Buckhead Investments

Atlanta-based Buckhead Investment Partners LLC. is raising an up to $30 million venture fund, hoping to capitalize on tumbling corporate valuations. BIP Opportunities Fund will invest in early-stage firms in the technology, specialty finance, clean tech, media, franchising and health-care sectors. BIP plans to do 18 to 25 deals, investing $500,000 to $4 million in each, Partner Mark Buffington said.

The new pool of money comes at a time when VC bucks are hard to find. The number of U.S. venture firms raising new funds in the third quarter tumbled about 29 percent compared with the same period a year ago, according to the National Venture Capital Association and Thomson Reuters. 

Atlanta’s venture firms have had better fundraising luck in recent months. In the fall, TechOperators LLC launched a $30 million fund, raised from the partners’ money and wealthy individuals. Arcapita Ventures, meanwhile, plans to raise a $400 million fund this year by tapping Bahrain-based parent Arcapita Bank and a group of Middle East institutional investors, corporations and individuals.

The BIP fund "sends a nice signal to the business community that there is still funding available for great deals," said Mike Blake, managing director at Adams Capital, an Atlanta-based valuation firm. The fund is chasing "the black hole of venture capital financing," Blake said, referring to deals between $1 million and $5 million. VCs typically prefer doing at least $5 million deals "because it costs just as much to do the due diligence and manage a deal for a million-dollar [investment]," Blake said, "than it does for $10 million." Atlanta’s angel investors, meanwhile, find it a stretch to invest more than $500,000 in individual deals, he said. The BIP fund will help bridge the early-stage funding gap, said Jeffrey Leavitt, partner at DLA Piper US LLP. "We’ve got lots and lots of really great new companies that are starting, and very limited sources of early-stage capital," Leavitt said. "A lot of the funds that are in Atlanta are focused usually more on later-stage or out-of-town companies."

Opportunistic buys

The BIP fund, expected to close in the first quarter, will focus on industries its partners are familiar with — markets with large demand potential, and those with challenges in need of solutions. About 85 percent to 90 percent of BIP’s fund will be invested in first- and second-stage growth companies, mostly in Atlanta. First-stage companies have little revenue and are about 12 months to 24 months from profitability, while second-stage growth firms are more established and are either profitable or have broken even. "We’ll look at anything up to $15 million in revenues, including pre-revenue companies," Buffington said. BIP’s projected deal flow is optimistic, according to Leavitt, who said VCs need to reserve more dollars to get companies over the finish line in a recession. "They’re probably going to have to do fewer than 18 deals because it takes more money these days to get companies all the way to exit," Leavitt said. "The average time to exit for an M[[[[[&]]]]]A deal is now up to 6.8 years, and for IPOs it’s almost impossible." VCs make their money when their portfolio companies are sold or go public. The BIP fund hopes to buy stakes in companies at more attractive valuations. "Valuations for the type of businesses we are looking at are down anywhere from 25 percent to 50 percent, based upon the industry," BIP partner Shawn Welch said. While the former investment banker isn’t calling a market-bottom yet, Welch said it isn’t far off — perhaps six to 12 months.

More than money

BIP will offer portfolio companies operational expertise, access to management talent and potential business partners and customers. BIP will take board seats in its portfolio companies and step in to help run day-to-day operations, if needed. "We’re looking for situations where we know we’re more than money," Buffington said.

BIP partners, who have a combined 40-plus years of investment banking, private equity and operational expertise, have collectively invested $200 million of equity. The team, which includes Scott Pressly, has funded several companies, including Vendormate Inc., Ingenious Med, Inc., Qoil Technologies, and 2080 Media, Inc. The up to $30 million fund is being raised mostly from wealthy individuals, with about 20 percent financed by BIP’s clients. "Most of our clients have built their own wealth through their business," Buffington said. "So they understand how to grow a business, how to manage it." Despite having a roster of high-net-worth clients, raising the fund has been a tough sell to investors bruised by stock market whiplash. "Before October, and what happened in the public markets, [raising money] was a lot easier," Buffington said. "Now, the conversations are a lot longer and people are really asking a lot of interesting questions." Raising a first — or virgin — fund is tough in any economy, Adams Capital’s Blake said. The group must compete for limited dollars with venture funds that have proven track records. "The virgin-fund guys," Blake said, "are generally at the end of the line."

By the numbers

Up to $30 million — Atlanta-based Buckhead Investment Partners fund

$500,000 to $4 million — Individual deal size

18 to 25 — Estimated number of deals
Up to $15 million — Annual revenue of target companies

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