Granite Carves an Identity of Its Own - Company Business and Marketing

One of the first venture arms to be set up at an investment bank, Granite Ventures finally breaks from its image as an H&Q unit.

WHEN HAMBRECHT & QUIST Venture Associates changed its name to Granite Ventures earlier this month, it marked the culmination of a process that began two years ago.

Hambrecht set up its venture arm in the mid-1980s, one of the earliest VC efforts by an investment bank; it was largely a pet project of H&Q founder Bill Hambrecht. In July 1998, the unit split away from the bank, in part because H&Q went public and would have had a hard time forecasting return figures from its venture arm. After the IPO, there was speculation H&Q would be bought by Merrill Lynch or some other big bank.

A merger did happen in 1999, but with Chase Manhattan Bank. Rather than folding H&Q Venture Associates into Chase's already growing private equity family, the unit was left in a venture limbo, where its name and brand suggested ties that no longer existed.

"A large part of the name change was to clean up some branding confusion," says Chris Hollenbeck, managing director at Granite. "We thought there was a lot of brand equity in the H&Q name, but when people thought about the name they thought of an investment bank."

So after 14 years in the shadows of a larger entity, the venture firm is stepping into a more visible role. Granite has invested in early stage companies to the tune of $500,000 to $4 million a pop. It has shied away from the e-commerce consumer plays, focusing instead on Web infrastructure and software.

While that approach may have cost the firm some high-profile winners in 1999, Granite invested in companies that executed successful IPOs, including Siebel Systems, Sierra Wireless and Tumbleweed Software, which have risen several times over from their initial offering prices. But the firm also backed content site Salon.com, which is worth less than a fifth of its 1999 offering price.

While Granite recently hired two new partners, Hollenbeck says its structure won't change. Granite has long relied not on pension funds and endowments for capital, but on corporations and wealthy individuals: Limited partners include Adobe and Texas Instruments.

And that's no small thing, according to Eric Hautemont, managing director of Ridge Ventures, a co investor with Granite in Tumbleweed Software.

"Where they really differentiated themselves is in being instrumental in helping with Tumbleweed's strategic relationship with Adobe Systems," Hautemont says. "Tumbleweed also has many relationships with financial services firms and with their banking contacts at H&Q, Granite has been a tremendous help with that."

There was some discussion about whether the firm would change its structure as it further split from the investment bank parent, but Hollenbeck says that won't happen.

"We've talked about it in the context of where do we go from here. But we made the decision not to raise management fees and not go the traditional route of pension funds and the like. We still want to invest strategically with our partners."

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