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Conversations with Investors – Chapter Three

Conversations with Investors – Chapter Three

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Novak Biddle Venture Partners was established in 1997 to provide equity financing and assistance to the management of young, information technology companies. NBVP provides equity financing and assistance to the management of early-stage, information technology companies principally located in the Mid-Atlantic region. It is backed by a number of the country’s most prestigious limited partners, and has over $580 million under management.
Novak Biddle Venture Partners was established in 1997 to provide equity financing and assistance to the management of young, information technology companies. NBVP provides equity financing and assistance to the management of early-stage, information technology companies principally located in the Mid-Atlantic region. It is backed by a number of the country’s most prestigious limited partners, and has over $580 million under management.

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Published by: Dr. Earl R. Smith II on Jun 25, 2010
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Conversations with Investors  Chapter Three
Dr. Earl R. Smith II
 Managing Partner,The Federal Circle DrSmith@Dr-Smith.com www.Dr-Smith.com
 
Jack Biddle, Co-Founder and General partner,Novak Biddle Venture Partners In this series of articles, I describe interviews with investors in the Washington DC area.They range from angel investors to managing partners in well established funds. I haveknown most of them for many years. That allowed us to cut through the usual PR crapand get to the heart of how they review investment opportunities. When I told themthat my objective was to provide a series of articles which would help companiesseeking funding, each was very willing to help  it is, after all, in their interest toimprove the process. I owe each of them a debt of thanks for agreeing to sit down and open the kimono so to speak.The first article in the series Conversations with Investors Chapter One focused on Jim Hunt of The MITA Group. Jim is afairly typical angel investor  a successful entrepreneur who hasturned to investing on early-stage companies. The second interview Conversations with Investors  Chapter Two was with a closeassociate of Jims, JS Gamble. My next interview was with JackBiddle. Jack is co-founder of Novak Biddle Partners and one of themajor players in the private equity game in the Washington DC area.
Interview with a Venture Capitalist
 Prior to co-founding NBVP in 1996, Jack was President and CEO of InterCAP, a venture-backed computer software company. InterCAP was number 18 on the Fast 50
list of the mid-Atlantics fastest growing companies and was acquired by Intergraph in 1995.From 1987 to 1990, Jack rose from Senior Associate to Partner at Vanguard Atlantic,Ltd., a merchant banking group focused on M&A advisory work and control investmentsin software companies. At VAL, he served as turnaround CEO of a system softwarecompany and then as COO of an application software company. Earlier in his career hewas an IT Industry Generalist, focused on Telecommunications Technology, at theGartner Group, where he was also Executive Assistant to the CEO, Gideon Gartner. Hebegan his career in 1983 in Austin, Texas at Business Development Partners, an earlystage venture capital partnership. Jack holds a BA in Economics from the University of  Virginia.Jack currently serves on the Boards of WealthEngine, Vision Chain (Chairman),CorasWorks (Chairman), Triumfant, eMinor, ObjectVideo, Starfish Retention Solutionsand Appian Corporation. Past Board or Observer seats include SafeView, Inc. (acquired
 
