managing partner at Milestone, said the funding shows that there is investor support for its for-profit model.

“Our deal flow is . . . ramping up significantly just because of the challenge of raising venture capital [for firms] and keeping companies moving forward in this market,” he said. “We think it?s a great marketplace.”

Milestone, which typically takes a 10% to 15% stake in the companies it serves, has developed what it claims is a nationally scalable incubation model in an effort to partner with entrepreneurs and VC firms.

“Our business model is designed to facilitate company growth and capital formation in the early-stage market,” said Giles Somerville, another managing partner at the firm.

“This is a perfect opportunity for us to roll up our sleeves, put our program to work and build real value into early-stage companies so they can become successful, revenue-producing businesses.”

Prior to founding Milestone, the company?s leadership team, which also includes Managing Partner Allan Kaplan, raised more than $350 million in equity and debt financing.

Ken Ryan can be contacted at: Kenneth.Ryan@tfn.com