Excerpts from Private Equity International, June 28, 2005.

Millennuim Tech's Burstein Eyes Secondary Deals

As an author, Daniel Burstein has consistently been ahead of the curve. He co-wrote Road Warriors: Dreams and Nightmares along the Information Highway, in 1995. At the time, college students and government officials were the major surfers on the Internet.

Three years later, he co-wrote Big Dragon: the Future of China: What it Means for Business, the Economy and the Global Order, just as the nation's first securities law was being introduced.

But when it comes to investing, Burstein is more about finding opportunities in past mistakes...

With its second fund, which held a $70 million first closing in February, Millennium plans to emphasize secondary deals in which it buys stakes in companies from corporate investors, hedge funds, secondary funds, and founders who are having trouble finding liquidity.

The New York firm is looking for transactions with as little risk as possible—ones, say, in which a company has a particularly valuable partnership or non-core asset that alone would be worth as much as Millennium's investment.

The approach with the new fund formalizes a strategy developed on the fly as Burstein and fellow Managing Partner Sam Schwerin invested their $150 million first fund, Millennium Technology Ventures LP, which closed in 2000.

That fund was originally intended for traditional early-stage VC investments, and still holds a number of such companies whose future is unclear. But because Burstein built some flexibility into the fund with a private placement memorandum that he calls "very prophetic," it was able to change strategy as the high-tech economy tanked...

As a result of the change, roughly one-fourth of the first fund, when fully invested, will be in secondary deals. A person familiar with the firm says that the fund is on track to return all invested capital to its LPs, which the source says would put it among the top tenth of venture funds raised around the same time.

Millennium's investment in Dov Pharmaceutical Inc. illustrates how the firm's approach to minimizing risk has paid off. Millennium bought a stake in the drug developer in early 2002 from the children of Dov's founders, who were looking to sell for personal reasons. Due diligence turned up a likely royalty payment from a partner that Millennium thought would cover its investment entirely. In 2004, Millennium sold most of its stake after the company went public for a three times return on investment.

Millennium won't pursue only secondary deals with its new fund; it will continue to make late-stage venture investments on occasion. It may also make private investments in public companies, back spin-outs of technology groups from large companies, and loan money to start-ups.