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Open Prairie fund investing in 3 firms By DON DODSON ©2000 The News-Gazette CHAMPAIGN – Open Prairie Ventures says it's raised $40 million to invest in businesses specializing in early-stage new technologies. So far it's put a total of $2.4 million into three companies. The Champaign-based venture capital fund – managed by Dennis Spice, Andrew Jones and James M. Schultz – has elected to invest in: – EpiWorks, an Urbana-based company that makes semiconductor materials for wireless and fiber-optic communications. – InfoBlox, a Chicago-based company that has developed a "server appliance" to improve Internet traffic. – InterNest, a Chicago-based e-commerce company that links new home buyers to builders over the Internet. "We're working on deals for three more, but we can't talk a lot right now," Spice said. "They're Midwest-based, not in Champaign-Urbana." Spice said he expects at least two of the deals to close by the end of July. Recounting the firm's development, Spice said Open Prairie hoped to have $20 million before it made its first investment. By last November, it had raised $10 million of that, and when the fund closed in January, it had more than $40 million available, he said. The huge increase in available funds came when Open Prairie qualified as a Small Business Investment Company under the U.S. Small Business Administration's participating securities program. Under that program, the federal government puts in $2 for every $1 that Open Prairie raises, Spice said. "What makes it unique is it's all at-risk capital," Spice said. Mike Stamler, a spokesman for the SBA in Washington, D.C., explained how Small Business Investment Companies work. "These are normally privately owned, privately operated venture capital companies licensed and regulated by SBA," he said. "They use privately raised capital and money raised through SBA guarantees to create an investment pool to finance investments in small businesses." Stamler said the companies typically raise money from investors, then apply for licensing by the SBA. If licensed, the companies become eligible for matching funds from the SBA. Small Business Investment Companies fall under two different SBA programs: the debenture program and the participating securities program, Stamler said. "For participating securities companies, SBA makes interest payments for them, and when the investments they make pay off, they repay SBA the interest with interest, and they give SBA a profit participation in the profits they've made," he said. Open Prairie's first investment was putting $1.5 million into EpiWorks in February, Spice said. Two weeks later, it helped the company get another $4.2 million from "follow-on" investors. InfoBlox got its $400,000 lead investment from Open Prairie in April. Four other venture funds from Chicago and Indianapolis followed suit, giving the fledgling company a total of $2 million, Spice said. In the latest move, completed June 30, Open Prairie invested $500,000 in InterNest. Two other venture funds contributed like amounts, for a total of $1.5 million. Spice said most of the deals result from phone calls or contacts from attorneys and accountants, often in the Chicago area. "We're hoping on average for a 40 percent return on investment," he said. InfoBlox founder Stuart Bailey said Open Prairie Ventures was his company's first source of venture capital. "They really allowed the company to start commercial operations," he said. Bailey, 29, a former Champaign resident who now lives in Evanston, said he contacted Open Prairie in August 1999. "Open Prairie was one of the first to look at us, and the only firm we found to have the technical expertise to understand the technical nature of our business," said Bailey, InfoBlox's executive vice president and chief technology officer. InfoBlox plans to bring its first product – a "server appliance" that delivers core Internet services for large networks and Internet service providers – to market in mid-August. The product focuses on domain name service – easing the chore of translating user-friendly names like "www.yahoo.com" into numeric addresses that computers need to communicate with each other. Before forming Open Prairie Ventures, the three founders had various backgrounds in business. Spice was executive director of the State Universities Retirement System from 1991 to 1995. He was pressured to resign by Gov. Jim Edgar state lawmakers following disclosures about his pay and perks. Jones held positions with several high-tech firms in Champaign, including Labthermics Technologies, Data View and Carroll Touch Technology. Schultz, a former chairman of the Illinois State Chamber of Commerce, is an Effingham businessman and attorney with interests in banking and real estate development. Open Prairie, based at 115 N. Neil St., C, recently expanded its staff. Dennis Beard has joined as chief financial officer, and Alex Tang has been hired as technical analyst. |