Rust Ventures, of Austin, Tex., has agreed two times to fund a company that the founders didn't plan to manage themselves, at least not on a daily basis. A third deal is in the works.
Such arrangements are relatively new among venture-backed companies and increasingly popular, mostly in nontechnology businesses with such mundane products as laminates for kitchencounter tops. Experienced entrepreneurs plan strategy, start or buy out a company, and hire a team to run its day-to-day operations. Venture capitalists provide additional capital and advice, but they commit much less time than with conventional start-ups.
The founders may come to work every day at first, but once the business is up and running, they manage only when it goes awry. "Rather than have the venture capitalists step in, which is the forerunner of disaster, you have the founders to roll up their sleeves and do the job," says Joe Aragona, a Rust Ventures partner.