Wednesday, March 29, 2006

West Coast VCs, East Coast Rules

"Azure isn't your typical venture firm. Rather than depending on partners' gut instincts, it relies heavily on the hard-core research its partners learned on Wall Street. Their approach is to conduct in-depth studies, often taking a year or more, to investigate investment possibilities. That has led Azure to place many of its bets on little-known companies in out-of-favor markets. 'They are the quants of the VC world,' says Carl Russo, chief executive at Calix. 'They're either creating a very different model for a venture firm, or there will be a huge waste of money. Azure won't be run-of-the-mill.'

It wasn't always that way. Azure was founded in April, 2000, by First Boston investment bankers Paul Ferris and Cameron Lester, as well as research analysts Michael Kwatinetz and Paul Weinstein. They easily raised $530 million and poured much of it into 20 startups, including some high-profile outfits with sky-high valuations. When the Net collapse came, they got pounded. 'Our mistake was doing what everyone else was doing,' says Kwatinetz.

The partners quickly changed tactics. They made their own research central to their investment strategy, focused on early-stage deals, and put in money only if they could get at least a 25% stake and a seat on the board. They also slowed down, making only four to six deals a year, vs. the 20-deal pace of the first year."

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