The granddaddy of the North Carolina venture capital industry is retiring.

Kitty Hawk Capital, the Tar Heel State’s oldest and one of its largest venture firms, is calling it quits after 23 years in the business.

The first sign of the firm’s demise came Tuesday, when longtime general partner Chris Hegele took a part-time venture partner position with Intersouth Partners, which over the past decade has supplanted Kitty Hawk as the state’s pre-eminent source of venture capital.

Hegele, who has been with Kitty Hawk since 1984, said he and Kitty Hawk founder Walter Wilkinson decided over the past two months not to raise a fifth venture fund. The firm’s existing four funds total about $100 million.

“It was primarily a personal decision on both of parts,” Hegele says. “We’ve seen up cycles and down cycles over the years and have raised money and invested in poor times. I don’t think the (current) market conditions necessarily led to this decision, but I think they did play a part in it.”

Wilkinson was traveling Wednesday and couldn’t be reached for comment. Last year, he dismissed rumors that he was going to retire and close up shop at Kitty Hawk, telling Local Tech Wire that the firm would be involved with its investments for years to come.

One or two more deals possible

Kitty Hawk still has about 18 companies in its portfolio, and Hegele says there may be enough left in its fourth fund – a $42 million pot raised in 1998 – for one or two more new investments. The firm also has set aside about $10 million to support its portfolio in future funding rounds, he says.

But shifting from an active investment mode into a caretaker role freed up some of Hegele’s time, and he quickly accepted when Intersouth officials called with an offer for him to split his time between Charlotte and Intersouth’s Durham headquarters.

Kitty Hawk and Intersouth have invested side by side in several companies over the years, including Pittsboro-based Biolex and Trinity Convergence of Raleigh. They also invested in Cogent Neuroscience, which went out of business last fall, and NetOctave, which was sold earlier this year.

“I’ve known them for almost 20 years,” Hegele says of Intersouth founder Dennis Dougherty and longtime partner Mitch Mumma. “It just made sense for me to continue doing what I have been doing and, in a sense, prolong my career.”

He says he will use his network of contacts to scout out some new funding opportunities, and will help Intersouth structure funding deals. “My primary purpose is to find any way to help them,” he says.

Although Intersouth already has a stable of veteran investors, Mumma says adding Hegele’s experience is important to the firm.

“You can never have too much experience,” Mumma says. “He’s been through most of the situations we will face, and that kind of background is invaluable, especially during (slow economic) times like this.”

No changes expected

Kitty Hawk’s decision likely will have little impact on the North Carolina venture capital industry, Hegele predicts, noting the state has matured in recent years and now has plenty of capital available, including the $205 million fund Intersouth amassed two months ago.

“Our funds, by today’s standards, have been smaller,” he says. “Sure, we’ve been at it a long time, but Intersouth has also been around a while.”

Kitty Hawk is the latest in a string of venture firms across the state to wind down operations. The North Carolina Enterprise Fund stopped making new deals a couple of years ago, and a freeze in state funding has effectively ended the North Carolina Technological Development Authority’s early-stage investments. Atlanta-based angel fund Gray Ventures, which has been very active in the Research Triangle area, also has ceased operations.

Mumma says many older firms nationwide are going through “a generational transitional thing,” where veteran investors who don’t bring in new blood are faced with a decision about how long to hang on before calling it quits. Still, he also believes the loss of Kitty Hawk will have minimal effect on the state.

“Venture capital is a young person’s game,” he says. “We’ve tried to build the infrastructure here where Intersouth will last beyond Dennis and Mitch, and Chris will play a role in that.”

Intersouth Partners: