06/01/12 | Uncategorized

Taking The Plunge: How StarVest Partners Was Born

StarVest Partners founder Deborah Farrington will be hosting Founder Friday New York tonight.

By Deborah A. Farrington (Founder & General Partner, StarVest Partners)

In the late 1990s, it became clear to me that business services were going to the web, I thought this was a terrific investment concept and wanted to build a firm around that.

I approached the financial backer behind Victory Ventures, the company I worked for at the time, and he started suggesting: “Why don’t you do it like this?” and in my head, I thought – no, no, no. I appreciated his input, but my gut told me that my vision for the firm was the right way. This was during a very exciting time – the height of the Internet bubble – and LPs were eager to get into venture capital. The market environment was very receptive to backing new teams.

I decided it was time to take the plunge and do it myself if I wanted to execute on my investment thesis. Along with my three co-founders, two of whom are still with the firm today, we founded StarVest Partners in 1998 and raised our fund in 1999. It took us 2 years from concept to final close. We needed to find anchor investors, so we asked our closest business associates to be our financial backers in exchange for a part of the carry. After calling about 400 institutional investors, a woman-owned advisory firm introduced us to one of our biggest LPs. That traction allowed us to raise $150 million.

I was able to make the transition to venture capital because I had deep financial expertise and used that to really understand companies and become a business model expert. I also had domain expertise, which I use to this day, in software as a service or business services over the Internet. Specialization helped me become an expert in my field, and my experience of being an entrepreneur enabled me to empathize with the entrepreneurs I work with, the risks they take and the drive required to run a business.

StarVest Partners focuses on technology-enabled business services companies, which was a differentiating strategy when we founded the firm. We invest at the nexus of business services, information technology, and the Internet. We invest in expansion stage companies – defined as companies having between $2 and $15 million in revenues at the time of investment, with a product that works, a differentiated technology, referenceable customers, and a core management team.

When the Internet bubble popped in 2000, many funds went under due to market conditions. Of course, we were worried that factors outside our control would affect us as well. Instead of panicking, our firm remained focused on the cloud computing market, which at the time, was very new and is now of course a widely adopted technology.

StarVest recognized the nascent trend of delivering services over the Internet, and in 2000, we invested as the only VC firm in NetSuite. When the company went public in 2007 at what was the highest market cap of an IPO for a VC firm since Google. That enabled me to be named to the Midas List or 100 Top VCs for the first time. Today, NetSuite is the leading SaaS ERP solution, is listed on the NYSE and has a market cap of $2.5 billion. I am still on the board and serve as Lead Director and Chairman of the Compensation Committee.

“StarVest Partners is now investing out of its second fund, which is $250 million. There is nothing more rewarding than the process of building companies and watching them grow into sustainable enterprises that employ lots of people!

Editor’s note: Got a question for our guest blogger? Leave a message in the comments below.

About the guest blogger: Deborah Farrington is a Founder and General Partner of StarVest Partners, L.P., a New York City based venture capital firm investing in technology-enabled business services companies with a focus on software-as-a-service, ecommerce and internet marketing. She sits on the Boards of NetSuite where she is lead director and chairman of the Compensation Committee, Fieldglass, Host Analytics, Insurance.com, Perquest and PivotLink on behalf of StarVest. Deborah was named to the Forbes Midas 100 List of top VCs in the United States in 2008 and 2009.



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