by L3 Communications), Matrics (acquired by Symbol Technologies), Giga InformationGroup (Nasdaq: GIGX) (Lead Director), acquired by Forrester),Telogy Networks, (acquired by Texas Instruments), Tantivy (acquiredby Interdigital), AnswerLogic (acquired by Primus KnowledgeSystems), and Blackboard, Inc. (Nasdaq: BBBB). He is a Director of the Computer & Communications Industry Association, a member of Business Executives for National Security (BENS), and advises theU.S. Department of Defense on technology and innovation.He is on the Investment Committee of the University of Marylands New Markets GrowthFund, an SBA leveraged fund targeting private equity investments in disadvantagedareas. Jack is a board member of TiE-DC. He is a frequent speaker on entrepreneurshipfor the U.S. Department of Commerce, and has made presentations for them in Russia,China and Japan. Jack is a Director and former Vice Chairman of the Board of theBaltimore Symphony Orchestra. He is a Trustee serving as Treasurer and FinanceCommittee Chair of the Sibley Memorial Hospital Foundation and also serves on theHospitals Investment Committee.Novak Biddle Venture Partners was established in 1997 to provide equity financing andassistance to the management of young, information technology companies. NBVPprovides equity financing and assistance to the management of early-stage, informationtechnology companies principally located in the Mid-Atlantic region. It is backed by anumber of the countrys most prestigious limited partners, and has over $580 millionunder management. They seek investment opportunities where the combination of ideas, dollars, experience, and relationships can create long-term, sustainable value.While they believe that the vast majority of business plans they receive have themakings of viable companies, they are looking for additional key features in thebusinesses in which they invest.
The Initial Screen
 We met at the Novak Biddle offices in Bethesda. That was the first of many differencesfrom the prior interviews. Jim and Jay run what are for all intents and purposes virtualoperations. Like most angel investors, they keep overhead to a minimum. But NovakBiddle is a different kind of operation all together. They maintain a core staff of over adozen professionals. NBVP prefers to be the first institutional capital brought into abusiness. Their target investment is from $100,000 to $10,000,000. While they focusmainly on information technology companies in the very early stage through first round,they will consider financing later stage opportunities and spin-outs where they can addsignificant value. They also will syndicate larger or later stage rounds through theirlimited partners and other firms in the venture community. Overhead is unavoidableconsequence of their business model. With only two of us present, the Novak Biddlemain conference room seemed positively palatial.
 
I opened the interview with my usual question. What percentage of the deals that come over the transom do you discard out of hand? Ninety percent of the deals which come in are discarded out of hand. Those of youwho have been following this series will recall that the two numbers for Jim and JSwere 70% and 75% respectively. Why is the number so high, I asked. Jack respondedwith seven reasons:
1.
 
The company is outside of our geographical area of focus2.
 
They are at the wrong stage3.
 
They have not done any significant peer research4.
 
We do not have expertise in their area5.
 
Their business plan does not support a high-multiple exit 6.
 
The people on the team are not credible7.
 
They are not working on hard problems 
The need for the first screen was particularly troubling to Jack. NBVPs website makestheir geographical focus very clear. If you visit our website, it does not take long to seethat we have such a focus. People who present deals that do not meet that focus havenot done their homework. This was a response similar to those put forth in the first two interviews. Investors provide a lot of public information on their interests. Teamswhich either ignore that information or, worse, never bother to understand it aregenerally dismissed out of hand.The second screen is somewhat similar. The statement at the top of the NBVPs homepage is very precise. They provide equity financing and assistance to the management of early-stage, information technology companies principally located in the Mid-Atlanticregion. Its mission is to help build successful, long-term, sustainable companies. Thelimiting word here is early-stage. Jack paused and then said, we often do invest in prerevenue or seed stage deals. Blackboard was two guys with an idea and Lifeminderswas one guy with an idea when we met. Probably half our portfolio was pre revenuewhen we invested. Its the ones that stay pre-revenue that we have a problem with.Founders who present start-up or pre-revenue companies will have a harder timegetting Jack to pay attention. He has invested in pre-revenue companies in the past but, given the current state of the market, it is much harder now. Like many venturecapitalists, it is revenue that really gets his attention.Jacks third screen relates to the institutional knowledge of the Novak Biddle team. Overtheir years of investment experience, they have built up a deep understanding of thespaces which interest them. Teams which come in without a similar deep understandingare very likely to be turned away. We know our spaces very well. Its going to be ashort discussion if it becomes clear that you dont know what you are talking about.This is an important lesson for founders. Most investors have accumulated a lot of information about the spaces that interest them. They spend a lot of time and effort keeping current. They expect that your knowledge will meet or exceed theirs. The best 

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