Smart Strategy Drift

Beware of VC firms changing investment strategy. The bottom quartile is littered with shops that rushed into a new sector at its peak, only to be taken down by inexperience, inflated valuations and unrealistic exit expectations. See most firms that said in 2002: “Our future is in nanotech, and our LPs are very supportive of the move.”

But, every now and then, a move is timed correctly.

In the late 1990s, Technology Partners was puttering along as one of many VC firms that split its focus between IT and life sciences. Actually, it was closer to sputtering. The Palo Alto-based firm had the ignominy of a 1998-vintage fund with a negative IRR, which was tougher to achieve than future Doc not winning the Eastern Conference with three All-Stars (as you’ll see, it’s hard – but not impossible).

It nonetheless managed to raise $245 million for its seventh fund in 2000, and soon went to LPs with a brand new strategy. It would keep its split focus, but replace IT with cleantech. Again, this is back in 2000. For context, Al Gore’s presidential campaign was minimizing the environmental message, because of fears that it wouldn’t resonate.

It took a little while to get cleantech up and running, but eventually built an eclectic portfolio that included such companies as CoalTek (clean coal), Tesla Motors (electric cars) and Imperium Renewables (biodiesel production, in registration for an IPO). The fund’s life sciences portfolio also had some hits, including IPOs for Thermage and CryoGen.

The result is a positive IRR for the 2000-vintage fund, which is as rare as a negative 1998 fund. The positive isn’t huge – 3.9% through year-end 2006, according to CalPERS – but is nonetheless impressive.

Anyway, Technology Partners today is announcing that it has closed its eighth fund with $300 million. No changes this time around, except that genera partner Ted Ardell is transitioning into a venture partner role.