Photo by Nicholas Griner Alain Hanash, co-founder and CEO of Multicity.com, knows what it is to climb into the venture capital ring and battle for dollars. He's had VC firm Draper Atlantic in his corner since 1999.

Like many early-stage venture capital firms in the Potomac region, Draper Atlantic has money to invest. In fact, the Reston, Va.-based business has enough cash for about 10 more deals.

But like their fellow VCs elsewhere, Draper Atlantic's managers are busy trying to make sure that the companies already in their portfolio generate profits. As a result, new investments are on the back burner or, in some cases, superseded by alternative investment strategies.

"If we didn't have 21 active companies that we're working with, we'd probably be investing at a faster pace," said John Backus, Draper Atlantic managing partner.

The life of an early-stage venture capitalist these days goes beyond merely occupying a seat on a portfolio company's board. For firms like Draper Atlantic, the role is more akin to a full-time member of the firm's management team.

"We expect to hop on an airplane and help our companies do whatever it takes to be successful," Backus said. "Of the 21 active companies in our portfolio, 19 have revenue-producing customers today."

Multicity.com, of Vienna, Va., builds online communities. It got its first round of funding from Draper Atlantic in 1999. Since then, the VC's role has clearly evolved.

"At the beginning, they played a role where they would participate, but they were very hands off," said Alain Hanash, chief executive officer and co-founder of Multicity.com. "Now we're in discussion on a weekly if not a daily basis."

The 3-year-old company gets daily sales leads from the VC firm and includes firm managers in monthly strategy discussions. Backus recently wrote a personal e-mail to a high-level Sun executive to start a dialog with Multicity about integrating some of the two companies' products.

While early-stage venture capitalists have always taken an active role in the companies they invest in, the intense level of involvement today may be a reaction to the many companies lost in the dot-com bust.

Draper too lost some of its own along the way. Roku Technologies, a Chantilly, Va.-based software developer that received $1 million from Draper Atlantic in October 1999, ceased operations in May 2001, and its remaining assets were eventually bought by Engenia Software of Reston.

The lesson Backus learned from Roku was make sure the other venture capitalists brought in on a deal could participate in follow-on rounds. "I think we'll be more cautious in taking follow-on financing risks, meaning we're going to want to make sure the group we go in with when we make an initial investment has the wherewithal to take the company comfortably to profitability," he explained.

Potomac area early-stage VC firms are spending more time than ever carefully guiding their current portfolio companies and being innovative in how they go about it.

For example, Walker Ventures, a Glenwood, Md., firm that kept most of its investments below $1 million, launched an initiative late last year to help young emerging-technology companies develop and sell their products through strategic partnerships with Walker's portfolio companies.

Steve Walker, the founder of Walker Ventures, said the idea was inspired by what he saw as the inability of young technology startups to build marketing and sales teams strong enough to make them profitable. He picked SecureMethods, an information security firm based in Vienna, Va., to launch the initiative.

Walker was unavailable to comment on the progress of the initiative. But in November he said he was looking for two or three smaller security companies to share the sales and marketing departments of SecureMethods, giving the young companies the ability to focus on developing their own products.

Mohr, Davidow Ventures, a Silicon Valley-based, early-stage venture capital firm that opened an office in McLean, Va., in 1999, has adopted the region's slower, more cautious investment pace. The firm recently secured new space in Reston so it could house its portfolio companies only a cubicle or two away.

Mohr, Davidow, which is making investments from an $850 million fund, is looking for pre-early-stage deals, generally business ideas developed at research universities. The firm also started an Entrepreneur-in-Residence program late last year, giving office space and a salary to unemployed, but sharp entrepreneurs to scout out potential investments and to develop their own ideas for new companies.

"They can come hang out here, use our resources and we'll seed-fund [them]," said Michael Sheridan, general partner at Mohr, Davidow. "We've had some pretty interesting companies start that way."

Mohr, Davidow's East Coast office has made two investments: one to Zagros Networks, which received $6.3 million from Mohr, Davidow and Novak Biddle Venture Partners. The other to Panasas Inc., a developer of network storage technology, now based in Fremont, Calif.

Sheridan has found "a couple of potential" deals locally and at least one candidate for the Entrepreneur-in-Residence program.

"If we're going to do this, we have to be willing to come in and be active," Sheridan said.

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