By Robert Burke

From its humble beginnings long before the high-tech revolution went into full swing, Columbia Capital has arguably done more than any single firm to finance successfully what politicians down in Richmond love to call "the Digital Dominion." It has laid the foundations for a slew of new gizmos from cellular phones to advanced switching systems and wireless voice and data. By drawing on money invested by farsighted individuals and fund managers, Columbia Capital has bankrolled such high-tech stars as Telular and Nextel, helping to grow Virginia’s technology sector.

It’s risky business, to be sure. About 75 percent of Columbia’s money goes into early stage ventures where the risks are as great as the rewards. Many venture capital firms end up as road kill. Not Columbia Capital. Over the past 12 years, Columbia has funded about 60 high-technology companies. Only three have gone sour. (See comparison of Columbia Capital with national venture capital leaders.)

In the process, it has managed an internal rate of return of more than 100 percent. "We’ve done as many deals as just about anybody in the communications sectors," says partner Jim Fleming. "We know the players and we know the trends."

Even as many VC outfits were circling the wagons after Nasdaq’s precipitous fall this past spring, Columbia was on the prowl for even more money, raising an $856 million fund from investors such as Deutschebanc Alex.Brown and the Philadelphia Board of Pensions and Retirement. Columbia still has enough cachet to draw in top financial brains even though most of its founders have moved on to other projects. New partner John Siegel, for example, joined in May after three years with Morgan Stanley Dean Witter Capital Partners. When he signed up, he turned down a bevy of offers to join Columbia’s low-key culture. "You have almost no time spent on positioning inside the group," he says. "You get to the meat of the ideas a lot quicker."

But perhaps most important for Virginia, Columbia Capital is an incubator of sorts, not just of start-ups, but of a new breed of politician. It is the launching pad for Warner, 45, who is running on the Democratic ticket for governor in 2001 after losing a bid to oust Republican Senator John Warner four years ago. If elected, Warner would be the first-ever venture capitalist to run Virginia government. His election would represent a major changing of the guard, from the moderate and hard-right lawyers, some leftovers from the Byrd Machine, to something smarter, riskier and more modern.

But that’s a big if. Warner has to overcome enormous obstacles. For one, he’s a rich Democrat in a state that likes penny-pinching Republicans. He lost the 1996 race, for example, by six percentage points in a year when Bill Clinton nearly won the state. Granted, he was facing an incumbent with few weaknesses, but Virginia’s GOP leanings are a good reason for Warner to downplay the partisan. Plus, Virginians have generally favored governors who have won elections before, says author and political pundit Larry Sabato. Republican Linwood Holton is the only governor in the past 100 years to win without having ever held office, but he had already run a number of times. "It will be highly unusual if Warner is elected," Sabato says. "He will have to break the mold to win, but he’s got the finances to do just that."

Warner might not be so unpalatable for centrist Republicans, says James Murray, a Columbia co-founder now living in Charlottesville and working on a book about the cellular industry. Warner has a free-market philosophy in many areas and would apply his business background to running the state, Murray says. "When was the last time we had a governor who was responsible for running his own business?" he asks. "I think it’s going to be somewhere between difficult and impossible to paint this guy as a tax-and-spend liberal Democrat."

Warner’s performance at Columbia can provide clues on what his governorship would be like. Don’t count on a hands-on leader. "He’s a rainmaker, an ideas guy," says partner Phil Herget, who joined Columbia in 1992. Warner is "very well-connected and very entrepreneurial in his spirit. ... He has always said, ‘I’m not the guy to work these deals on a day-to-day basis.’ That’s just been his style." Sabato says that what happens to Warner in the next year may have a bigger impact. "Candidates are shaped by the specifics of the campaign. And it’s just too early to talk about what his attitude would be in office," he says.

If Columbia’s story is an example of what Warner bodes, its success is a combination of strategy and luck. Few could have predicted the changes in communications technologies, says partner Fleming, who sits on the boards of directors for five portfolio companies including Global Metro Networks, which got $240 million in venture money this summer to build fiber-optic networks. "There’s something to be said for being in the right place at the right time."

And Columbia Capital has shown that it can learn from mistakes. Two years ago the firm led a group of investors in creating WNP Communications in order to buy wireless spectrum licenses at an April 1998 Federal Communications Commission auction. The deal worked — WNP grabbed a huge share of the available spectrum for a mere $186.9 million. But it didn’t pay off so well for Columbia. The firm’s partners, who had done a major share of the work on the deal, could only afford a $5 million share of equity. Other venture firms did less work but had more money in the deal. A year later, Nextlink Communications bought WNP for a whopping $698.2 million.

