InLab Ventures, Based in San Diego and Orange County, Pursues Alternative VC Path

1/26/11Follow @bvbigelow

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from $48 million in 1980 to nearly $400 million today.

InLab plans to realize substantial gains, though, when its portfolio companies are acquired or go public. Under its deal terms, InLab claims 35 percent of the proceeds from its investment (or 35 percent carried interest, in venture industry terms). The remaining 65 percent is returned to the limited partners who originally invested in the fund.

“Every deal is different, but the average equity position we would take for our investment is 25 percent to 45 percent ownership of the company,” Doyle explained in an e-mail. “The remaining ownership [in the company] remains with the founders and employees.”

Parker and co-founder William H. Fairchild raised $6 million for InLab’s inaugural fund, which has been invested in nine companies, Doyle said. In recent months, Doyle said, “We’ve spent the majority of our time raising $100 million for the second fund. In the meantime, we continue to work on the infrastructure of our business model.”

Since it can take years before a startup reaches a liquidity event, InLab’s founders also conceived an alternative to management fees that covers the salaries of the firm’s managing directors and staff. InLab formed what it calls an “Outsource Management Services organization,” which generates revenue by providing overhead and general administrative support for InLab’s portfolio companies. Much of the effort is focused on providing media and marketing services (more on that later), but the group also manages office space and IT services, and negotiates with law firms and other service providers to provide more specialized support for portfolio companies.

“One of the things we did was look at all the ways in which venture-backed entrepreneurs waste their time,” Doyle says. “The genius of it is that they have to pay for it anyway.”

Doyle says the arrangement provides some cost advantages, for example, including all of its portfolio companies under a single group health plan. More importantly, Doyle says managing such details engages InLab partners much more closely in their portfolio companies’ operations.

InLab says it also has developed … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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