Don’t be fooled by Murray Rudin’s small, paperless office in Irvine, his casual way of talking or the size of his staff.
Rudin, who has just one assistant in his 1,500-square-foot office, is probably the most active venture capitalist in Orange County with more money to invest than most venture or private equity firms here.
“Our philosophy is to do as much work as possible ourselves,” said Rudin, a partner at Los Angeles-based Riordan, Lewis & Haden and head of the firm’s OC office. “There are only three partners in the firm and we have no associates. We don’t rely on a staff of junior analyst to do our work.”
At a time when many venture capital and private equity firms are scaling back their investment activity, Riordan, Lewis & Haden is on a roll. In the past six months, the firm has invested $24.5 million in three Southern California companies. In June, Riordan, Lewis was ranked No. 1 by the Business Journal as the most active venture capital firm in OC for the first quarter.
“We are in the business of building businesses,” Rudin said. “Our area of investment focus is one of the few that has been relatively unaffected by recent changes in capital markets.”
Riordan mainly invests in profitable companies and those that have yearly revenue of more than $20 million.
“We are trying to help businesses that already have achieved critical mass,” Rudin said.
Rudin likes to describe his firm as a booster rocket that takes companies into the next orbit. Most other firms “are like the first-stage rocket that lifts the space shuttle off the Cape Kennedy launch pad,” he said.
In the past 15 years, Riordan, Lewis has seen a 30% annual internal rate of return. Like all private equity and venture firms, Riordan, Lewis has had its share of home runs as well as some strikeouts, he said.
Among the firm’s winners is Newport Beach-based Data Processing Resources Corp., now part of Farmington Hills, Mich.-based Compuware Corp.
When Riordan, Lewis picked up a stake in the technology staffing company in 1994, Data Processing had annual revenue of $35 million.
“They were a good company serving predominantly Southern California businesses,” Rudin said. “Five years later, they were public, had a revenue run rate in excess of $350 million, had improved their operating margins by one percentage point and had a geographic footprint that covered most of America.”
The firm’s return on the Data Processing investment: about 1,000%, according to Rudin.
Before joining Riordan, Lewis in 1998, Rudin was the chief financial officer and director of business development at Voxel Inc., a medical technology company formerly in Laguna Hills and now based in Provo, Utah.
Prior to Voxel, Rudin was a principal at Valley National Investors Inc., a Phoenix-based venture firm.
Another Riordan, Lewis hit, according to Rudin: Tetra Tech Inc., a Pasadena-based environmental management and technical services firm. He called it “the best investment that we ever did.”
“In 1987 or 1988, (Tetra Tech) was a $15 million business. Last year they did $800 million,” he said. “That’s probably about a 100 to 1 return on investment.”
Not all of them have been that good. Riordan, Lewis lost all of its investment in a now-defunct Southern California distributor of Coor’s beer.
“They had variety of issues, but the straw that broke the camel’s back was that their primary warehouse for the beer was located at the epicenter of the Northridge earthquake,” Rudin said. “And they didn’t have an earthquake insurance. We didn’t get our money back.”
Another bomb was Los Angeles-based Store of Knowledge, a retailer that sold educational games, puzzles and software before it was liquidated earlier this year.
The firm’s investments are focused on companies in Southern California. The firm bills itself as the region’s oldest private equity firm. Its current fund has $120 million under management, while it also invests money for Richard Riordan, the former mayor of Los Angeles and an inactive, namesake partner at the firm. In all, Riordan, Lewis has more than $150 million under management.
Riordan, Lewis invests in a broad range of businesses. It has eight active portfolio companies in which it has invested more than $70 million.
One company, Carlsbad-based Physical Rehabilitation Network, provides physical, hand and hydro therapies to relieve musculoskeletal injuries, while another company, Irvine-based Axcelerant Inc., offers secure broadband links between homes and offices.
Riordan, Lewis has four active portfolio investments in the current fund and another four that predate the current fund.
The firm has more than $80 million of available capital to invest, according to Rudin.
Most of the companies that the firm invests in are those benefiting from demographic shifts, technological changes or sociological trends.
“There is something going on in those companies. It’s the proverbial rising tide,” Rudin said.
While some venture funding brings management oversight with it, Riordan, Lewis doesn’t get involved in day-to-day operations of its portfolio companies.
“It’s really more of a partnership,” Rudin said. “Other people in our business lose sight of that. They think they are going to run the business better than people who are already running the business. Our hope is to find people who are a lot better at day-to-day management than we are.”
The firm started its operations more than two decades ago to make private equity investments with the assets of Richard Riordan.
Capital under management grew through reinvestments gains, and the partnership grew to include J. Christopher Lewis and Patrick Haden. Rudin joined in early 1998 as a partner.
In late 1999, the firm raised its first institutional capital from various backers including pension funds, bringing the total assets under management to more than $150 million. Rudin said that they are looking at raising another fund. n
