SNS in the News - December 21, 2001

Ignition turns the key for tech start-ups

Steve Lohr
21 December 2001
The Hamilton Spectator

The Ignition Corp., a venture capital firm headed by former executives of Microsoft and McCaw, announced yesterday that it has raised $285 million to back technology start-ups. The fund reflects not only a sign of life in the battered venture-capital market, but also how much that market has changed in the last year or so.

Ignition's appeal to investors is that it offers a patient, handcrafted approach to venture capital. The fund is modest in size by design, and the companies in which Ignition puts money will be coached by the partners and encouraged to become profitable instead of racing to pursue growth. This is a reversal from the disregard for profits and the get-big-fast mentality of the dot-com years.

The Ignition strategy is to put money in companies at an early stage, typically investing from a few hundred thousand dollars to a few million, and then nurture them along, said Brad Silverberg, the managing partner who is a former senior executive of Microsoft.

Ignition, begun in 2000, has made seven announced investments with its first $140 million, mostly in wireless communications and niche software firms. In the new fund, Ignition plans to build on that model, looking for start-ups in communications and software, used in corporations and the technology plumbing of the Internet.

"We will only invest in those areas where we have deep expertise," Silverberg said. "There are other fields with enormous promise like biotechnology or health sciences. But we don't know those areas. In fact, we don't even know what we don't know."

Such stick-to-your-knitting humility apparently appeals to investors these days. And the investors in the new Ignition fund are the old-line traditionalists of venture investing -- university endowments, foundations and large pension funds, which place small portions of their portfolios in high-risk investments. The investors in the new fund include Harvard University, Princeton University, Stanford University, the Sloan Foundation and GM Pensions.

"We like their model," said Peter Dolan, director of private equity at the Harvard Management Co., which manages the Harvard endowment. "They are very focused and have a back-to-basics attitude."

The eight founding partners of Ignition, based in Bellevue, Wash., also ran businesses at Microsoft and McCaw, including Steve Hooper, former chief executive of McCaw Cellular Communications, which was purchased by AT&T in 1994.

The emphasis in venture capital firms on partners with operating expertise as opposed to investment banking, consulting or other backgrounds is increasing.

"The Ignition people are all operating guys, and in that I think they are on the leading edge of what is a long-term trend in the venture-capital business," said Mark R. Anderson, publisher of The Strategic News Service, a newsletter that focuses on computing and communications. "It's not just the Rolodex, but also the first-hand experience that counts."

Jeff Brown, president of Radio Frame Networks, a company financed by Ignition, observed that the concern also emphasized "old-time core values" of business like patience and profitability. Both qualities will surely prove valuable for technology companies in the current environment, since cashing in quickly is unlikely.

"I don't see an initial public offering market for technology anytime in the near future," Brown said.