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Thursday, November 18, 2004 - Page updated at 12:00 A.M.
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New Maveron VC fund captures $200 million

By Tricia Duryee
Seattle Times Technology reporter

ELLEN M. BANNER / THE SEATTLE TIMES
Investing in consumer-focused companies has been basic to the venture-capital strategy of Maveron executives such as Debra Somberg and Dan Levitan, co-founder of the Seattle company.
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Maveronís current portfolio companies

In venture capital, betting on eBay before others may inspire awe, but when it's your first investment, it also sets the bar high.

Maveron, the Seattle-based venture-capital company, did exactly that when it invested in the online auction site in 1998. The result was so lucrative that if Maveron investors still owned eBay stock today, it would be worth 175 times what they paid for it six years ago, Maveron managing partner Dan Levitan estimated.

Despite his firm's early success, Levitan said, he is dedicated to making eBay only one of its larger-than-life legacies.

Some of the most elite investors in the country think he has a shot at doing that. Maveron is expected to announce today it has raised $200 million for a third venture-capital fund to invest in consumer-focused companies, the core mission of its strategy.

"We are gratified that a bunch of institutions think we are right on track, but we are redoubling our efforts to prove it," Levitan said. "We aren't going to let our first investment be the best."

Participating investors are all institutions, including some of the country's best known: Yale University, Massachusetts Institute of Technology, Princeton University, The MacArthur Foundation, Mayo Foundation, Carnegie Corporation of New York, Knightsbridge and Legacy Venture.

Maveron expects the fund to support making four to six investments a year. Currently, the company is invested in 16 active companies, six in the Northwest.

The fund is the second in the Seattle area to raise significant dollars recently. Last month, Bellevue-based Ignition Partners secured $300 million for its third fund.

Starbucks connection

Maveron was founded in 1998 by Levitan, a former investment banker, and Starbucks Chairman Howard Schultz. The two had met when Schultz's coffee company was going public in 1992.
 
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Out of that pairing came an idea: create an investment company based on all-things consumer.

The timing was right. With the Internet beginning to accelerate, the market was at the cusp of change. It was before eBay became the largest flea market in the world.

Before Amazon.com sold more than books, and before Expedia and others turned into the dominant travel agents of the 21st century.

"It was clear: We were on the dawn of a new era," Levitan said.

Besides eBay, Maveron has had other hits, including drugstore.com and PeoplePC, a computer maker that went public and was later bought by EarthLink.

Among Maveron's current investments, Boston-based SmartBargains has filed to go public, promising a payoff to investors.

Not always right

But with the hits came losers, too. One of the more notable was Flooz.com, which sold online gift currency and featured Whoopi Goldberg as a spokeswoman.

"Any VC who has been around as we have since 1998 has 15 years of experience and six years of chronology," Levitan said about the many lessons learned since Maveron started.

Debra Somberg, a Maveron managing partner who helped raise the third fund, said part of investor interest was based on this expertise, which later focused on the notion that technology was converging with consumerism.

She said that has meant investing in three consumer segments Maveron has identified: the classic retail store, online businesses and behind-the-scenes technology running those businesses.

Levitan said the way the third fund came together shows the validity of Maveron's approach.

For the first time, the money is coming from endowments of large universities and other large institutions rather than from a group of wealthy individuals.

Those investors drilled into Maveron's past and expect it to perform well based on what they saw.

Nationally recognized

The company's first fund $75 million performed well with the eBay and drugstore.com investment. It ranked in the country's top 25 percent for return.

The second fund, raised in 2000, is still too young for its performance to be assessed. Not fully invested, it has faced problems shared by the rest of the industry as the economy dipped from the late 1990s.

The fund, which originally had $340 million, was pared to around $285 million, reflecting a slower investment pace. It also has had to be marked down to reflect more conservative valuations.

It is clear, however, that Maveron is committed to helping its portfolio of companies. One sign is that Levitan can recite a company CEO's phone number — office and cell — off the top of his head.

David Norris, co-founder and chief executive of Seattle-based OnRequest, said the amount of time Maveron spends with his company is the difference between it and other investors.

"As compared to other relationships, we are one big family," he said.

"We deal with everyone at Maveron. We have the full support of everyone there."

Knowledge praised

Richard Tait, the grand poo-bah ( his title) of another investment, Seattle-based Cranium, said Maveron's knowledge base, especially on consumer issues, is particularly helpful.

"A consumer brand like Cranium is a passion brand, and very few investment firms are sensitive, supportive and equipped to fuel brands toward that mission," he said.

Investors have noted Maveron's commitment, as well.

"Maveron has a solid reputation as a hands-on, value-added investor in this sector, and their portfolio companies consistently say that Maveron makes a real difference in their business," said Philip Rotner, MIT's managing director of investments.

Levitan said he knows he can do even better.

"I don't think of this as a job. We are in the fortunate position to partner with people we like and respect," he said. "Now it's time to execute."

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com

Copyright © 2004 The Seattle Times Company

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