June 26, 2003
Venture capital firms are beginning to understand an old axiom: slow and steady wins the race. Durham, N.C.-based venture capital firm, The Aurora Funds, has been racing slowly and steadily since 1994, but has largely flown under the radar until this year, when the firm closed its fourth fund on $85 million – $10 million more than it originally sought to raise. What started out as a firm comprised of two individuals has subsequently grown with the size of the funds.
In the past two months, the firm has hired three special venture partners and appointed Greg Bohlen chief financial officer. Bohlen joined the firm after spending two years as director of the private equity coverage group at UBS Warburg Investment Banking. Bohlen recently spoke with PrivateEquityCentral.net about the firmâ€™s new fund, its new people, and new opportunities.
PrivateEquityCentral.net: The Aurora Funds has appointed four new people in the past two months. Is there a reason, such as the new fund closing, that the firm is bringing on new people now?
Greg Bohlen: I think there are a couple of reasons. We did close a new fund, which weâ€™re pretty delighted with, given the current environment. But more than that, we are extending the core philosophy of Aurora Funds. The only way to do that is to add serious professionals. Thatâ€™s what weâ€™ve been trying to bring on board - folks who are real adults and not tourists in this business. Theyâ€™re focused on building businesses from scratch, which is the Aurora model.
PEC: What do you mean by expanding the firmâ€™s focus?
GB: Weâ€™re expanding from the firm having two guys – Jefferson Clark and Scott Albert, who were doing this for nine years. Weâ€™re adding more folks to do the same kinds of things they were doing. Weâ€™re also trying to add entrepreneurs-in-residence; folks who we think have great talent but are just in between companies right now.
PEC: When you use entrepreneurs-in-residence, do you install them at a business you already own or would you look to them for new investment ideas?
GB: Itâ€™s probably an even split. They either come in with a vision of something to do or we spend time with them mining for unmet needs.
PEC: Your firm focuses on information technology and life sciences. Is there specific area within those spaces in which youâ€™re now seeing a lot of activity?
GB: Weâ€™re looking at healthcare services. Weâ€™re trying to find two or three companies in that space. We think thereâ€™s pretty good potential going forward in that marketplace. Weâ€™re always looking for great IT ideas and weâ€™re currently looking at some chip manufacturers, particularly a fables chip manufacturer.
PEC: When youâ€™re looking at companies, is there a set of attributes you like to see?
GB: I think you apply the standard Mâ€™s. We look for management teams, we look for metrics, or a business model that we think will work, and we want to be in markets that we can build a big business in a relatively short amount of time.
PEC: What is the firmâ€™s typical exit strategy? Do you prefer a strategic sale or eventual IPO?
GB: If you look historically, weâ€™ve done both. We have been probably more focused on sales to larger players than IPOs and given the marketplace, we expect that trend to continue for several more quarters.
PEC: To what do you attribute your latest fundâ€™s oversubscription?
GB: Fund III, which was a 1999 vintage fund, is going to be in a 20% to 25% IRR range, which we think will put it in the top decile of all funds. I think people are beginning to understand that you can make money in early stage investing. You just have to be tightly focused and you have to be fairly serious about doing this type of business. You canâ€™t just do one-offs and be successful in early stage investing. I think the reason we were oversubscribed is that the market began accepting and believing that we were going to be able to do this based on track record.
PEC: You joined the firm about six weeks ago. What about the firm attracted you?
GB: Iâ€™ve always enjoyed working with early stage companies. Unfortunately, being an investment banker, your opportunities to interface with early stage companies and influence them is virtually zero because there are no fees to be made. I had worked with Scott and Jefferson for about eight years on various assignments and really liked the guys. I thought they were doing great stuff and building some pretty important companies. With a larger fund, it made sense for me to come across and work with them. Iâ€™m glad that they did raise a larger fund and there was an opportunity for me to come on board.