Venture Capital – Doughty Hanson swoops for Intel pair

Doughty Hanson has scored something of a coup by signing three high-powered technology investors to head the team for its projected European technology investment fund. Nigel Grierson and George Powlick are former European heads of Intel Capital which, with a portfolio valued at more than $8 billion (euros 8.1 billion), ranks as one of the largest technology investors in the world. Steve Marquardt makes his move to Doughty Hanson after more than 20 years at Merrill Lynch where, as a former London head of the bank’s global technology group, he was last year instrumental in setting up a high-tech stocks unit.

Doughty Hanson was unwilling to comment directly on its fund-raising plans other than to state: “The new European technology effort will bring together specialised technology professionals and Europe’s largest single source of independent dedicated funding for technology investments. Our objective is to become the leader in Europe’s dynamic technology market”.

Sources familiar with Doughty Hanson say that a $500 million (euros 492.5 million) target has been set for the vehicle. At that level, the projected fund would be considerably smaller than The Carlyle Group’s European technology fund, which is in the process of closing on some $650 million, more than double its original target (story, page 16). But, given the demand which Carlyle apparently encountered – the fund reportedly attracted expressions of interest totalling some $3 billion – then it seems fair to assume that Doughty Hanson could amass considerably more than $500 million for its technology offering if it so desired.

People aware of Doughty Hanson’s plans report that the European technology fund will invest in companies at all stages of development rather than purely in early-stage opportunities.

Although the firm is identified most closely with buyouts, Doughty Hanson is not a stranger to expansion-stage technology investments. The group was an early backer of Powderject Pharmaceuticals, taking a stake in the needle-less injection systems developer in 1995, two years prior to Powderject’s successful flotation. Another of Doughty Hanson’s forays into technology sectors, however, was less successful. The group was also an early backer of Ionica, a UK radio-based telephone company with ambitions to rival BT. Doughty Hanson funded the start-up to the tune of GBP50 million ($80 million in 1996/7, retaining its entire holding when Ionica raised nearly GBP150 million via an IPO in the summer of 1997. Ionica soon ran into trouble when its roll-out was postponed because of delays in the delivery of its software programme. By January 1998 Ionica, which had previously reached a peak of GBP710 million ($1.13 billion), was valued at just GBP40 million; by the time of the group’s final collapse later in the same year, Doughty Hanson was estimated to have sustained losses of some GBP58 million.

Given the avidity with which institutions are piling into European Internet/IT/telecoms funds and with the calibre and sector experience of Powlick, Grierson and Marquardt, informed observers do not anticipate that the spectre of Ionica – a big loss, but a rare one for Doughty Hanson – will cast much of a shadow over the new fund raising.

Nor does it appear that a clutch of departures at the beginning of this year is likely significantly to affect the firm going forward. Partner Kevin Comolli, who was reportedly involved in initial groundwork for the European technology offering, is said to have cited personal reasons’ for his departure from the firm. Huw Phillips and Marc Strobel, recent hires from CSFB, are also moving on. Market commentators have been quick to posit dissatisfaction with the Doughty Hanson remuneration structure as the principal cause for their departure, but it would have been more surprising had they not – speculation regarding the proportion of rewards that goes to founders Nigel Doughty and Richard Hanson is a favourite industry pastime.

Doughty Hanson’s decision to launch a dedicated technology fund marks a further step in its transformation from plain – though far from simple – buyout house to diversified alternative investment management group. Last year, the firm launched the $700 million Doughty Hanson Real Estate Fund, to be managed by a discrete team of real estate investment professionals. By adding further strings to its alternatives bow, Doughty Hanson is following in the footsteps of leading US players such as The Blackstone Group, The Carlyle Group and TH Lee Putnam.