Idealab Venture Fund Gets Off to a $350 Million Start

September 1999
1999 Los Angeles Business Journal
by Benjamin Mark Cole





Armed with $350 million in fresh cash and hunting for early stage Internet start-ups. Pasadena-based idealab Capital Partners has closed its second venture capital fund.

Pension funds, university endowments and institutional investors ponied up the money. Locally, funds came from Caltech and the Los Angeles Country Retirement Association. On the national scene, investors are MIT, Mellon Ventures, Goldman Sachs and J.P. Morgan.

So intense is investor interest that the new fund has become the biggest single venture pool ever filled in Southern California, said Bill Elkus, managing director at idealab Capital Partners. Bill Gross, who heads the wildly successful idealab, is co-founder and managing director of ICP.

Which might make some competing funds a bit nervous.

It seems that venture funds everywhere are targeting Internet companies. In recent weeks, Jim Montgomery of Santa Monica-based Digital Coast Partners, and Brad Jones of Brentwood Venture, have announced they are raising funds of $250 million and $500 million, respectively.

Elkus is hardly unaware that a "gold rush" of venture money is chasing Internet start-ups. Indeed, some fund managers finance only Internet infrastructure companies, figuring growth on the Web is inevitable. But selecting winners and losers who sell over the Internet is a task for the dauntless -- a category that evidently includes Elkus.

"We invest in early stage start-ups, from content providers to business-to-business to retailers to infrastructure," said Elkus. "But we try to get in early. It's risky. The typical company we invest in loses money and will for years."

So how long will the flood of money into all things Internet continue? Elkus said it might be longer than many think.

"Yes, there is a lot of money out there, but there are also a lot of deals," he said. "You see people leaving Disney and Microsoft to start a company. You see talented and experienced people who want to start their own company."

Elkus said the Internet has altered the playing field and gives small companies a chance to beat the big guys.

"In the past, I have written studies on the advantages of large businesses -- access to capital, ability to market, economics of scale," said Elkus. "But the Internet changes the calculus. Look at eToys - a small company that has bested Toys R Us on the Internet. Now eToys doesn't have all the brick-and-mortar that Toys R Us has, and doesn't need it. That's the kind of thing that can happen on the Internet."

Already, with ICP's first fund, Elkus helped take public such companies as GoTo.com, eToys and MP3.com. Two other idealab Capital Partners, portfolio companies, Tickets.com and NetZero, have filed to go public.


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