Columbia took the lesson to heart. "We never like to not be number one," says Columbia partner Harry Hopper. "So we went out and fixed that." In March 1999 they raised a $460 million fund, the firm’s first public fund, and nearly quadrupled the total amount in personal assets and profits that the partners had invested in the previous 10 years. This past summer, they closed a second public fund at $856 million, giving the firm a total of $1.3 billion in assets under management. "Now we have enough money. We’re not going to get beat by not having enough money," Hopper says.

The new funds have helped solidify Columbia’s place as the region’s leading venture firm at a time when investment in communications sectors — and in the Washington region — is exploding. In the second quarter of this year, total venture investments in the Washington region hit $1.15 billion, compared with just $114 million in the first quarter of 1999. Columbia’s success underscores the strength of Northern Virginia’s tech market and how that should sustain its leading role as a regional player in coming years. The springtime Nasdaq drop sent shivers across the tech sector nationally. But Northern Virginia, with its reliance upon telecommunications and Internet software rather than straight electronic commerce, seems to have weathered the storm. As wireless technologies expand even more in the next several years, Columbia’s positions should become even stronger since so many are based in Northern Virginia.

Clearly, Columbia Capital has its stamp on Warner even though it’s not certain how much influence he’ll have at the firm should he become governor. He dropped out of the day-to-day dealings during his unsuccessful 1996 Senate campaign and hasn’t had much involvement since then. But he’s still a partner, the only one remaining of the original five.

During the upcoming campaign, Warner says he’ll preach the message of the New Economy — of a world "more defined by those policy makers who get it ... versus those who don’t. And I see an opportunity for Virginia to be one of the places that gets it." If voters buy that, then Warner’s techno-entrepreneur background could give him a leg up. He thinks it will. "A lot of what I bring to the table will be the experiences I’ve gained here with these folks," he says.

"These folks" are decidedly atypical as an incubator for the kind of politician Virginia is used to. They are urbane and young with resumes from top universities such as Stanford, Chicago and Princeton. There’s not much hierarchy, and investments are decided at their Monday morning meetings. Votes are cast after everyone from the newest partner on up gets to ask questions. The dress is casual — polo shirts are pretty common — and the partners set their own schedules.

Everyone seems to get along, and the mood in the office is relaxed. After a Monday meeting the group shared a pizza lunch served on paper plates and stood chatting in the firm’s lobby, looking like a fraternity reunion. The collegiality is ingrained in the firm’s character, Hopper says. It is an approach that they believe defines their particular value. "It’s truly a partnership. When it works at its best, everyone is contributing their own unique assets," he says. Getting along is especially important with a partnership this large. It’s bigger than most firms managing similar-sized funds, Hopper says. "You have to invest in that approach in real tangible ways ... everyone around here has to share with each other in order to allow that many people to participate in what we do."

Letting others participate is what the founding partners had in mind in the past few years, says co-founder Jim Murray. By 1998, Murray says, the founders had already sold or given part of the firm to the next generation of Herget, Fleming and Hopper. "The succession plan was for us to grant more ownership to them and they in turn to grant more ownership to the third generation, if you will, which has happened with this latest fund." The founders mapped out this plan to keep Columbia from breaking apart, as many venture funds do when senior partners won’t share the rewards. "We were determined that wouldn’t happen, that instead we’d construct an economic model that encouraged everyone to stay and continue to build the firm that we’d founded."

More to specifics, another key Columbia strategy is exploiting two of its areas of expertise — communications technologies and services. Partners say investments in next-generation hardware give them clues to what new communication services they should pursue. Conversely, the service providers they know tell them what new technologies they need — and so on. Herget says the firm’s commitment to focusing on communications makes that synergy possible. "By not trying to delve into health care or anything like that, we feel like we’re really on top of what’s going on," he says.

That kind of confidence is what lets them invest in early-stage companies. Historically, 75 percent of the firm’s capital has gone to seed- or early-stage financing. They like to find good ideas and bright managers, match the two together and then get involved in every level of building the business.

