Forrest Binkley Looking to Invest $100M War Chest
By RAJIV VYAS
Newport Beach-based Forrest Binkley & Brown, having recently closed a fourth venture fund after a protracted and difficult fund-raising period, now is focusing on where to apply the $100 million in its war chest.
Forrest Binkley, which has another $190 million in money already invested, plans to focus its efforts this year on early-stage technology companies and small to midsize buyouts. The venture firm also is looking at a few healthcare deals.
The firm is back in investment mode full-time after taking nearly a year to raise its fourth fund, FRB Capital Partners LLC. Of the $100 million originally targeted for the fund, the firm raised $63 million and decided to close it Nov. 30.
“It took us twice as long to raise about two-thirds of what we were after,” said Nicholas Binkley, partner at Forrest Binkley.
Still, Binkley said, “We are happy to have what we have got, considering the fact that we were fund raising during the crash of the dot-com market and we were also caught with the Sept. 11 event.”
Forrest Binkley’s $300 million in four funds makes it one of the largest venture firms in Orange County. It has some $100 million still to invest: $63 million from the new fund and another $40 million from its second fund.
Binkley said that the firm started raising money for its latest fund in fall 2000, with solicitations to around 400 institutional investors.
“Out of this 300 or 400 solicitations, we got maybe 50 interviews,” Binkley said. “And, out of the 50 interviews, we had probably 15 (investors) that were really quite interested.”
The firm finally got commitments from two large institutional investors: Mellon Ventures Inc. and Cook Inlet Region Inc.
Mellon Venture is an affiliate of Pittsburgh-based Mellon Financial Corp. Cook Inlet is an Alaskan native regional corporation based in Anchorage, Alaska. The Texas-based Bass family, which was the main investor in Forrest Binkley’s first three funds, extended its support to the fourth fund as well.
Forrest Binkley managed to close the fund based on the track record of its previous three funds, officials said. The firm’s annual returns have been in excess of 30% since inception, they said.
Forrest Binkley formed eight years ago with the objective of building a diversified portfolio. Two of its first three funds were a part of the Small Business Investment Co., or SBIC, program started by the federal government in 1958.
SBICs, licensed by the Small Business Admin-istration, are privately owned and managed investment firms. SBICs raise their own capital first, and then can borrow up to twice their equity capital from the federal government to provide venture capital to small businesses, both new and already established.
FRB Capital Partners is Forrest Binkley’s fund made up of only institutional investors.
“The purpose of raising an institutional fund was to move away from a single source (Bass family) of private funding, which had been our key source of finance for the last three partnerships, and also to move away from the SBIC program,” Binkley said.
It is “not because we are unhappy with the SBIC program but because we had moved up against the maximum that we could borrow under that program,” he said. “It was time for us to branch out.”
A private-equity investment company can borrow a maximum of $100 million from the government under the SBIC program.
FRB Capital Partners will follow Forrest Binkley’s broad approach to venture investing, Binkley said, investing in startups as well as later-stage technology and healthcare companies and small and midsize buyouts. Typical investments will range from $2 million to $6 million, he said.
In its prior three funds, the firm has a portfolio of 30 companies, and it has invested in 45 since its inception. In OC, Forrest Binkley has funded Santa Ana-based Wellspring Solutions Inc., a maker of supply-chain software, Newport Beach-based IPNet Solutions Inc., a developer of electronic exchanges, and Irvine-based FieldCentrix Inc., a provider of field service automation systems.
Some of the more diversified investments the firm has made include those in Napa-based Golden State Vintners Inc., an outsourcing supplier of premium wines, and Kane Magnetics International Inc., a Kane, Pa.-based maker of industrial magnets.
Forrest Binkley is expected to invest in about 15 private companies in the next two years.
“We will be back in the market seriously looking to raise our fifth partnership probably in the fall of 2003 and going into 2004,” Binkley said. “And at that time, we will probably get a more positive reception from some of the (institutional) private equity investors than we had the first time around, many of them saying, ‘We just have a policy against investing in first-time institutional funds,'” he said.
