Amidst turbulent economic conditions, Stellar’s companies have consistently delivered year-over-year revenue growth. This year alone, one Stellar business, iTerra Communications, a provider of semiconductor integrated circuits for communications systems, may see a revenue increase of up to 200 percent over 2004.

Stellar’s unique approach
Business Development Director Eric Mott attributes Stellar’s successful track record to a number of factors, including the firm’s incubator-style business model. “Besides just writing the checks, we provide (investment companies) with value-added services such as accounting, tax preparation, human resources and in-house legal counsel,” he says.

By pooling back-office resources for its companies, Stellar’s 12-person staff is able to slow their cash burn as well as allow company management to focus efforts on developing and growing their businesses through operations, sales and marketing.

Another factor that sets Stellar apart is the firm’s long-term investment perspective. In contrast, most technology-focused private equity firms typically seek to invest in startups for only one to two years.

“We look at investing for a five- to seven-year timeframe, from the initial seed money until a value event,” such as an initial public offering or merger and acquisition, Mott says. By making a longer-term commitment, the firm believes it can achieve sustainable returns through most economic cycles and avoid ill-timed risky exit strategies.

To date, Stellar’s portfolio includes four operating entities (BioReaction, EmergeCore Networks, iTerra Communications and Wavetronix) and one business in the research and development phase. These companies represent various segments of the technology industry, ranging from hardware to biotechnology. By investing in diverse sectors, instead of a specific niche, Stellar seeks to guard against economic downturns.

“This (approach) gives us an additional level of diversity,” Mott says. “So when semiconductor chip prices go up and down, our investments don’t fluctuate to the same degree of other firms that only invested in semiconductor businesses.”

Beyond profits
Beyond profits, Mott explains that Stellar’s business model also places a high value on investing in companies with quality managers. “Of course we want to be profitable, but we also believe it’s valuable for companies to have a strong executive management team that creates a good environment for people to work,” he says.

At Stellar, the founders of the company share this fundamental philosophy. “We want to build a company with a happy environment that fosters stable returns for our investors,” Mott says. “Our team is family oriented. We’re also friends outside the office.

“We make very few unilateral decisions in this company,” he continues. “We can have candid, open conversations with one another, which allows us to make solid investments decisions that take everyone’s opinions into account.”

Why Idaho
When Stellar was spun-off from the DBSI Group of Companies, a Boise-based real-estate investment firm, in 1999 Mott says company founders consciously chose to stay in Idaho based on the lifestyle that the state affords.

With mountains in the backdrop, the Idaho terrain plays host to numerous outdoor activities. Yet, unlike other states such as Colorado, the population density there remains low, which “gives everyone some elbowroom,” Mott says. A 2003 U.S. Census Bureau estimated the population of Boise at 190,000 and the number of residents for the entire state at 1.3 million.

Plus, he adds, there are many third-, fourth-, and fifth-year generation families in the area, which help to create a friendly atmosphere where “everyone knows everyone.”

In addition to its close-knit communities, Mott explains that Idaho also benefits from a handful of Fortune 500 companies, such as Albertsons, Hewlett-Packard and Micron Technology, which contribute to a thriving local economy. This, combined with a lower cost of living compared to other Rocky Mountain states, he says, is making the state an increasingly attractive destination for startup companies and talent.

“(Idaho is) not a suit-and-tie environment; it’s a jeans-and-cowboy-boots kind of place,” Mott explains about the area’s culture. “Boise is more laid back; it’s not New York. Deals are done on a handshake.”

Given Stellar’s familiarity with the business climate of Idaho and the Rocky Mountain region, he says the firm intends to stay focused on investment opportunities within the western United States. While Stellar is not actively seeking additional companies in which to invest, Mott says the firm always keeps its ears open for businesses that may prove synergistic with existing holdings.

Stacy Freeborg is a freelance writer and frequent contributor to the Boulder County Business Report, Minnesota Business Magazine and the Minneapolis/St.Paul Business Journal.