One manager Columbia favors is Earle MacKenzie. He had been COO for a digital television company the firm founded in 1995 that was bought by Pegasus Communications two years ago. Afterward, Columbia invited MacKenzie to be its entrepreneur-in-residence and look for what he wanted to do next. That wound up being the Charlottesville-based Broadslate Networks, a provider of broadband services for small- to medium-sized businesses. "It was kind of unique," MacKenzie says. "They said, ‘Why don’t you write a business plan and we’d like to fund you.’" The company grew from zero employees a year ago to 180 and this summer rolled out its service in five cities.

Columbia cultivates its relationships with people like MacKenzie because the fast changes in the communications sector inflate the importance of who you know. "We’re always talking with people that are in these large carriers or in these large technology companies, working with them, getting to know them," Herget says. "When those guys get the entrepreneurial bug and decide they want to go out and start their own deal or become a part of an early-stage venture, we’ve already got those relationships."

Sometimes the partners are looking for the right management team for one of their own ideas. The Silver Spring, Md. -based Global Metro Networks was incubated for nine months in offices a floor above Columbia before they found the team they wanted. The new company is building a fiber-optic network in major cities in the United States and Europe. The Global deal, in fact, is a good example of why Columbia had to raise more than $1 billion in new capital. Says Herget: "It’s very capital-intensive to get these companies off the ground. We just didn’t have a big enough capital base. When you’re going to play in the service-provider environment, which is something we absolutely wanted to do, you have to have a large pool of capital behind you."

It apparently cost even more than they expected. The first public fund of $460 million was gone in a year. The $856 million fund is expected to last anywhere from two to four years. There will likely be another; the partners are looking for more opportunities in wireless and broadband markets. "We know these wireless carriers don’t have the infrastructure in place to deliver third-generation wireless," Herget says. And they expect to do more deals locally. Five or six years ago the local deals they executed sprang from their own ideas. Today, big companies like UUNet and America Online are spinning off new ideas. "Those kinds of companies will generate opportunities for this region for the next 20 years," says partner Karl Khoury.

Columbia’s future may include even less of Mark Warner than before. He’s been a key player since the mid-1980s when he met co-founders Robert Blow, James Murray and Dave Mixer while doing deals in the fledgling cellular phone industry. They started as Columbia Cellular, buying and selling cellular franchises, before forming Columbia Capital. Soon after they were joined by Mark Kington, who brought a banking background. By the early 1990s they were migrating toward investments and putting their own money into new companies like Telular. The founders stuck around as managing partners until this summer, when all but Warner left the firm to pursue other interests.

But if Warner succeeds in his gubernatorial bid next year he’ll sever his ties there and put his investments in a blind trust. If he loses, he’s still got a number of other interests. He’s helped launch four small venture-capital funds around the state and is working on a fifth in the Shenandoah Valley. Southwest One was the first fund, founded in 1998 in Blacksburg. Since then it’s been joined by Monument Capital in Richmond, Envest in Hampton Roads, and Southside Rising, which is managed by Gryphon Capital Partners of Roanoke.

So far, the funds have done about 15 deals, Warner says. Monument Capital has invested in nine early stage companies, such as Homebytes.com, a Web-based real-estate company based in Richmond that lets people sell their homes without a Realtor. The funds have about $70 million in assets under management, says T.J. Daly, managing member for Monument Capital.

They’ve also given Warner a presence in downstate regions that might look skeptically on a Northern Virginia Democrat. Warner clearly plans to make the economic growth of areas like Southside and Southwest Virginia a part of his campaign. "Unless we make some changes, some of those communities will die," he says, citing Martinsville’s recent losses of textile jobs.

Warner has long had an appetite for politics and public office. He was a volunteer on Democratic campaigns while still at Yale, worked as a party fundraiser and was chairman of the Virginia Democratic Party. Why does he want to be governor? "I think the transition to the New Economy is going to change everything," he says. "I don’t think most policy makers understand that. I can bring a perspective to the governor’s mansion that would be unique, that would help make sure there’s not a wide swath of Virginia left behind."

Being left behind is not in Columbia Capital’s plans either. By raising its assets under management to more than $1 billion, it joins a relatively elite group of venture firms around the country working at that level — about 25, according to the National Venture Capital Association. Plus, the firm is in a hot sector — the public appetite for next-generation wireless and broadband access shows no signs of slowing down. And with a new cadre of young talent on board, Columbia seems ready to launch itself to the next level.