Venture capitalist still in game-Lean years ahead, but that’s not stopping Tom Simpson of Northwest Venture Associates

Tom Simpson, like other venture capitalists, swings for the fences. His ballpark is just a little different.

Kind of like "Old Century Baseball."

Bert Caldwell
The Spokesman-Review

Simpson is managing partner of Northwest Venture Associates, http://www.nwva.com/ a venture fund spun off by the Momentum ’86 economic development effort.

A little more than a year ago, the $190 million fund bought into Front Porch Classics, a Seattle-based toy maker. Simpson said then he liked the nostalgia evoked by the company’s wooden games.

"Old Century Baseball" was among them. "Old Century Baseball" was a home run.

The combination pinball-baseball game played in a miniature stadium placed first among the toys voted best by Family Fun magazine.

The award clearly tickles Simpson.

Technology fueled venture capital’s phenomenal run through the 1990s, and vice versa. The roster of Northwest Venture investments includes many tech companies, but Simpson says the fund nibbled where others gobbled.

"It was really hard not to bite the apple," he says.

The technology/dot-com booms generated fabulous returns, then fearful losses.

Simpson’s caution, and that of other Northwest general partners, helped the fund avoid the inevitable aftereffects of eating too many green apples.

(Simpson quips that some deals "arrived on tricycles.")

Nationally, venture capitalists endured their worst year ever in 2002, at least through the third quarter. According to figures released last week, venture funds lost an average 22.3 percent through September.

Discouraged investors have looked elsewhere for profits. Worse from the industry’s point of view were "clawbacks" — demands from distraught investors that managers who pocketed early profits regurgitate the money.

Some funds have closed, or closed offices. Atlas Venture locked its doors in Seattle and retreated to the East Coast.

Simpson says he’s not dismayed. Northwest lost money in 2002 after "amazing" returns in 1999 and 2000, but Simpson says he does not dwell on the results. Liquidity events — the opportunity to sell fund holdings — come when they come. Until those chances appear, value can be subjective.

Meanwhile, managers of companies already in the Northwest portfolio are conserving cash. If buyers do not come along, the successful businesses can be managed to stand on their own.

And Simpson’s optimism has kept Northwest active while other funds sit on their hands. Through the end of September, in fact, Northwest was among the four most active in the Northwest by number of deals.

Simpson says the Northwest remains an attractive venture capital arena despite skepticism expressed by some in the industry.

"The venture capital industry, right now, by and large, is confused," he observes.

Simpson says a healthy industry is important. Venture capital does not shape an economy by itself, but a critical mass of available funding must be available in the region to sustain the entrepreneurial community.

Jim Simmons, president of ICM Asset Management, agrees. ICM focuses on small companies, and has a small venture capital firm of its own.

The United States economy has an edge on its Japanese and European counterparts in part because of its venture resources, he says.

The difficulty now, Simmons says, is getting investor juices flowing when returns slip to the 10 percent range.

"It’s going to be a lean period," he says, for venture capitalists as well as the more pedestrian investor.

"The old game’s over. It’s over over."

Simpson says success will take vision undiluted by common wisdom.

"In three to five to seven years I’ll know if I did good or not."

Batter up!

Business columnist Bert Caldwell can be reached at (509) 459-5450 or by e-mail at [email protected]

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