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The 2008 Inc. 500 Investor's Guide

Four venture capitalists peruse the list of fastest-growing companies and tell us what looks good.

By Max Chafkin |  @chafkin   | 
 

Now is far from the best time for an entrepreneur to try to raise money. Venture capital investment has been flat this year, and initial public offerings, the vehicles by which VCs achieve their outsize returns, have been almost nonexistent. "It's never been harder to create the kind of company that VCs look for," says Jim Armstrong, a managing director in the Santa Monica, California, office of Clearstone Venture Partners. The ideal candidate for venture backing, he says, has the potential to quickly become a public company worth at least $1 billion -- a tall order in this economy. Even so, venture capitalists, by their nature, are always on the lookout for an interesting deal, and many firms are sitting on huge war chests of capital raised over the past few years. So, as part of an annual exercise, we asked Armstrong and partners at three other firms that invest in young, fast-growing companies to take a look at this year's Inc. 500 (which we published in September, and which you can find at Inc.com). Please note that the panel was given no information beyond what was printed in the magazine: no balance sheets, no business plans, and -- gasp! -- no PowerPoint decks. Nevertheless, the VCs gamely told us which companies caught their fancy.

Todd Dagres is a founder of and general partner with Spark Capital. Based in Boston, the firm manages $640 million in two funds and has invested in Web 2.0 standouts Twitter, Veoh, and thePlatform.

The Industry: Energy

Solar Liberty (No. 92)

Buffalo
2007 revenue: $15.7 million
What it does: Installs solar electric systems for homes and businesses

"High oil prices are creating big opportunities in energy," Dagres says. "Normally, I would bet on a company with intellectual property, which Solar Liberty doesn't seem to have. But a lot of companies are developing solar technologies and, as an installer, Solar Liberty can wait to choose the technology that works the best. That puts these guys in a pretty good position." (Reflecting solar's popularity, Armstrong also identified Borrego Solar Systems as a company to watch. For more on Borrego, see Cool, Determined & Under 30.)

Transportation

Zipcar (No. 327)

Cambridge, Massachusetts
2007 revenue: $59 million
What it does: Operates a car-rental service in cities such as New York and San Francisco

"I like the fact that Zipcar is using technology to disrupt a huge market, that they're going after the most attractive geographical segments, and that they're capturing a young demographic," Dagres says. "The big rental car companies could compete with Zipcar, but it would take a while for them to catch up, and Zipcar has some patents. More likely, one of the rental companies will one day buy Zipcar, or the company will go public someday."

Media

Delivery Agent (No. 49)

San Francisco
2007 revenue: $22.6 million
What it does: Creates media-company websites at which, for example, a consumer can buy the shoes she saw Carrie wearing in Sex and the City

"I should say up front that I have a tiny investment in this company through another fund," Dagres says. "I think Delivery Agent could be the next Home Shopping Network. The company helps TV networks and film studios sell products that are featured in their shows and movies. They're inventing a new kind of shopping experience. Plus, the entertainment industry tends to be countercyclical. When times are bad, people still go to the movies to escape."

Dave Furneaux is founder and managing director of Kodiak Venture Partners, based in Waltham, Massachusetts. The firm manages $676 million in three funds and focuses on early stage deals, primarily in the Northeast and Canada. Its portfolio includes Live Gamer and Hanger Network.

Media

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    • Max Chafkin

    Senior writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York.


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