Paul Allen

Paul Allen has made -- and lost -- a lot of money over the years. And that mixed investment record certainly has been well documented, with the Microsoft co-founder taking knocks for everything from his "wired world" strategy to the recent bankruptcy of Charter Communications. Through it all, a perception has arisen that Allen was a neophyte investor who made his mark with Microsoft and since then -- in the words of a 2003 Newsweek story -- had a sort of  "reverse Midas touch."

With press like that, one might think that the world's 41st richest person would have given up on venture investing long ago -- perhaps to sail into the sunset on his 414 foot yacht. But Allen has continued to plow cash into startup companies through his private investment arm: Vulcan Capital.

The software billionaire's trusted lieutenants -- including recently appointed investment head Chris Temple and venture capital managing director Steve Hall -- say they remain committed to startup investing despite the tough economy. "For the most part, (the economy) hasn't changed our investment appetite," Hall said in a recent interview at Vulcan's airy 9th floor headquarters on the edge of Seattle's International District. "And, in many ways, we feel very well positioned."

Since 2003, Vulcan has invested $115 million in 20 startup companies -- more than a third of which are located in Washington state. Those range from the geothermal startup AltaRock Energy to the online real estate upstart Redfin.

Vulcan altered its venture capital strategy six years ago, but the transformation went relatively unnoticed in part because of the low-profile nature of the firm. Up until 2003, Vulcan was known for placing big bets. (In the 1990s, Allen invested in more than 100 media, Internet and communications companies, some of which consumed tens of millions of dollars and most which are now out of business.)

It was due to the high-profile flops of companies such as Mercata, Metricom and Pop.com that Allen was labeled a lousy investor, a tag that has been hard for the billionaire to shake.

"One of Vulcan's faults in the late 90s was too large of dollars and too late stage," said Hall, who ushered in a new era after he arrived on the job in 2002. Still, both Hall and Temple argued that Allen's solid investments -- Internap, Plains All American Pipeline, Blue Nile and others -- often get overlooked.

"The failures tend to get a lot of press," said Temple in a recent TechFlash interview. "There are some big companies and high-profile stuff, but we also have some stuff that is chugging along and doing quite well."

Still, the days of big venture bets are long gone. And now, Vulcan invests almost exclusively at the earliest stages of development, sometimes making seed stage bets of as little as $250,000. The Seattle Internet startups Gist and Evri, for example, were both incubated at Vulcan for less than $1 million.

Imperium Renewables raised just $250,000 through Vulcan, with the firm deciding not to invest anymore money after the troubled biodiesel refiner switched business models to focus on more large-scale production facilities. That turned out to be smart move given the meltdown of the biodiesel market.

Hall

"We are seeking to not be the big fish, deep pocket around the table," said Hall in explaining the strategy in a rare interview. "We believe we can be most competitive and achieve the best economics by being extremely early-stage focused. If you go back to areas where Paul has had the most excitement and the most value it is at these early-stages where you can see disruption and you can see innovation, and you are helping drive that."

The focus on small, early-stage bets is paying dividends, said Hall. To date, the Vulcan startup portfolio has raised more than half a billion dollars in follow-on investment from leading venture firms such as Kleiner Perkins Caufield & Byers, Khosla Ventures and NEA.

And while the entire venture business is down, Hall said Vulcan is running ahead of its peers. On average, venture funds of the 2003-2004 vintage have only returned 20 percent of the capital invested, while the top quartile funds founded during that time are returning nearly 40 percent. Vulcan, on the other hand, has returned 60 percent of the capital invested to date, Hall said.

"That's with extremely few write downs, which means that you have the high teens of shots on goal remaining of valid, active, well-funded companies," said Hall. When the final numbers are tallied, Hall believes that Vulcan could be in the top five percent of all venture funds for those vintage years.

Just last month, Brisbane, Calif.-based BiPar Sciences -- a biotechnology company that Vulcan bankrolled over several rounds to the tune of $13 million -- was sold for about $500 million. If milestones are met, Hall said the BiPar deal could return more than $100 million to the firm.

That would be the biggest payoff for Vulcan's venture portfolio since it reorganized in 2003. Despite that recent success, Hall said that Vulcan has moved away from biotechnology investing, once a key focus of the firm.

"Life sciences has been dialed back quite a bit," said Hall. "As a venture asset class -- and I am sure others will differ or find this statement debatable -- we have found it difficult to strike the right capital efficiency balance."

Hall said life sciences can produce big hits, but there are also cases where it takes $100 million to figure out if there is value in the business.

"The risk reward equation in biotech is just trickier for venture investors," he said.

The same could be said for clean tech, an industry segment where Vulcan is now spending a good deal of time. Vulcan has four portfolio companies in that arena: Infinia, Ember, AltaRock and a undisclosed stealth startup. However, Hall said they continue to follow the same investment thesis that was laid out years ago, to obtain deep domain expertise, get in early and make sure capital is deployed efficiently.

That's also the strategy for the semantic Web, an arena that's of intense interest to Vulcan with bets on companies such as ZoomInfo and Evri.

However, it's the inefficiencies of the past investments -- including big burn outs such as Charter as well as dozens of failed dot coms -- that still linger in people's minds. And Hall admits that those perceptions will be hard to change.

"Our view has been, let's just put our heads down, focus, execute and generate results and ultimately the results will speak for themselves," he said.