Many service businesses have identified the Internet as an avenue for new revenue. However, Richard A. Eisner & Co. of New York has become an active investor in new media companies for a separate means, to expand its knowledge base.
“We are primarily service providers,” said Bruce Strzelczyk, co-chair of the firm’s new media practice. “We invest to obtain knowledge of emerging trends, technologies or intellectual base that we need to serve our client base.”
The firm made its first investment in 1996, participating in a FashionMall financing round on the recommendation of clients. Since that introduction, Eisner has developed a more sophisticated criteria for investments.
Portfolio companies must be very early-stage, offer Eisner access to new knowledge and benefit from Eisner’s areas of expertise, and most important, the company must operate in a space where Eisner needs to extend its expertise.
“We are not in the business of trying to get companies to come to us,” Strzelczyk said. “We are happy to see them, but we don’t want to compete with our VC clients.”
However, Strzelczyk said the firm sees a consistent deal flow through unsolicited queries and relationships with other groups. The company also prefers to make direct investments rather than participate as a limited partner in order to play a more active role in the portfolio company’s development. However, Eisner does not intend to travel down the path to managing capital.
“We have concluded that we will not become a financial investor,” Strzelczyk said. “We will continue to play an advisory role, prepping companies for an IPO.”
That development process includes offering advice on development of a business model, how to approach the marketplace and financial services. In particular, companies need to understand the appropriate manner to structure equity within a start-up.