Dave Blivin and Robert Diemar both want to work smaller deals.

But Southeast Interactive Technology Funds can accommodate the vision of only one of them, so Blivin, who founded the venture firm seven years ago, is out, and Wall Street veteran Diemar is in as the firm launches its fourth investment fund.

The $100 million fund will target later-stage information technology companies instead of the start-ups that fueled Southeast’s rapid development in the late 1990s into one of the region’s larger venture firms – and its freefall from the heights of the Internet boom over the past two years.

Diemar, whose appointment and other changes at Southeast were announced on Tuesday, says Southeast isn’t abandoning the early-stage market. Rather, he says it is simply “adding another leg on the stool” by looking more at investments in IT companies that have already assembled an accomplished management team, developed products and lined up paying customers.

“The limited partners wouldn’t be giving us $100 million if they thought the investment thesis of the previous funds was incorrect,” he says. “Clearly, we will have a strong focus on that (early-stage) level because there’s such an abundance of opportunity in this area. But as companies mature … that’s a very attractive segment of the private equity market.”

Tapping his network

And it’s a segment where Diemar’s connections will pay off. The 59-year-old Kentucky native has spent more than three decades on Wall Street, working at investment houses Dillon Reed, Donaldson, Lufkin & Jenrette and, most recently, Credit Suisse First Boston, where he handled private equity deals.

“I believe (Southeast) can benefit from my experience in the investment banking community,” he says, noting that he can increase exposure for portfolio companies by introducing them to industry analysts and can tap his network of contacts to create strategic partnerships and arrange sales or stock offerings, providing an exit for investors.

“We have to reap the benefits of the seeds that have been sown in Fund III,” he says, referring to promising investments Southeast has in companies like Arsenal Digital Solutions, MediaSpan and Nitronex. “Later-stage investing will increase our opportunity to realize gains from the firm’s earlier work.”

Industry observers say Southeast’s shift away from start-ups has to be expected given the size of its new fund, and they say it will benefit the firm and likely will have little impact on entrepreneurs in the region.

“The supply of money (for start-ups) may be less without Southeast’s involvement, but the supply of entrepreneurs is less too,” says Jim Verdonik, a technology lawyer at Kilpatrick Stockton, who notes that fewer corporate employees are trading job security for the chance to run a small company than a few years ago.

“If there’s less money chasing start-ups, there will be fewer competitors in a market, and companies won’t be under as much pressure to grow as fast, which led to a lot of mistakes by the dot-coms,” he says.

Opportunity for deals

Although smaller than Southeast’s $135 million third fund, the new fund will be investing in a climate much different than in 1999. Early-stage investments today are a fraction of those made a few years ago, and “it’s hard to invest $100 million in $2 million pieces,” according to Verdonik. By putting larger sums into fewer companies, the venture firm will be better able to monitor the portfolio’s performance for investors, he says.

Diemar says that opportunity is what attracted him to Southeast. He had tired of the large corporate deals he did at First Boston and wanted to return to the emerging growth work he had enjoyed so much at DLJ. When Southeast general partner Norvell Miller, who has known Diemar for several years and has invested with him, heard last fall that his friend was looking for a change, Miller began his recruitment pitch.

It didn’t hurt that Diemar’s daughter, Caroline, is a junior at Duke University and that he co-chairs the Duke Parents Annual Fund, which means he visits the Triangle about once a month already. But it was the chance to work with young technology companies again that really sealed the deal.

“I wanted to get back into small firm financing, and this is the perfect place for me to do that,” he says.

Entrepreneurial venture firm

It had been the perfect place for Blivin, too.

He built Southeast in much the same way as the entrepreneurs with whom he worked, starting with $6 million from individual investors in 1995 and growing into a firm that attracted $135 million from major institutional investors a few years later. He made the firm into a regional power broker, leading the charge for nonstop air service between the Triangle and Silicon Valley and launching an annual technology conference to address industry issues.

But then the Internet bubble burst two years ago, popping some of Southeast’s high-profile investments, such as BuildNet and Timeline Computer Entertainment. Like the entrepreneurs he had counseled so many times about stepping aside to let more seasoned executives take charge of their companies, Blivin, 44, was facing a crossroads at his own firm.

“We built some very good companies that got national attention,” he says. “We just couldn’t control the market. … Today, the market is looking for different things.”

When discussions began last year about creating another fund at Southeast, Blivin and longtime associate Bill Glynn didn’t like the new emphasis on later-stage investing or the fact that their stakes in the firm would be diluted by adding a new partner. So they sought their own exit strategies and sold most of their interests in the firm.

“We’re in the business of building value and selling, and this is an opportunity for me to get out with a profit,” he says. “Our platform has had a big impact on this area, so I have a certain pride of authorship in that, but I also have a certain sense of excitement about starting something new.”

Blivin plans to take some time before selecting his next venture. He may start over with a new early-stage investment fund, work as a consultant to start-ups or get in on the ground floor of a new IT company.

“I’ve got four or five things on my plate that I’m looking at,” he says. “The key for me is to find a group of people I like working with and to have fun.”

Wednesday’s story detailing the Southeast shakeup:
www.localtechwire.com/article.cfm?u=567

Shakeup in Atlanta:
www.localtechwire.com/article.cfm?u=557