Circa 1996--ages ago in Web time--the Internet access race was just heating up in Washington, with local players such as UUNet Technologies Inc., PSInet Inc., Digex Inc. and CAIS Internet Inc. battling for customers.
The first three grew rapidly and went public. UUNet ended up as part of MCI WorldCom Inc., and Digex was bought by Intermedia Communications Inc. Meanwhile, CAIS trailed behind.
Now, District-based CAIS has carved itself a new niche: Providing high-speed Internet and voice access over a single line to hotels and apartment buildings. It raised $130 million in an initial public offering in May and almost immediately began making its own acquisitions.
And today, sources close to the talks say, CAIS will announce a deal in which Qwest Communications International Inc. will pay $15 million for a 4.2 percent equity stake. As part of the arrangement, CAIS will pay $44 million for use of Qwest's fiber network and $10 million for services such as e-commerce and Web hosting.
CAIS President William M. Caldwell IV and chief executive Ulysses G. Auger II (part of the restaurant family that owns Blackie's House of Beef) decided in 1998 to work on the hotel/apartment strategy after making little headway against the other access providers.
Targeting the hotel market has been tough, admits Caldwell. "Hotel owners are pretty resistant to spending money," he says. But landing their first big contract in early 1999, with Hilton agreeing to install CAIS technology in 225 hotels, got the ball rolling.
"Hilton basically woke up an industry," says Caldwell. "There's a typical herd mentality."
After Hilton, CAIS signed Carlson Worldwide (450 hotels). This week the company announced its first deal with an extended-stay hotel chain, Staybridge Suites (60 hotels in 60 cities nationwide).
Caldwell says the next six months will be particularly important for CAIS as most of the other major hotel chains try to figure out what to do about Internet access.
The company's primary targets are business customers who bring their own laptops on trips. Besides selling the access to the hotel chains, CAIS also gets a cut whenever hotel guests use the service.
Next in the CAIS strategy is to erect Internet kiosks in public spaces such as hotel lobbies and airports. In August, it used some of the money it raised by selling stock to buy Atcom Inc. of San Diego, a company already in the kiosk business.
Venture capitalists like to make investments relatively near their home base--they often talk about keeping their "drive time" under two hours. That makes it easy to swoop in for board meetings, sudden disasters and advice marathons.
When Aurora Funds Inc., a venture firm in Durham, N.C., added two Washington area companies to its portfolio, Blackboard Inc. of Washington and Engenia Sofware Inc. of Reston, company executives started to talk about getting closer.
So Aurora has just opened a Washington office in McLean, headquartered at high-tech law firm Greenberg Traurig and run by Erik Rasmussen, 27, who has moved here from the farther south.
"You want to get in bed with the entrepreneurs and be there to write the check for their next idea," says Rasmussen. He says he wants to hang out on the networking circuit here to get to know people.
It's the latest in what many see as a growing trend of out-of-town venture capitalists opening Washington branches. Earlier this year Silicon Valley firm Draper Fisher Jurvetson launched Draper Atlantic here; several other Valley and New York firms are said to be eyeing the area.
M. Scott Albert, who co-founded Aurora in 1994, said he wanted to open another office and took a tour of southeastern cities to decide where. The company's only other office is in Birmingham.
Aurora is now raising money for its third fund, which will be about $100 million. In the Washington area, the group will focus on life-sciences and information-technology deals. Albert says the group will probably invest in five to eight companies in the region over the next one or two years.
Even before it had a chance to launch, home-furnishing site nHabit.com of Alexandria got a new owner.
Earlier this month, it merged with Goodhome.com for an undisclosed amount. The combined site went live this week at www.goodhome.com. Roger Horchow, who founded the Horchow Collection, owned by Neiman Marcus, remains chairman of the new company, which is based in San Rafael, Calif., but will keep a Virginia office. The company says it has $65 million of investment backing.
Two local businesses snared hefty rounds of venture-capital funding this week.
E-commerce software company OneSoft Corp. of McLean got $30 million in venture financing led by QuestMark Partners of Baltimore.
And telecom-equipment firm Advanced Switching Communications Inc. of Vienna has a new $35 million infusion from a group of venture funds including New Enterprise Associates, Technology Crossover Ventures and Morgan Stanley Dean Witter Venture Partners.
Michael M. Connors, former chief technical executive for America Online Inc. of Dulles, has taken a new role as chairman of Webley Systems Inc., a Washington company that acts as a virtual personal assistant by managing voice mail and e-mail for users.
Send tips and tales of the digital capital's local people, deals and events to Shannon Henry at firstname.lastname@example.org.
TechThursday columnist Shannon Henry will host a live Web chat today at 1 p.m. with Mario Morino, chairman of the Morino Institute and the Potomac KnowledgeWay. To participate, go to www.washingtonpost.com.