Political Insiders Turn Angel Investors in Lobbying Twist

Tony Fratto married young and says he had no experience with digital dating. Over a candle-lit steak dinner, the former spokesman for President George W. Bush got an education.

The creators of Hinge, an application that allows Facebook users to peruse, rate, and be introduced to others in their extended network whom they find attractive, stood before Fratto and his associates March 21 seeking money.

In a twist on the revolving door of former political aides being paid to use their influence, Fratto and about a dozen partners started a bipartisan angel network that invests in early-stage Washington companies and uses its connections to help make the bets pay off.

“Each of those guys brings a Rolodex with them,” said Dan Berger, chief executive of Social Tables, which provides seating software for event planners. “That’s the value. When they go to their cocktail parties and receptions, it helps. This is a town that talks.”

In a region that spawned America Online, yet has venture capital and angel activity a fraction of Silicon Valley’s, Fratto said his group sees need, opportunity and even fun.

“They’re not mixing in the same world that we are in media and politics and government,” he said. “So we can help them get into those circles.”

“We want to support the firms that are here because some of them are undervalued, you know, and we’d like to see them stay here,” Fratto said. “But we want to make money. So we put money into really smart firms and see which ones are worth the bet.”

Side Projects

The group, called K Street Capital, has invested $150,000 in five startups, including Social Tables. It’s “one of those companies you would have thought, ’why didn’t I think of that’ because it’s so obvious,” said Penny Lee, a former aide to Senate Majority Leader Harry Reid.

The idea for K Street Capital stemmed from a dinner at P.J. Clarke’s, a Washington restaurant with a members-only basement bar catering to the political elite. Evan Burfield, founder of an incubator called 1776, and entrepreneur Blake Hall were giving media executive Peter Cherukuri an education on startups.

Cherukuri, recalling the conversation in an interview, said some friends were looking for investments in their lives after politics and could be a resource for entrepreneurs with few connections.

“I said, wait a second, I can bring these people together,” he said. “There’s a lot of intellectual capacity that I thought was underutilized. They were talking about doing things like investing in restaurants and other side projects.”

Political Passes

In addition to Fratto, now a partner at consulting firm Hamilton Strategies; Cherukuri, a senior vice president at Politico; and Lee, senior adviser at Venn Strategies, K Street Capital includes lobbyist and Democratic fundraiser Heather Podesta, and Edelman’s David Almacy, who oversaw the White House website during the Bush administration.

Early on, the group got pitches mostly from technology companies with a political focus -- and passed. “We almost were too smart for our own good,” Lee said. “We probably dissected them a little bit too greatly, knowing what we knew having been a little bit more on the practical side.”

Social Tables’ Berger said the check from K Street’s angels was $25,000, out of more than $500,000 the company raised. The added benefits came in introductions, such as when Lee connected the company with Kimball Stroud, who managed inauguration events for President Bill Clinton and now arranges awards dinners and receptions for ambassadors and the entertainment industry.

Washington Rising

Venture activity in Washington is dwarfed by the technology powerhouses of Silicon Valley, New York and Boston. Funding from venture capitalists and angel investors in the District of Columbia, Virginia and Maryland was $1.29 billion last year. In Silicon Valley, funding for the fourth quarter alone was about $2.5 billion.

Still, the number of deals in Washington in the fourth quarter was the highest in any three-month period in the past five years, according to CB Insights, an angel investment research company.

Steve Case, the AOL co-founder turned venture capitalist, said Washington’s connection to policy can help tech startups focusing on health and education. Case is chief executive officer of Washington-based investment firm Revolution LLC, an early investor in LivingSocial Inc., on online-discount service.

“Silicon Valley is still the leader nationally in terms of entrepreneurship,” Case said. “New York is a strong second. But D.C. is in that next tier that really is rising.”

Prince Charming

In addition to Social Tables, K Street Capital last week announced a $75,000 investment in Dashboard.io, which aggregates data for startups and their angel investors.

Hinge generated lively conversation at the group’s recent dinner three blocks from the White House. Its 28-year-old founder, Bennett Richardson, brought a novel connection to his pitch: he was once a bouncer at a Georgetown nightspot where customers included Bush’s daughters Jenna and Barbara.

Richardson, wearing black-framed glasses and a button-down shirt, told the group that young professionals want more anonymity than online dating provides.

“They don’t think they’d find the right kind of person online,” Richardson said. “If I don’t want to join an online dating site, why would my Prince Charming want to join an online dating site?”

In choosing a dating partner, people want to use their own networks first, Bennett said. Social networking sites provide an opportunity to remove the stigma and ensure suitors aren’t strangers, he said.

The pitch worked. K Street Capital committed to investing $25,000, pending approval of plans for expanding beyond Washington.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE