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Encore Ends Tech Investing, Shuts Santa Monica Office

February 28, 2001|DEBORA VRANA | TIMES STAFF WRITER

Encore Venture Partners, a Santa Monica venture capital firm that raised $150 million and invested in nine fast-growing technology companies, has closed its office here and abandoned its focus on tech firms.

Encore is one of the first venture firms to completely abandon technology investments since the stock market began its nose dive a year ago, but more venture funds are expected to shut down and return uninvested money to investors, said Jess Reyes, analyst at Venture Economics, a data firm.

"As with any boom, be it the gold rush or venture capital, there are the people who come in first and the people who come in last," Reyes said. "Those who came in late will be the first to leave."

Encore, formed in 1999, decided to give up its tech focus after its primary limited partner, Dallas-based home builder D.R. Horton, said it wanted to limit future investments to residential real estate because the stock market's volatility has worsened.

"We had the benefit and the curse of a large single limited partner that made the decision midstream that they did not want to make any more technology investments," said Joe Reece, a former partner at Encore who has returned to his investment banking job at what is now Credit Suisse First Boston in Century City.

Encore still will operate out of a Dallas office, where it will monitor stakes already taken in tech companies. But the firm won't seek other tech investing opportunities.

Of the $150 million Horton committed to the fund, about $25 million was invested. The money went to such companies as San Francisco-based Pulse Entertainment, which develops 3-D animation tools; Media.net Communications, a Los Angeles firm that offers broadband services to the entertainment industry; and Westlake Village-based Nomadix, which develops and markets equipment for Internet service providers.

Reece, 39, launched Encore with Steve Desjardins. Both had been investment bankers at Donaldson, Lufkin & Jenrette Securities, which last year was purchased by Credit Suisse First Boston.

"It's disappointing," Desjardins, 32, said of Encore's closure. "But at the end of the day, when you are having trouble funding companies, what's the point of having your shingle up?"

The venture capital community was rocked earlier this year when Crosspoint Venture Partners, based in Woodside, Calif., decided to abandon a $1-billion fund because it perceived a shortage of viable investment opportunities amid the tech sector's woes.

Venture capital firms, which raised record amounts in recent years, invest in early-stage companies. They expect to reap large returns when their companies go public or are sold.

But with the stock market's plunge now making it impossible for many young companies to go public, many venture capitalists are rethinking their strategies.

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