Crossing the US for the next deal

Late last year, as JibJab Media's animated videos were popping up on computer screens around his Waltham office, venture capitalist Jonathan A. Flint clicked on one of its racy political spoofs called "Good to be in D.C." Then he picked up the phone and called JibJab's cofounder and chief executive, Gregg Spiridellis, in California.

That cold call from Flint, general managing partner at Polaris Venture Partners, sparked a dialog between the Route 128 venture investor and the Santa Monica creative team famous for online political satires viewed more than 100 million times worldwide. It culminated in June, when JibJab closed on a first round of funding with Polaris.

"They clearly had a website that they wanted to monetize," Flint said. "And we've clearly made a contribution to their business model."

The cross-country collaboration can be seen as an example of the central role the Boston area venture capital industry continues to play in fueling national entrepreneurial start-ups. But it also underscores the changing rules of the funding game at a time when venture firms, mindful of the new economics of Internet start-ups, are looking farther afield for promising investments, especially in the fast-growing consumer Internet field anchored on the West Coast.

Indeed, with the Boston area slow to spawn a new generation of Internet companies, the share of dollars invested by area venture firms outside the region has climbed from 62.4 percent in 2003 to 69.9 percent last year, according to figures from the National Venture Capital Association.

In the first nine months of this year, Polaris alone put $86.5 million into out-of-state start-ups, trailing Lexington's Highland Capital Partners, which invested $113.8 million out of state, and Waltham's Advanced Technology Ventures, which invested $98 million.

The list of outside entrepreneurs raising money in Boston reads like a who's who of so-called Web 2.0 companies, from JibJab and Heavy, a broadband entertainment start-up also in the Polaris portfolio, to the Highland-backed Quigo Technologies, a contextual advertising and search company, and Kayak.com, a travel search engine funded by General Catalyst Partners in Cambridge.

"If I'm a venture guy, I'm looking for someone who has the potential to hit a home run, no matter where they're located," said Ian B. Carver , executive director of the entrepreneurial services center at PricewaterhouseCoopers in Cambridge. "There aren't that many media deals or consumer deals that meet that criteria here because that entrepreneurial base is heavier in other parts of the country."

To be sure, Greater Boston has generated some consumer Internet businesses of its own, start-ups like Internet television toolmaker Brightcove of Cambridge and social networking site HeyLetsGo of Boston. Even the Norwalk, Conn.-based Kayak has a founder and a development team working from an office in Concord.

"New England is a terrific place for innovation," said Joel Cutler , a managing director of General Catalyst. "And it's not only in the infrastructure area, it's also in the consumer area. There is no shortage of people here who are creative, smart, and hungry."

The venture industry was born in New England, just after World War II, to provide risk capital to start-ups in exchange for stock that could be cashed out at huge profits when the companies went public or were sold. French-born Georges Doriot , a naturalized US citizen, has been credited with establishing the first venture firm, American Research & Development, in Boston in 1946.

As the new style of investing spread nationally and began tapping institutional investors such as pension funds and university endowments as limited partners, it helped to spur the growth of technology-based industries. Venture capitalists fueled the minicomputer revolution along Route 128 in the 1970s, and later bankrolled the personal computer, Internet, and life sciences booms on both coasts.

While the largest US venture capital hub today is in the San Francisco Bay area and Silicon Valley to its south, New England, with much of its activity focused in the Boston area, continues to rank as the second- or third-largest venture center each quarter, both in dollars invested from here and in funds raised by area entrepreneurs. But many of the leading New England venture firms have also opened satellite offices in Silicon Valley or elsewhere on the West Coast.

"It wasn't that long ago when we talked to VCs in Silicon Valley who would brag that they never had to leave the Valley," recalled Mark G. Heesen , president of the National Venture Capital Association in Arlington, Va. "New England firms have had to travel more because there are fewer deals in New England. The deals today are going to be found all across the country and around the world."

The other change roiling the venture industry is the dramatically lower cost of getting an Internet business up and running for start-ups capitalizing on commodity servers, open source software, and viral marketing. A new crop of Internet entrepreneurs has bypassed venture capital altogether and raised seed funding from angel investors, typically wealthy individuals who put up smaller sums than the venture capitalists. Charles River Ventures, an early-stage venture firm jointly based in Waltham and Menlo Park, Calif., acknowledged the trend publicly last week, when it said it would begin offering entrepreneurs loans of up to $250,000 before they raise their first venture rounds.

In such an environment, venture capitalists must bring something to the table beyond their financing.

JibJab, launched by brothers Gregg and Evan Spiridellis in a Brooklyn, N.Y., garage in 1998, raised an estimated $5 million to $10 million from Polaris -- the precise size of the round wasn't disclosed -- far less than an average first-round investment during the Internet's first flowering in the late 1990s. But it's been the Polaris expertise in honing an advertising-driven business model and, somewhat surprisingly, its contacts in the entertainment industry that have proved most valuable to JibJab.

Flint, who worked in the film business as a young man, introduced the Spiridellis brothers to his friend John Landis , director of comedy movies like "Animal House," "The Blues Brothers," and "Trading Places." Last month, Landis directed a half-dozen comedy troupes in online parodies, dubbed "The Great Sketch Experiment," posted on JibJab. The site's visitors were invited to watch and vote for their favorite.

"I e-mail Jon Flint several times a day," Gregg Spiridellis said. "He's helping us think through the opportunity to build a big entertainment comedy brand on the Web. There's such a seismic shift happening in online video, similar to the shift the Marx Brothers and Disney took advantage of years ago. And just because Jon Flint's in Boston doesn't mean he doesn't have Hollywood connections."

Robert Weisman can be reached at weisman@globe.com.