Redleaf Group Grabs $150M To Fund Incubation Strategy

Seeking to join the ranks of operating companies that capitalize on the current tide of venture capital enthusiasm, Redleaf Group LLC of Saratoga, Calif., has secured commitments of as much as $150 million to launch its variation of an incubator for seed stage business-to-business e-commerce companies.

“After reflecting on early-stage Internet entrepreneurs…we decided to switch to a model that helps companies build quickly,” said John Kohler, founder and co-chief executive of Redleaf.

Safeguard Scientifics led the investment, taking a $60 million chunk, and Novell Ventures committed $20 million. Other participants included The John D. and Catherine T. MacArthur Foundation, affiliates of The Hillman Co., Residentie Investments, VentureBank@PNC, Mellon Ventures Inc., Wilson Sonsini Goodrich & Rosati and private investors, including Bill Melton, chairman of CyberCash and Milan Mandaric. The transaction is expected to close in the next few weeks.

“We stepped back and looked at Redleaf, which is fashioned after CMGI and Internet Capital Group,” said Blake Modersitzki, director of Novell Ventures. “And they are in the type of companies we look at. It’s a little different model as a hybrid firm that is a unique opportunity to broaden our reach into new e-business and e-commerce companies.”

Redleaf intends to provide companies that it incubates with a bevy of resources that will assist the company’s efforts to develop into strong businesses. Kohler said the firm will make seed investments as well as provide long term strategic support.

“One thing that changes with the operating company structure is you are in for the long term,” he said. “We will participate on the board prior to, and through an IPO and beyond as long-term equity holders.”

Based in Saratoga, Redleaf will have satellite offices in Pittsburgh, Reston, Va., Los Angeles and Seattle. Kohler said the firm plans to add additional offices in Boston, New York, Atlanta and London.

The management team-Kohler, co-CEO Lloyd Mahaffey, and directors Nancy Calderon, George Hoyem and Glenn Osaka-has funded seven companies, including AdRelevance, which was sold to Media Metrix, Moai Technologies, NetGravity, which went public in 1998, Bitlocker, GoCampus, MediaFlex, Startups.com and ecFood.com.