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Lead Story – VC Firm a Financial Father Figure to Start-Ups

Young Ventures Look to A Local Source for

Money and Guidance

omasz Johannsen is a young man with an idea for a new product , a browser that pulls just snippets of information from a Web site rather than requiring the customer to download the entire page.

Since information is constantly changing , price quotes, stock prices, bids on auction sites or even surf reports , the user could get it instantly, saving time, and, because handheld devices charge by use, money as well.

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The problem is getting the product to market. Johannsen, as chief executive officer of San Diego-based Websnippets, has the tech know-how, but he and his partners don’t have the connections, business expertise or money to get the venture off the ground.

Worse, other people are studying the same idea. Johannsen fears his Snippet Tracker will be “lost in the noise” if a similar browser hits the market first.

Enter Hamilton Technology Ventures LP.

The firm, located in the new San Diego VenturePlex high-tech incubator facility since January, provides integrated financial capital for innovative start-ups and early-stage enterprises, with a focus on information technology, telecommunications and life science companies.

Hamilton Technology Ventures provides the much-needed start-up funding for young companies at the most critical stages of their development. Hamilton provides the financial support necessary to allow emerging companies to become successful by focusing on strategic priorities, including product development, launch and accelerated time-to-market.

– VC Firm Separates

Itself From The Pack

Paul Bouchard, managing partner of Hamilton Technology Ventures, describes what makes his venture capital firm different from similar companies.

“All of us actually come from the operating side of companies. We’ve all run companies from a few people to thousands,” Bouchard said.

“Being able to provide them the benefit of the learning curve all of us have been experiencing here in San Diego, starting businesses and building businesses , it’s part of the legacy that we can pass on, in addition to writing a check,” he said.

That’s not the only difference. Traditional venture capital funds have migrated up the food chain, investing in later-stage developments. The dot-com companies reap millions as more investors become interested in them. But that often leaves many small business start-ups out in the cold, Bouchard said.

These entrepreneurs often rely on personal savings and on loans from family and friends. As these new businesses become successful, finding additional equity capital becomes more difficult, since they’re still not large enough to attract traditional venture capitalists, Bouchard said.

– Angel Investors Often

Have A Share Of Control

This has forced start-ups to rely on angel investors, who usually take an equity stake in the enterprise and hold some control over the business in return for the investment.

Even though Southern California is home to thousands of technology companies , not to mention world-renowned universities and research institutions like UCLA, UCSD, the Salk Institute and the Scripps Research Institute California , early-stage venture capital is hard to come by when compared to other high-tech regions like Silicon Valley and Boston, Bouchard said.

Hamilton not only fills the capital-formation gap, it also works alongside them. Hamilton’s offices are in the San Diego VenturePlex, San Diego’s only privately held high-technology incubator, which opened Feb. 28.

Bouchard has entered a field where he finds little competition, because other venture capitalists are off doing bigger deals elsewhere. But what Hamilton does is risky, so being nearby to manage those investments will help reduce that risk, he said.

The companies, meanwhile, get the benefit of Hamilton’s wisdom. Websnippets’ product is coming to fruition under Hamilton’s guidance.

– Relinquishing Some

Of The Responsibility

“We’re good at writing software, and we understand wireless space and Internet space. But where we don’t have experience is running a big business , doing the accounting, negotiating real-estate deals,” Johannsen said.

“We want to go into a place and focus on writing the code and getting the product right, spending our energies there rather than being distracted.”

Johannsen also noted Hamilton Technology Ventures has a lot of connections and support in the community. Plus, he appreciates the “chemistry” between Hamilton and his company, which enables them to work more cohesively.

All this will help the Snippet Tracker get out on the market much faster. Johannsen hopes to launch his product by early summer.

Fellow beneficiary Thomas Malone also hopes to benefit from his connection with Hamilton Technology Ventures. Malone is quick to point out what makes Hamilton different.

“These guys are operations people, not (just) financial people,” said Malone, president of Cargo Technology, a San Diego-based company that makes packaging material. “They understand a non-dot-com type of manufacturing business. That understanding helps me a lot in getting value from them, more than just money. They also understand the challenges that are incumbent on me to make this company come together in terms of equipment, with contracts with vendors.”

– Providing Organization

In Addition To Money

Malone particularly noted the contributions of Kerry Dance, managing partner at Hamilton. As a former president with General Atomics, Dance was crucial in helping Malone think along organizational lines when he was looking into companies to manufacture his product.

“This is in contrast to other venture capital that is just looking to pour more fuel on the ‘dot-com’ fire with their money,” Malone said.

Malone’s company doesn’t have the glamour of a “dot-com.” But he hopes to prosper from the Internet in the same way Levi Strauss got rich off the Gold Rush by selling jeans to miners.

Like Levi Strauss before him, Malone wants to provide a valuable service to the pioneers , in his case making a new kind of packing material to accommodate the surge in shipping that the Internet is helping create, he said.

Malone’s product, called “AirLiner,” is designed to keep perishables fresh when shipped, but is less expensive and easier on the environment than the polystyrene foam used today.

Malone hopes “AirLiner” will capture 5 percent market share in its first year. By the fourth year, he hopes that use of the product will grow so much that shippers begin to wean themselves off polystyrene, he said.

Bouchard notes Hamilton Technology Ventures will soon be licensed to operate as a Small Business Investment Company, meaning the Small Business Administration will provide a $2 match for every $1 of private investment dollars Hamilton hands out.

This leverage of capital significantly increases rates of return to the private investor and is projected to help Hamilton Technology Ventures meet or exceed the typical rate of venture capital annual returns, which Bouchard said typically runs at about 35 percent.

Hamilton Technology Ventures, which opened in January of this year, expects to have $90 million in its fund by June, which it expects to have fully invested in 18 to 24 months, Bouchard said.

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