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Managing without adversity

Howard Anderson is one of the alpha dogs of the local tech economy: a founder of the Yankee Group, a respected Boston forecasting firm, and Battery Ventures, the Wellesley venture capital partnership that backed Akamai Technologies and Nextel. These days, he is the managing director of YankeeTek Ventures, a Cambridge firm that makes early investments in start-up companies from a $60 million fund, and he writes a regular column for Network World, a trade publication in Southborough. In his spare time, Anderson dashes out of his Kendall Square office to teach several courses at MIT's Sloan School of Management, including one called ''Managing in Adversity."

So why is Anderson suddenly deciding to quit the venture capital game, opting not to raise a second fund for YankeeTek Ventures? Sure, it's hard for VCs to raise money and make intelligent investments lately. But whatever happened to managing in adversity?

In 1999, Anderson collected $60 million from several other venture capital firms, including Battery, Advent International, and Bain Capital, as well as a group of big tech companies like Novell, 3Com, and Nortel Networks. His objective was to invest in promising New England companies that made software, chips, and networking equipment.

YankeeTek's track record hasn't been spectacular. Several early investments disappeared without a trace, like Lydstrom Inc., which was developing a home server for digital music, and a company called Global Electronic Markets. Anderson backed three companies started by Ric Fulop, a Babson College dropout with a powerful entrepreneurial drive. (Only one of Fulop's companies, Watertown-based A123 Systems, which is developing a new kind of battery, is still alive.)

Another group of YankeeTek companies were sold off for undisclosed sums. The only two deals with dollar figures attached don't sound too sweet. One was Momentix, a start-up that made software that helped run trade shows. After YankeeTek and two other firms had invested $3.5 million, the company was sold for $100,000. AltaWorks of New Hampshire sucked in $35 million from firms including Prism Venture Partners and YankeeTek; it was sold for $3.5 million in October.

YankeeTek's top prospect is Egenera, a Marlboro manufacturer of modular ''blade" servers that filed to go public in June but hasn't yet made its debut.

Anderson acknowledges the fund-raising climate for venture capital firms ''isn't great," but says his decision not to raise a new YankeeTek fund is ''more about there being no good investments" in software and networking, two areas he has long specialized in. Anderson's bearish on the prospects for RFID and nanotech start-ups, and while he's optimistic about life sciences, he says that's an area where ''I have no special insight."

Other local VCs were surprised by Anderson's rationale.

''I'm not finding any shortage of interesting companies to look at," says Eric Janszen, whose firm, Trident Capital, raised a $400 million fund last month. One VC who asked to remain anonymous suggested that YankeeTek may have been too Anderson-centric, without other partners to check his investing impulses.

Todd Dagres, a former Battery investor and ex-Yankee Group telecom analyst, says that Anderson had tried to raise a second fund of about $100 million, but that ''he missed it by a whisker." Dagres implies that with a more seasoned team of fellow investors -- or if Anderson had waited until a few companies from the first fund had paid off -- Anderson might have had better luck putting together a sequel.

''He knows how to make money," Dagres says. ''He's proven that time and time again. I think he'll be back, but he's going to take a breather."

''I really think highly of Howard," says Sonia Khademi, who was briefly chief executive of Chinook Communications, a YankeeTek investment that went out of business in 2002. ''My gut tells me that maybe he wants to retire. I don't buy the concept that there are not good companies around. I do think that he's had a tough time with his portfolio."

Anderson doesn't sound like he's retiring quite yet, though he is ruminating about running the New York City marathon (again) and biking across America. He plans to make investments with his own money; one successful deal was Sonus Networks, which Anderson says returned 100 times his initial investment. (But that deal didn't benefit YankeeTek's backers.)

And later this year, he'll announce YankeeTek Advisors, a group of a half-dozen former chief executives who will offer pro bono consulting services to local nonprofits.

''It seems like a good thing to do for the next five years," Anderson says. ''And we wouldn't need a fee because we're already rich."

Paper tigerTry to carbon-date this nutty idea: A website will give you 250 free business cards, just for trying its online printing service. The only catch is that you pay $5 shipping, and that your cards come with an ad on the back promoting the site.

But unlike the other ''e-printing" companies of the dot-com era (iPrint, PrintCafe, ImageX, all defunct), VistaPrint used that gimmicky come-on to become profitable in 2001, and to grow to 400 employees.

Now, the company reportedly rakes in more than $60 million a year and is regarded as a hot IPO prospect.

Rather than just talking about reinventing an industry, as many e-printing companies did, VistaPrint actually did the hard work. The company built two highly automated printing plants (one in the Netherlands, another in Canada that will be operational later this year) that group large numbers of small orders together and print them on giant presses.

''Each order we get requires less than 60 seconds of labor," says chief executive Robert Keane.

''We print on the same kind of equipment usually used to print product packaging, like a Tylenol box, which fundamentally changes the economics of the business. A typical printer's profit margins are 25 percent. Ours are double that."

What makes the company especially interesting is that it has attracted $69 million of venture capital, money the investors would like to someday earn a nice return on by way of an IPO.

VistaPrint's biggest investor happens to be the company's next-door neighbor in Lexington: Highland Capital Partners, which invested $40 million in November. (Interestingly, Highland had previously sunk several million into another e-printing company, CardStore.com, which didn't turn out well.)

And all those free business cards?

''People just think we're weird," Keane says. ''We see it as a marketing cost."

Keane says that 54 percent of the individuals and small-business owners who get free cards later place a paying order with VistaPrint.

But what Keane won't say is whether an IPO is in the cards: ''Our lawyers have told us we can't comment on our future financing plans."

Scott Kirsner is a contributing editor at Fast Company. He can be reached at skirsner@verizon.net.

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