Borealis Ventures: The Real Venture Capitalists from New Hampshire
Philip Ferneau says that it’s pretty funny that the movie “Wedding Crashers” follows the exploits of two bachelors who decide to keep up appearances at the wedding of complete strangers by posing as venture capitalists from New Hampshire. Ferneau and his partners at Borealis Ventures are indeed among the few actual venture capitalists based in the Granite State—perhaps why it made a good bit of comedy for the movie characters to assume such an obscure identity—but the Borealis team is getting the last laugh.
I caught up with Ferneau last week at his alma mater, the Tuck School of Business at Dartmouth College, where he teaches a graduate-level course on venture investing. And he described how his small fund’s strategy is suited to weather the adverse economics facing the venture business.
The firm, which has offices in Hanover and Portsmouth, NH, has carved out a nice niche of investing in high-tech and life sciences startups mostly north of Boston—although a glance at Borealis’ portfolio reveals investments outside of New England, as well. With its first fund, launched in 2002, the firm had five exits, Ferneau says. The fund was ranked among the highest based on returns compared with other funds rolled out the same year, he says. And that success has lent credibility to the firm’s stated strategy of investing in startups early on in their development and taking a hands-on approach to working with company executives.
Ferneau says that he and Jesse Devitte, another managing partner at Borealis, founded the firm in 2001 because they saw a number of opportunities to fund businesses off the beaten path of venture capitalists in the Boston area, particularly those at Dartmouth College in Hanover. “You had some world-class science coming from the engineering and medical schools,” he says, “But there were opportunities rotting on the vine.”
In fact, Ferneau, with his close contacts at Dartmouth and other research centers in northern New England, focuses on investments in groups affiliated with academic institutions. His biggest win on that front was Borealis portfolio company GlycoFi, a biotech firm co-founded by Dartmouth engineering professor Tillman Gerngross and gobbled up by drug giant Merck for $400 million in 2006. (I wrote last week about Gerngross’s newer biotech venture, Adimab, which counts Borealis among its venture backers.)
The tech veterans on the Borealis team are Devitte and the third director at the firm, Matt Rightmire. Devitte was a senior executive at CAD software maker Softdesk when the Henniker, NH-based firm was bought by design software company Autodesk (NASDAQ:ADSK) for $72 million in 1997, and he stayed on for a time as a general manager for San Rafael, CA-based Autodesk after the transaction. Rightmire is known for having been one of the first 10 employees at Internet powerhouse Yahoo (NASDAQ:YHOO), and he later became chief operating officer of Sunnyvale, CA-based online marketing firm Efficient Frontier.
Borealis, which launched a second fund in 2006, now has about $50 million under management, Ferneau says. The firm has typically committed up to $5 million in startups it has invested in from its second fund. “We’re often the smallest fund in the syndicate,” he says, “but I think our ability to lead or co-lead [financings] reflects that we are playing an active role and have something to add to the team with our sector knowledge.”
Part of what Borealis is doing with its current fund is finding opportunities to invest in capital-efficient companies that are already making money or close to doing so, Ferneau says, rather than searching for potential home-run exits in riskier deals. He believes the latter strategy is part of what is ailing many other venture firms right now. For example, Borealis invested in the first round of financing in VICO Software—a Boulder, CO, firm that formed in 2007 through the acquisition of the construction software assets of Budapest-based Graphisoft—which started from the gate with millions of dollars in annual revenue, he says.
Not bad for venture capitalists from New Hampshire.