FedCap Update

An article in the Washington Post gives us an update on new defense PE entrant FedCap Partners. FedCap is led by the husband-and-wife team of the former co-founder of the investment banking firm the Windsor Group, and former chief of marketing at SI international. FedCap targets minority investments in small, tehcnology firms serving the Defense and Government Services sector.

The firm has been ramping up its investments, announcing late last month it has acquired Point One, an Arlington cybersecurity business. FedCap has also made minority investments in Fairfax-based Global Analytic Information Technology Services, an information technology business focused on the Energy Department, and Fredericksburg-based IntelliWare Systems, which offers national security advisory services. On Friday, it said it had made a minority investment in Global Resource Solutions, a defense contractor with offices in Washington state and Alexandria.

I have expressed some skepticism before about the minority investment approach. But in 18 months FedCap has closed on 4 transactions after raising $30m in capital, which they say will be fully deployed in the next 6 months. So let's watch for the exits.

FedCap makes investment

In March of last year I reported on the stand-up of a new fund called FedCap Partners, led by Rick Knop and Leslee Belluchie. FedCap intends to make minority investments of $1-5M in small companies in the defense & government services/technology sector, and I wondered how exactly this would work, remarking: 

"From the description above it is hard to judge exactly what they are trying to do. Minority stakes in small businesses? I can't see the exit there, but FedCap maybe has something figured out."

Since then they have filled out their website and made an investment in Intelliware Systems, a N. Virgina based firm providing engineering & technical services to Government customers. Details in the press release here. Intelliware CEO Dick Barnett says:

Their investment will allow us to enhance our services and solutions in support of the customers’ mission through acquisition, strategic hiring, and back office upgrades. Because FedCap is a minority investor, our employee shareholders of IntelliWare will retain control of the Company and day-to-day operations.

Let's watch. Just barely filed under the 'buyout' category.

New fund by FedCap Partners

FedCap Partners LLC has closed a new $20M private equity fund targeted at small Federal contractors in the defense and intel sectors. From their press release, FedCap describes their strategy as follows:

Two primary factors have disproportionately adversely affected small and medium sized Federal contractors in recent years. First, the continuing "capital crunch" has impacted Federal contractors under $50 million in revenue and minority equity capital is in short supply. Secondly, the Small Business Administration's ("SBA") recertification rule has made it much more difficult for companies with 20% or more in "set-aside" revenue to sell and receive fair market value for their businesses. FedCap expects to partner with owners of companies impacted by these issues and provide capital and advice to transition contracts and accelerate growth.

The fund managers/owners are Rick Knop and Leslee Belluchie. Knop previously founded the defense investment banking specialists Windsor Group (now part of BB&T Capital Markets). Belluchie is a former Executive VP for SI International, by way of business development posts at CSC. A board of advisors with 7 members is also listed on their work-in-progress website.

We'll be looking forward to info about their first deals. From the description above it is hard to judge exactly what they are trying to do. Minority stakes in small businesses? I can't see the exit there, but FedCap maybe has something figured out.