After big losses, Paul Allen revamps VC unit by going small

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.

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