Chrysalis Ventures today will announce that it has closed its fourth fund with $163 million in capital commitments, from limited partners like Morgan Stanley and Credit Suisse. So we’ve got five questions for David Jones, Chrysalis’ chairman and managing director:
1. We’ve seen venture capital firms expanding into new regions like Southern California and China. Has any of that geographic boom hit the Ohio Valley?
Jones: It really has not. I’d say that there was some boom in the Internet bubble period, when some of the coastal firms were prospecting and a few new funds came into being. But the story we’ve seen since then has been more one of retrenchment. That’s where Chrysalis Ventures sees opportunities because there are a lot of great companies here in the Midwest and South.
2. But why are coastal firms backing away from your regions, but opening offices in LA and Beijing?
Jones: The fact is that early- and expansion-stage venture capital is a face-to-face business, and travel logistics to this part of the country has become more difficult post-9/11. There also is power in clustering for different industry sectors. But, again, that’s why we see so much opportunity not just here in the Midwest, but also in places like Texas and Florida. We’re close and can get there faster and more often.
3. Does that overlooking of the Ohio Valley and Midwest also extend to fundraising in the LP community?
Jones: No, I don’t think it applies in fundraising. I think it’s more about how the VC goes about serving the entrepreneur. Big institutional pools of capital are looking for opportunities all over the U.S. and all over the world. You may get a meeting or two because you’re physically close to an LP, but they’re looking at returns, sourcing strategies and differentiation more than anything else.
4. You raised $143 million for your second fund in 2001, and are closing this one with $163 million. Why the decision not to grow too much?
Jones: We actually targeted $150 million because we feel that’s the right size for the stage and kind of industries Chrysalis invests in. We like to be the lead in a company’s first institutional round. We’re looking at companies that are going to build a stream of cash-flow around technology – but not as creators of IP so much as builders of businesses around IP. These are companies that can become self-sustaining with investment of around $10 million to $20 million in equity.
Since 2001, we’ve grown our group of investment professionals. We now have three managing directors and twelve investment pros in total, compared to six overall when we started the 2001 fund. We’ve also expanded to cover more territory, and have also evolved in terms of sector. In healthcare, for example, we’re now very focused on finding opportunities that benefit from a shift toward consumer-directed health benefit designs.
5. A lot of venture capitalists try to avoid public boards, both because of time commitments and potential liabilities related to such positions. Why serve on the board of Humana as non-executive chairman?
Jones: There are several reasons to serve on the board of Humana, which is a $25 billion health benefits company. First, it’s a great example of how a successful, entrepreneurial company can be built in this region. My dad is one of two founders, so there are both financial ownership and pride and relationship issues that make me want to be engaged.
This board also provides me with a useful perspective on trends in the healthcare industry. Humana is a huge buyer of clinical and administrative services including IT. As with serving on private company boards, the key is to always be cognizant that first and foremost you owe a duty of loyalty to the company.