isa International is opening its hugely successful venture capital program to its 20,000 member banks, hoping to raise as much as $200 million for a new fund.

"We are still focusing on the specifics, but expect to launch it next month, with two closings later in the year," said Todd Chaffee, executive vice president of Visa and president of Visa Marketplace, the San Mateo-based credit-card company's investment subsidiary. "The fund will be open to all member banks on a first-come, first-served basis."

The venture fund will follow the model which Visa has used for its own strategic investments. The company has produced a stellar return of more than 230 percent a year since its 1994 launch, turning $30 million in investments into a current market value of $425 million.

Chaffee has managed that phenomenal return on the strength of portfolio companies that include Yahoo, Verisign, Open Market and others. The portfolio has been made up of companies developing technologies that would have particular applications within Visa's operation, or that could promote the use of Visa in new markets.

The new fund will concentrate entirely on technologies to benefit member banks.
In addition to buying in on Visa's strong investment record, banks that participate in the fund will have first crack at working with the portfolio companies. In the past, Visa has leveraged its venture investments to promote Visa use or to improve its internal technology, such as building Visa's payment into Yahoo applications or incorporating the voice recognition capabilities of Nuance Communications into its own customer support systems.

Rolf Selvig, director of business development for San Francisco-based VentureOne, a market-research firm serving the venture capital industry, said "Although a lot of companies have been successful in establishing private equity investment programs, the new Visa venture may be the first where several
companies in an industry have been able to pool together to invest in strategic technology." He said that given Chaffee's success with Visa investments in the past, the company should have no problem lining up participation in the fund.

Chaffee said he does not yet know how many banks will participate, but he said there will probably be a $5 million minimum and a $20 million maximum for investment. Since Visa is owned by its member banks, Chaffee said the company's own participation will not be an issue, and that if it oversubscribes with members it may take only a small piece of the fund.

The fund will operate somewhat differently than Visa's investment program has up to now, in that it will have a dedicated amount to invest over a specific period. Visa has so far invested in deals on an ad hoc basis. Although the size has not been set, it will almost certainly boost the deal flow of Chaffee's department, and he said his staff will scale up to reflect the greater demands.

Chaffee said about one-third of the fund will go to early-stage companies, with two-thirds aimed at companies where technologies are developed and ready to share with its strategic partners. "This is really more of a market intelligence device than an investment," Chaffee said. "We have had very good luck to date, but it really is to give our members insight into new technology in the financial marketplace."

Visa's program is similar to successful strategic investing initiatives at companies including Intel, Cisco, 3Com and Oracle. Its portfolio companies have run the gamut from those with technologies to boost electronic financial transactions to companies that improve the efficiency of transactions. However, Chaffee has concentrated most of Visa's investments on Internet ventures, and is likely to continue to do so.

Copyright 1999 American City Business Journals Inc