Spinoff Doctors VC firm frees and rehabilitates small tech firms languishing inside large companies.
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One of the great dramas of the 1990s was watching largecompanies race to get larger through mergers and acquisitions. Thelure of hot new technologies and plentiful cash from the publicmarkets combined to create a tidal wave of M&A activity,especially among the new-technology giants like Cisco Systems,Intel, Microsoft and Network Associates Technology.
Many of those acquisitions, of course, did not work out asplanned. And now those acquisitive parent companies are findingthemselves burdened with underperforming divisions or productlines.
Fortunately, both the unhappy parent company and the languishingtechnology business inside it have a new champion. Garnett &Helfrich Capital, a new private equity firm, is activelyseeking out such companies. Unlike traditional VCs that preferfreshly minted companies and eager young entrepreneurs, TerryGarnett and David Helfrich, both 47, are looking for companies thatmay be "broken and orphaned" within a largerorganization.
By bringing in new management, new technology and, of course,new capital, Garnett & Helfrich hopes to revitalize theseorphans into full-fledged independent companies. This uniqueapproach to investing has garnered them a war chest of more than$250 million from investors, including Harvard and Stanforduniversities. "It's a venture buyout process," saysGarnett. "It's a buyout on the front end, but it'salso a venture process in terms of growing the business."
Helfrich says the firm may invest as much as $30 million intoeach deal. Nearly all the investment is used to "spin itout" from the parent company; ideally, very little is spent ondevelopment. "Unlike ventures where you have multiple roundsof financing, this is a single investment-we want to buy and runthe company," Helfrich says.
The highest value the firm brings to a "spinout" isfinding new management. Garnett is proud of the firm's hands-onapproach to working with portfolio companies. "The typical[buyout fund's] approach is to back an existing team," hesays. "But that may not be the case here. We're not afraidto step in and recruit that team." Both partners have deepoperational experience in technology companies.
The ideal target for Garnett & Helfrich is a technologycompany with revenue of between $20 million and $100 million. Thecompany should have a solid customer base and a reputation forgreat technology. They aren't looking to risk money on unprovenideas. "The hardest part of the startup process is gettingcustomers," says Garnett. "There's a lot of greattechnology, but some customers just don't buy from startups.We're looking to buy businesses that are doing $30 [million] or$50 million now and can grow to $100 million and beyond."
