One of the first rules a basic chemistry student learns is that in order for a chemical process to produce a desired result, the concentrations of the reactants must be sufficient to sustain the reaction. If one of the ingredients is too diluted, the reaction may never take place, or could wander off toward some undesirable outcome.
And so it is with Internet start-ups, especially in areas where the technical talent and support structure are watered down over a wide geographic area, or scattered among workers and institutions in an area not known for technology.
Back on Aug. 31, VC Watch focused on incubator eCompanies which is attempting to distill the talent in Southern California’s massively diluted tech pool into the critical mass needed for success.
Of course, every organic chemist knows, the addition of a catalyst to the mixture can accelerate the reaction and point it toward the desired product. That’s the notion over on the Right Coast where a trio of Beltway bandits think their nascent incubator VenCatalyst can create a healthy growth environment for start-ups amidst the bureaucratic murk and political smog that hangs over Washington D.C.
VenCatalyst — which claims to be the first incubator in the D.C. area — was launched just two weeks ago and still seems to be in its own incubation period, still seeking a physical location (with downtown D.C. targeted) and funding still in the closing stages.
“We’re not really a VC, so we really aren’t raising a ‘fund’,” said Managing Director Richard Powell, former Chief Knowledge Officer for Burson-Marsteller, who started the fund with two other managing directors, David Bohigian, a former director of and equity partner in D.C. VC Jefferson Partners, LLC.; and Andrew Stern, former Vice President of AppNet, Inc., and the founder and former President of Logex International. Powell said that VenCatalyst might raise a fund in the future, “but we’re not discussing or planning for a fund right now.”
Powell said the fund’s charter would be to focus on Internet, wireless, information security and technology commercialization ventures in the Mid-Atlantic region roughly from New York to Virginia. Powell would not talk about the total size of the firm’s capitalization but said the financing that is closing would allow it to invest in six companies over the next 18 months, acquiring approximately 30% interest for $50,000 to $300,000 investments.
Along with the seed money will come the services and infrastructure for which pre-natal VC incubators are known: initial management, recruiting of qualified senior management shared office space, administrative support, business plan generation, financial planning, legal services, management recruitment, marketing and strategic planning, and partnership development. To this end, VenCatalyst has formed strategic relationships with consultants and bean counters Pricewaterhouse Coopers, headhunters Heidrick & Struggles, Bank of America and Citibank; Adrenaline Group for Web design and two law firms, Cooley Godward on the West Coast and Wiley, Rein & Fielding in D.C.
Not everybody is a fan of incubators including Daniel H. Rimer, Managing Director of Hambrecht & Quist’s Internet and Media Group, who feels that incubated companies tend to have lower ROIs and often take longer to get to market than traditionally funded start-ups. But it’s not clear whether that performance is due to excess tinkering as Rimer thinks or whether it’s simply because incubators tend to spring up in areas where it’s simply harder to start a new technology company.
The coming months will determine who’s right as VenCatalyst goes for the sort of exothermic reaction that can get things boiling.
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