No MJ, Chicago Now Sports MK

There aren’t many venture capital firms in the Chicago area and less than a handful are larger than $100 million. So raising a first-time fund of $150 million (not to mention hitting its target amount) was no small feat for MK Capital.

It certainly helped that MK’s four general partners had worked together and had a track record. The GPs as a group are also the largest limited partner in their fund, having put up an “eight-figure” sum, a move that had to have a calming effect on any jittery LPs.

The four GPs were previously with First Analysis Corp., a Chicago private equity firm. MK Managing General Partner Bret Maxwell co-founded the venture capital practice for First Analysis in 1985. That venture unit raised four venture funds under the moniker Productivity Fund I-IV, and Maxwell remains managing general partner on three of those funds totaling $200 million.

“Most of our marketing was done on the names of those funds,” Maxwell says. Three of the Productivity funds are “top-quartile” performers, and the fourth, raised in 1999, has returned nearly half of the capital it has drawn down, he says.

Despite the fact that 1999 is a “really ugly year” for venture funds, the $135 million Productivity Fund IV has had nine exits, including IPOs for portfolio companies InPhonic Inc. (Nasdaq: INPC), Witness Systems Inc. (Nasdaq: WITS) and ValiCert Inc., which went public and was later acquired by Tumbleweed Communications Corp. Additionally, six fund IV portfolio companies were acquired and two are defunct.

Maxwell and his partners co-founded MK in 2003. They raised most of their money in nine months, but held off on a final close to include some select LPs, such as the Illinois State Treasurer’s Fund. MK plans to formally unveil its fund this week.

Except for Illinois, which announced its investment in MK, Maxwell declined to name LPs. But investors include a state municipal fund, a large bank and a German fund-of-funds. Operating executives put up 10% to 15% of the total, but they account for about two-thirds of the number of LPs. Maxwell expects them to be helpful with both sourcing and vetting deals. (First Analysis is not an investor in MK.)

The terms of the fund were undisclosed, but Maxwell says, “It’s more than a 2% [management fee] and 20% [carry]. We [the general partners] are a significant chunk of capital in the fund, so we’ve aligned our interests. We’re not in this for the fee income.”

MK invests mainly in companies that have moved out of product development and have “a half-dozen referencable, paying customers,” Maxwell says. “We’re trying to focus our fire power on business execution as opposed to product development.”

The venture firm targets two sectors: software and outsourced services, with the common theme being technology that helps to make customers’ businesses more efficient.

MK has already invested in seven companies, six of which it has disclosed: BladeLogic, a data center automation company; Kontiki, an IP video software provider; First Choice Solutions, an outsourcer of mobile electronics insurance claims; Peco, a pallet logistics company; Multicast Media Networks, which hosts broadcast networks; and Klir Technologies, an ASP for network performance in a $8.7 million Series A round announced last week. The seventh investment is in an undisclosed voice over IP service company based in Louisville, Ky.

Although MK has its headquarters in Northbrook, Ill., near Chicago, it invests nationwide. “Of the seven deals we’ve done, one is in Boston, one in Yonkers [N.Y.], one in Atlanta, one in Louisville, one in Seattle, one in Salt Lake City and one in the [San Francisco] Bay Area,” Maxwell says. “The nice thing about O’Hare (Airport) is that you can day-trip to just about any of these places, including the Bay Area.”