Franchise firm looks for brains. Tripod founder searches for smart ideas in untapped markets
By Greg Farrell
If Tip O’Neill coined the phrase “All politics is local,” Bo Peabody has a rejoinder for the new economy: All venture capital investing is local, too. And to Peabody, that insight translates into a business opportunity.
Peabody claims that in 1999, 77% of all venture funding went into areas occupied by only 17% of the USA’s population. By and large, companies clustered in areas like Silicon Valley, Silicon Alley and the college campuses around Boston got the bulk of the funding because they were closest to the big VC firms.
Peabody, an Internet boy wonder who started Tripod as a student at Williams College and sold it to Lycos for $58 million, is launching a company to fill what he sees as an open niche. The company, Village Ventures, is designed to operate on a franchise basis. Think of it as McVenture Capital.
The idea makes sense to Paul Schaye, managing director of Chestnut Hill Partners, an investment advisory firm in New York.
“It’s brain-banking,” he says. “They’re trying to go where not everybody is and be the big fish in a little pond.”
“We want to redefine the demographics of business in the US.,” says Peabody, 29. “It’s fulfilling the promise of the Internet.” Peabody and Matt Harris, a fellow Williams alumnus, have raised $80 million from a pool of investors including Bain Capital, Highland Capital and Sandler Capital Management. The game plan is to launch a family of small-bore, early-stage venture funds of approximately $10 million each in markets like Portland, Maine, that have intellectual capital but little access to big VC players.
The model is Berkshires Capital Investors, a $5 million fund backed by Williams College, located in rural Massachusetts, and managed until March by Harris.
“We started doing Internet deals in 1997,” Harris says. “We had no competition, and a value proposition to entrepreneurs and employees that made sense. Half a million dollars up here can last 18 months.”
While venture capitalists are always on the prowl for the next great investment, the field has exploded in recent years. The National Venture Capital Association says the top 100 VC firms raised $12.4 billion in the first quarter of 2000, almost double a year earlier.
But the massive amounts of money flowing into venture funds have made it impractical for the biggest firms to look at every proposal that comes their way.
Competition in Silicon Valley for the best new ideas remains fierce, but Peabody’s betting that the second tier markets he’s targeting will be noncompetitive.
At least that was his experience with Tripod. He had to scrounge for his first institutional investors.
When he and Harris saw the demand in the marketplace for Berkshires Capital, they decided to place a larger bet on the concept.
“There’s not room for five funds in Portland, but there’s certainly room for one, and maybe two,” Peabody says. “We think that because of supply-and-demand economics, compared to Silicon valley or Boston, we’ll have better operating margins than CMGI. Venture capital investing is a very local hands-on business. It’s not writing a check and showing up for meetings every quarter.”