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June 15, 2000

Ten Fast Facts

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Encompass Ventures

WHO:
A venture capital firm founded by Yasuki Matsumoto in 1997.

WHAT:
Funds West Coast information technology companies.

WHERE:
Bellevue.

Fast Fact #1: Encompass Ventures receives 200 business plans a month.

Comment: Six of its portfolio companies completed initial public offerings last year: BSQUARE, Data Critical, F5 Networks, Primus Knowledge Solutions, Preview Systems and Uproar.

Fast Fact #2: Encompass Ventures closed a $31 million investment fund in March and is ready to put another $30 million fund to work.

Wager
Wager

Comment: Wayne Wager and Scot Land co-manage the funds. "It makes you very popular at cocktail parties," says Wager. "Everybody's got a deal."

Fast Fact #3: All of the company's investors are Japanese corporations.

Comment: Encompass Ventures founder Matsumoto is a former Microsoft executive who helped open the Japanese and Korean markets for the software company. In 1993, he left Microsoft to start a software localization company specializing in translating American software into Asian languages.

Fast Fact #4: Matsumoto's original company, Encompass, has since evolved into three divisions.

Comment: It all happened serendipitously, says Wager. First, Encompass began accepting stock instead of cash from some of its localization customers and helping customers crack the Asian market -- just like a business development firm. So, with three distinct businesses on his hands, Matsumoto divided his company. Encompass Globalization, based in Kirkland, is the localization operation. Encompass Japan, based in Tokyo, is the business development branch. And Encompass Ventures, based in Bellevue, is the venture capital arm.

Fast Fact #5: The firm's Japanese investors seek more than profits.

Comment: They also hope to gain insights about the latest technological trends here, says Wager. "I've never had a U.S. company not want to talk to one of our Japanese limited partners," he says. The quid pro quo is that Encompass Ventures has the connections to help American companies enter the Asian market at a much earlier stage than normal, says Wager.

Fast Fact #6: Encompass Ventures has focused on Internet infrastructure and b-to-b e-commerce.

Comment: Shunning such explosive sectors as biotech and b-to-c e-commerce required patience when those sectors were soaring, says Wager. "We kept saying, 'Are we missing something here? Does this really change everything?'"

Fast Fact #7: Encompass looks primarily at two things when evaluating proposals.

Comment: "The people are the most important thing," says Wager. After that comes the business plan. Call him old-fashioned, but Wager wants to know how the company plans to make money and what kind of a market exists for its product or service. In other words, "the dogs have to eat the dog food," he says.

Fast Fact #8: Wager blames a "frothy" climate for the recent fall in tech stocks.

Comment: "Investors over the past two years have had some unrealistic expectations about what the future would hold for some of these Internet companies," says Wager. People were receiving funding for business plans -- especially B-to-C -- that included absolutely no provisions for ever turning a profit, says Wager. Entrepreneurs would say, "If you're asking about profitability, you don't understand. We've got eyeballs!" recalls Wager. "It got so frothy you didn't even [receive] a plan."

Fast Fact #9: Wager says the deal flow has slowed.

Comments: In some cases, rejected B-to-C plans are being recycled. "They basically just scratch out the C and put a B in there," he says. Either way, proposals must be judged on their individual merits, says Wager. "Not all the B-to-C deals are dead and not all the B-to-B deals are good models."

Fast Fact #10: Encompass remains bullish on technology.

Comment: Bubbles will form and burst, but "this is such a robust and entrepreneurial environment that it's going to steam ahead," says Wager. Sectors the company likes for its new fund include wireless Internet and Internet health care.



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