June 2001

Interview: Fred Hutchison, Tech Mover & Shaker in the Triangle

We talk with Fred Hutchison, General Partner of Research Triangle Ventures Fund. He is also known for his work with the CED and as a tech attorney.
As we continue our journey of profiling the area's investment funds, we sit down to talk with Fred Hutchison, General Partner of Research Triangle Ventures and co-founder of the law firm Hutchison & Mason PLLC to discuss one of the latest early stage venture funds to stake claim to the area.

Fred is joined at RTV by Tim Gupton, senior partner in the accounting firm of Hughes, Pittman & Gupton LLP, and Bud Whitmeyer, a former systems developer/project manager at SAS and member of the angel groups: TIG (TriState Investment Group), CAP (Charlotte Angel Partners), and the Atlantis Group.

TTJ: Fred, where will RTV primarily be sourcing its deal flow?
FH: We see deals from a lot of different sources, clearly from those who we see as lawyers, as accountants, Bud's (Whitmeyer) interaction with the area angel groups TIG (TriState Investment Group), CAP (Charlotte Angel Partners), and Atlantis, through our advisors, and through other referrals such as other law firms, accounting firms, etc. - the usual suspects. We also have relationships with the tech transfer offices at all three major universities in addition to having relationships with other folks at all three universities that are involved at some level with commercializing technologies.

TTJ: What are some of the challenges you see with commercializing some of those university technologies?
FH: You have to understand that you have founders who are coming out of the academic environment and they have to now recognize that there are time deadlines, and what works in academic environments doesn't work in the commercial environment.

TTJ: Talk about what you look for in a management team?
FH: Ideally we're looking for someone with experience in a particular market, and always looking for perseverance-persistence, and vision. You look for all of those. Smart is nice, but that is sort of a given. You start from that base, and you have to add those other traits on top of that. The other thing we like - people that listen, those that just don't take your money and say thank you very much - I know how to do this and go off on their own. People that listen that's awfully important.

TTJ: What aspects of a business quickly turn you off from an investment standpoint?
FH: Clearly a small market, or someone who is coming in late to a market that is crammed full of competition. We generally want some competitive advantage to the IP. It would be pretty rare where we do a deal just based strictly on execution, "we fry hamburgers better than anyone else" sort of thing. It's got to be some strong IP. I really like the stuff that generally comes out of the universities, there's just such strong IP that comes with that, those are the types of things that its easy to get excited about.

TTJ: What type of relationship do you foresee having with your portfolio companies?
FH: We're going to come in early and make sure we get them down the right shoot so they can raise money in the future from the larger funds and that's making sure you have the right management, you have the right market targeted, you have a good presentation, you have a good board . . . we want to be helpful in all those ways and not micromanage.

TTJ: Talk about your relationship with the other early stage players in the area.
FH: With the two deals we've done so far, groups like the TDA (NC Technologic Development Authority), Trupilot, Bernie Gray, and CAP (Charlotte Angel Partners) have been involved but for the one (deal) we have teed up now - none of those folks are involved. We're not going to do every deal with the other folks here, but there is not going to be any deal where we are going to just go in by ourselves, we are always looking to collaborate.

TTJ: Given the fact that the mid and later round money has really tightened up recently, what will you do to help your current and future portfolio get to those later rounds?
FH: One-when we invest, we set aside money to make sure that if money is not available when they need it next, that we can continue to invest with them. But we also believe that the money is going to loosen up later on this year, hopefully this fall. The large funds can only sit on those dollars so long; they don't get paid to invest in money markets.

TTJ: Do you talk to downstream investors in your due diligence process to help determine which firms are more likely to obtain that next round?
FH: We don't go and say; hey if they meet all these milestones will you fund it down the road. We look at them (potential portfolio company) and say - is this something that larger funds are likely to fund in 6-12 months. We think we know what they are looking for.

TTJ: You've been involved with the triangle entrepreneurial space for some time now; how have you seen this market evolve over the last several years?
FH: There is more focus on the Triangle from outside VC's and investment bankers than ever. Notwithstanding the recent downturn in the public markets, there are a lot of companies out there that can go public and will go public in the next 2 years. I think we will get more experienced management moving here from other markets. That's an area we are still weak in compared with other areas in the country.

TTJ: Other than that experienced management weakness, what other ingredients are needed to help continue the entrepreneurial technology growth here?
FH: It's always nice to have a new hot company. Redhat did a lot for this area. Notwithstanding where they stand now, Redhad did a huge amount for getting the area on the map. I think we've got some companies who may fill that role in the upcoming years.

We're still short on funding. Someone told me that in Austin, there is enough venture money inside the city limits to fund every company that comes out of Austin. You would never have to leave the city limits. That's not true here, 80% of the money for North Carolina companies comes from out of state. At the venture fairs we still depend on bringing people in from outside to look at firms here and to help fund them.

TTJ: Over the years you've seen startups come and go, what major mistakes have you seen most repeated by entrepreneurs?
FH: Being overly concerned about dilution. Waiting too late to start raising money is a big one. Waiting too late to bring in additional professional management. Not realizing that fundraising is a very long process, you have to start early.

TTJ: What 1 or 2 sentences of advice would you give to a new technology entrepreneur?
FH: Don't worry so much about the dilution, worry about raising the money and staying alive. You can live to fight another day, but you just have to keep going.

TTJ: What upcoming developments do you see in the overall venture space?
FH: You have some funds that have raised a lot of money, and the question is now how well have they done or will they do with the money they've got. A lot of folks are trying to figure out what to do with some of the investments they have. And that's what has a lot of them standing on the sidelines. This is a tough time, I think there will be some funds here and elsewhere in the country that will not be able to raise another fund based on past performance. It comes back to the old investment philosophy of diversity, the funds that diversify in all segments of technology are probably going to do fine.

TTJ: What challenges do you see ahead for your venture fund?
FH: We're a small fund, we need to make sure we keep our focus, and as we invest in more companies making sure we give our companies the attention they deserve.

TTJ: What does Fred Hutchison do for fun outside of work?
FH: Love to travel, play some golf. Try to run most mornings with my wife before I come to work.

TTJ: Has taking this venture fund on been a larger than expected task and if you had a chance to do this all over again would you?
FH: It's taking more time than I expected. Knowing what I did then I would do it again, knowing what I do now I don't know (laughing). No. . . .I would do it again, it's been great. There is a need there and it's fun. I really like working with startups and early stage firms.

I don't ever see us having a huge fund in the future, not that I don't think we could raise it but that's just not what we like doing. We like dealing with seed stage companies and startups and that's what we're good at.

Reprinted with permission of the Triangle TechJournal
Reproduction does not imply endorsement