STILL SIFTING FOR NEXT, BEST PLAN

By Barbara Rose,
Tribune Staff Writer
Published: Sunday, December 3, 2000


Section: Business Page: 1

Venture capitalists Keith Bank and Byron Denenberg work in a pink granite building on a suburban office strip that bears not even a passing resemblance to Silicon Valley's storied Sandhill Road.

Their 4-year-old firm on Northbrook's Skokie Highway hasn't yet produced a big winner, like Yahoo or AOL, nor an Internet flame-out like Pets.com. The companies they've financed so far--Ethnicgrocer.com, Dynamic Trade, Orbit Commerce and others--may never become household names.

Yet the mere existence of KB Partners and a half-dozen similar venture boutiques reflects a significant change in the outlook for funding young, risky businesses around Chicago.

Even though these venture firms were formed amid the Internet investing boom, which has since gone bust, the VCs remain. They are still investing in anticipation of the next boom--a fact that could make traditionally risk-averse Chicago more likely to participate someday in the big wave of start-ups yet to come.

"A venture investor is a long-term investor," says Leonard Batterson of Chicago's Batterson Venture Partners. "If you start your fund this year and the stock market takes off in three years, you could do extremely well."

At KB Partners, an alcove the size of a small bedroom is lined with file drawers stuffed with business plans that flow in--good times or bad--at the rate of 150 a week, nearly 8,000 a year. About half are referrals from KB's 91 private investors and their networks of business associates. The others are unsolicited. KB's four managing directors sit down with about 250 entrepreneurs a year. They invest in fewer than 10.

What do they look for?

Their recent investment in an Evanston start-up called CoMoCo illustrates how investing is less a science than an art, less about doling out money than about managing relationships.

In January, two Northwestern University engineering professors looking for financing for an industrial robotics company floated their business plan to some 20 venture capitalists.

"They got zero response because they weren't in the Internet space," says CoMoCo CEO Paul Decker.

Their plan caught the eye of Denenberg, a 66-year-old with a background in high-tech sectors such as industrial controls.

"He saw some value in it," Decker says. "He introduced me to the company, and we redefined the plan."

Six months later, KB Partners committed $3 million to the start-up, whose test customers include General Motors and Ford. Last month, after sifting through some 600 names generated by a consulting firm, they settled on the term "cobotics" to describe the firm's patented technology, and on the name, CoMoCo, short for "collaborative motion technology." These terms stand for robots that work cooperatively with people in manufacturing.

Denenberg, who without embarrassment refers to KB's investments as "our children," believes CoMoCo will create a new class of industrial devices. "Cobotics will be like the Xerox name."

It's far too soon to forecast CoMoCo's future. For now, KB's partners will work with the founders and Decker to help CoMoCo build sufficient sales to attract the backing of other venture capitalists who invest in growing companies with sales.

The potential payoff: The company eventually will go public or be sold, and KB's investors will get stock or cash. Venture capitalists aim to return at least 10 times their investors' money within three to five years, though funds can run as long as 10 years. Inevitably, some companies fail, though a single big winner can make up for many failures.

For venture capitalists who invested heavily in e-commerce companies, the collapse of Internet-related stocks has set off a scramble. They're allowing some companies to fail while working to sustain the more promising ones. "

The challenge for the new firms in the business will be to show that they can perform reasonably well even during the downside of a cycle," Batterson says.

At KB, Bank says, "Would I like to find the next AOL and build a gazillion dollars? Sure. But we're in this to build good businesses." VENTURE CAPITALISTS KB's managing directors sit down with about 250 entrepreneurs a year. They invest in fewer than 10.

----------

Living with a tech meltdown

Companies press on with Internet ventures in a harsh new world.

The collapse of technology stocks signals the end of a boom that, for five years, drove the U.S. economy to new levels of productivity and prosperity. The meltdown is destroying many of the start-up companies the boom spawned, while dragging down the broader stock market and, in turn, the economy itself.

But the Internet hasn't gone away, and its influence continues to reverberate throughout the business world.

The information superhighway, as it once was called, has changed the way U.S. companies do business, and the effect, experts say, is permanent. While the world has become a hostile place for "dot-com" start-up companies, the Internet continues to alter assumptions about how all companies do business and strengthen their relationships with customers and suppliers.

"What the Internet has done is created an expectation that business will be done in a very timely and efficient fashion," says Tierney Remick, a managing director at executive search firm Korn/Ferry International.

Whether it's as a new way of promoting and selling products to consumers or as a conduit for a company to buy its own raw materials, or if it's being used by a sprawling multinational corporation or a corner boutique, the Internet has taught everyone to expect faster, cheaper, more personalized goods and services.

Today, in this section and on the front page, the Tribune provides a look at how four Chicago-area businesses are faring in the heat of the churning technology sector. It finds these four different enterprises still laboring, with varying degrees of success, to carry out their ambitious, technology-driven business plans.

© Copyright 2000, The Tribune Company.
Unauthorized reproduction prohibited.
The Tribune Company archives are stored on a SAVE (tm) newspaper library system from MediaStream, Inc., a Knight-Ridder, Inc. company.