Wit Adds Private Equity Fund to I-Banking Slate

Continuing the pursuit of its avowed goal of becoming a full-service online investment bank, Wit Capital Corp. closed its first private equity fund last week, raising $39.45 million from individual investors within its retail network.

The fund, Arista Capital Partners LP, received an average commitment of $500,000 from the limited partners, said Ron Drake, a principal at Wit.

The firm intends to invest in as many as 20 mid- to late-stage venture deals, committing an average of $2 million per deal. Drake said co-investment will drive the strategy as the firm makes its initial foray into principal investing.

Management of the fund will be handled via an alliance the firm has struck with Dawntreader LP, the early-stage venture firm launched by Wit’s chairman and co-chief executive Robert Lessin. Jointly controlled by Wit Capital and Dawntreader, Wit/Dawntreader Advisors LLC will operate as Arista’s investment adviser. In addition, Arista has a board of advisers that includes representatives from the financial and corporate worlds such as Ed Mathias, Frank Bonsal and Tom Neustaetter. Drake said the board will also include the fund’s largest investors, Lessin and co-CEO Ron Readmond.

“We will only co-invest with strong partners in what we view as baby steps progress,” Drake said. “We want to make 15 to 20 smart investments.”

Drake further indicated that Wit intends to use this new principal investment capacity as a means to better serve corporate clients that have retained the firm as an online adviser.

“One compelling side of that business is strategic advisory for corporations and media concerns, helping them figure out what direction they should go in as they address the Internet,” Drake said. “That keeps [our information] fresh, as these guys are going to be significant players on the Web.”

Following that tack, Arista will not invest solely in Internet pure plays, rather the firm will look to bring Internet-related plays to its high-net-worth individual LPs. In fact, the firm will use the fund to invest in companies that retain it for private placements as well.

“This gives us the ability to put skin in the game and show issuers that we believe in them,” he said. “And we can go to capital sources and show that we are investing in the company.”

Not every deal the fund invests in will stem from the private placement effort, but Drake said that will be a focus. The fund has deals in the pipeline already and expects to ink the first close within the next six weeks. Drake said conservatively, Arista will likely be fully invested in approximately two years.

One private equity professional finds Wit’s approach interesting, but questions the merging of the placement and principal investing roles.

“An investment banker should not lead or price when their own investment is in the deal,” the banker said. “How that is presented puts them in a funny fiduciary situation.”