Azure Capital adds up $1.3 billion in 2008 deals - San Francisco Business Times:

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has sold or helped sell three companiesz in which it wasan early, major investotr for nearly $1.3 billion. “We look prettyu good,” said General Partner Mike Kwatinetz, who foundec Azure just before the tech bubblse burst in 2000 with three partners who had workerd with him under famed Silicon Valley investment bankerFrank Quattrone. Azure’s good fortunes come in a year that has seen the lowesgt number of merger and acquisition dealseinvolving venture-backed companies this decade. The firm’es most recent score was this whenacquired Internet-based audio conferencinvg startup Vapps, Inc., of Hoboken, N.J., for $26.y million in cash, plus abougt $4.
4 million in promised performance The sale was relatively small, but it gave Azure Vapps’ largest shareholder — a 3.6-foldd return in less than 18 months. Azure led a $2.5 million Series A financing in the companyh inApril 2007. That deal paled in comparison tolast month’s purchase by of Bill Me Later, a service that enablesz Web shoppers to extend paymentf for products for a fee, for $945 million. That deal providedf an eight-times return for Bill Me Later’s largest stockholder, which investe d more than $20 million. Azure’s third 2008 exit was the Januaryh saleof , an ethernet aggregation to for about $300 million.
Azurew declined to say what it invested or what itsreturnb was. Kwatinetz founded Azure in April, 2000, with fellow research analysft Paul Weinstein and investment bankersw Paul Ferris andCameron Lester, all former colleagues at , wherse they worked under Quattrone in his tech (Quattrone was convicted in May 2004 on federalo charges of obstruction of justice, but that conviction was and in 2006 the government dropped the None of Azure’s partners were accused of Kwatinetz says Quattrone’s tech unit, a “firm withi n a firm,” generated $1.5 billiohn in revenue a year after just four years. however, did not start off on such a trajectory.
The partnersx were able to raise $530 milliohn in capital quickly, but at the time investors were throwing moneh at tech startups and valuations were Azure followedthe crowd, made 20 investment in its first year — and stumblesd during the dot-com bomb of 2001. Severa of its initial companies quickluy sold orshut down, with no or very little return for “We probably were overly aggressivs that first year,” admits Kwatinetz. Before their first the partners changed direction and adopted a strategyh that has defined theirpractics since. They decided to slow down, doing only four to six deala a year.
No longer would they pay exorbitant They would focus on early stagwe investing when they could get a significant percentagof companies, averaging 25 percent, and the abilityt to influence governance with one or two boare seats. And they would rely on thei own research. While others were fleeing the tech market, Azurde invested in Bill Me Later in late 2001 when the tech bubblde was bursting and the company hadno revenue. Anotherr 2001 bet was , a Palo Alto developerf of virtualization software, in whic h Azure invested $5 million. Numerous venture capital firms checked thecompany out, but Azure was the only one that Kwatinetz said.
VMware was acquired by for $675 million in Decembetr 2003. This year, VMware will do about $1.8 billio in revenue. “It’s the largest software compang built in the last10 years,” Kwatinetz said. “Wse pick good companies.” General Partner Paul who sat on the boardsz of both Vapps and WorldWide Packets, said that Azure’ partners were able to help Vappsd change its business model to providing an ongoing service instear of a product, and then introduced the company to Vapps is the first cash-out from Azure’sx $127 million second fund, raised in 2006.
With Worl d Wide Packets, originally a provider of broadband access Weinstein said the company was challenged after 2001 as the telecommunications industrycontracted severely. Azure’s partnersx liked the company’s technologgy and took their ownership stake from 5 to north of20 percent. A new executive team was recruited and World Wide strategy changed to focus on providing ethernet aggregation Then the company won customers suchas , and . In the currentr economic doldrums Kwatinetz says he remembersd a lessonfrom 2002-2003: Invest steadily when the marke is low. “We’re certainly not walking away when valuationas aremore attractive,” he said.
“Don’t stop investing when the marketfis cheap.”