The venture capital business is rooted in personal relationships. Not only do many firms refuse to meet with founders who aren’t referred to them by someone in their network, but their strong preference is to back entrepreneurs who they’ve funded before.
That’s a good thing for the Chevy Chase, Md.-based firm New Enterprise Associates, which looks poised to reap one of the bigger venture returns in history, thanks to one longstanding relationship. How so? According to the blog AllThingsD, Google may be hours away from sealing a $5.3 billion offer to acquire the two-year-old, Chicago-based online daily deals business Groupon Inc.
Presuming investors own up to one-third of Groupon, the acquisition — Google’s biggest if it happens — would likely transform $171 million invested in the company into about $2 billion. While several firms would benefit wildly, including Accel Partners, Battery Ventures, and Digital Sky Technologies, a big chunk of that windfall — possibly the biggest — could land at New Enterprise Associates, which has participated in three of Groupon’s four rounds of funding. In fact, NEA was its first institutional backer, thanks to strong ties to Groupon cofounder Eric Lefkofsky, one of Chicago’s best-known entrepreneurs and investors.
Ten years ago, Lefkofsky founded the procurement startup Inner Workings, which went public in 2006, and it raised one $50 million round from New Enterprise Associates. When next, Lefkofsky and his longtime investment partner (and former University of Michigan classmate) Brad Keywell started Echo Global Logistics, a logistics management company that went public last year, NEA funded them again, giving the team $20 million. NEA also is an investor in MediaBank, a media-buying platform that Lefkofsky and Keywell are involved in and that has raised $50 million thus far, including from Steamboat Ventures.
Earlier this year, I spoke with Lefkofsky and Keywell about Lightbank, a personal fund the two opened last March with the goal of investing $10 million annually into early-stage companies, predominately in the Chicago area. As Lefkofsky told me then, Lightbank “just puts a formal name on what we’ve been doing for years now, putting predominately our own money into companies we start or people who have great ideas. We aren’t raising money or earning management fees.”
Still, to keep up its relationships, Lightbank has also allowed in some friends and family — and one institutional investor: NEA. “It’s kind of a small group that we know well and that we’ve historically let into the small deals we do.”
And the multibillion dollar ones, too, it seems.