Venture capital fund launched by up-and-comers buys into Vontoo, Compendium Blogware

March 9, 2009
If angel investors have any hair left, it's usually gray from a lifetime spent in entrepreneurship. That's what makes Gravity Ventures LLC unusual. The 15 professionals who recently formed the $1 million fund are all in their 30s.

"The folks in our group are still in the 'doing' part of their careers, so that brings a different perspective," said Mike Fitzgerald, 38, a Gravity Ventures co-founder. "As a group, we're not retired or semi-retired like the typical angel." Gravity Ventures began the process of forming last summer by notifying the Securities and Exchange Commission of its plans to raise $1 million. Fitzgerald won't say exactly how much the fund has received so far, but says he's been pleased with the fund raising despite the "unprecedented economic times." Since December, Gravity Ventures quietly has invested in two of Indianapolis' most promising young high-tech companies, Vontoo Inc. and Compendium Blogware.

The fund's genesis goes back 10 years. Back then, Fitzgerald worked for the now-defunct Internet consultancy marchFirst. Kristian Andersen, the other Gravity Ventures co-founder, was his client.

Andersen's locally based branding and design firm Kristian Andersen and Associates focuses on high-tech entrepreneurs. Clients include mobile phone search service ChaCha and email marketing company ExactTarget.

Fitzgerald went on to lead Roche Diagnostics Corp.'s venture group, which focuses on spinning out orphan technologies. These days, he's president of locally based RICS Software, a 24-employee firm that makes IT for retailers.

Meanwhile, Andersen's roster of clients grew. To conserve cash, startups often preferred to pay Andersen with shares of their stock. Kristian Andersen and Associates, which has six employees, now has done equity-for-services deals eight times.

"We would literally swap checks in most cases," said Andersen, 35.

Both are plugged in to Indiana's network of aspiring entrepreneurs, as well as its angel investors. But most angels are a generation older, and can afford to speculate on startups because they've cashed out of their own businesses.

To raise the money they needed for their own fund, Fitzgerald and Anderson invited 13 other local professionals from the hightech sector to invest. The group includes Eric Tobias, president of locally based iGo-Digital LLC (and nephew of former Eli Lilly and Co. Chairman Randall Tobias); Joe Rainwater, executive for software maker SAP; and Brian Fahle, owner of Main Event, a branding and merchandising firm.

Indianapolis already has one venture fund with young management. Greg Maurer, 32, son of IBJ Corp. co-owner Michael S. Maurer, formed the $24 million Heron Capital in 2004.

Gravity Ventures' investors hope foremost to make money on their deals. But they also consider their outlays an investment in their own education.

Call it a kind of venture capital apprenticeship. They know there are plenty of promising businesses here worth supporting. Through Gravity Ventures, they'll learn exactly who needs what, and why.

"All of us would readily admit that while we're pretty good at running businesses and have a good track record, this is uncharted waters," said Tobias, 32. "I'm just real positive on where Indiana and specifically Indianapolis is on technology. There are a lot of great things going on in this city that most people have no idea about."

For their part, established angel investors welcome Gravity Ventures' efforts.

Vontoo co-founder Bob Compton, a venture capitalist turned angel investor, is eager to pass on the lessons he's learned over two decades. "Typically, people don't start investing until they've made a substantial amount of money and retire. What you learn in the venture business is, it takes time to become adept at selecting and investing in new companies," he said.

"Here's a group of people who obviously later in their careers will have substantial wealth and will be able to be angel investors, but they're putting up a small amount of money now and getting their experience while they're still young. I thought it was a terrific idea."

In December, Vontoo raised $2 million, bringing its total fund raising since its 2005 inception to $5 million. Gravity Ventures typically invests $75,000 to $100,000 per deal, but investors wouldn't say how much it plowed into Vontoo, a provider of permission-based voice messages, or Compendium, which helps companies launch blogs.

Compendium CEO Chris Baggott is preparing to close a $1 million venture capital round this month, bringing his company's total fund raising to $4 million.

Compendium is a Kristian Andersen and Associates client. And RICS Software is a Compendium client. Baggott said he was excited for Gravity Ventures to invest in Compendium because a rising local high-tech tide raises all ships here.

"Anything I can do to support the entrepreneurial environment, I want to do," Baggott said. "The more successful entrepreneurs and startups we have, that helps everybody."

Gravity Ventures' business model hasn't been tried much elsewhere, said John S. Taylor, research director for the National Venture Capital Association.

But that doesn't mean it won't work —  as long as Gravity Ventures can lean heavily on proven angels and venture capitalists for help with tricky hurdles, like how to establish a fair price for a startup's stock.

"Many of the more successful new generation of venture capitalists either came through a specific mentor program ... or an informal mentor relationship," Taylor said.

"Venture capital is absolutely an apprenticeship business. So it would make perfect sense that becoming a successful angel would be an apprenticeship path."

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