Nestled quietly within America's third-biggest banking company is a buyout business that has thrived by thinking small.

Nearly three decades after it was launched and three years after BankAmerica Corp. absorbed its parent, Continental Illinois Venture Capital Corp. is still going strong.

The venture capital group, which makes $10 million to $20 million investments in middle-market management buyouts, has recently added its moniker to companies like First Franklin Financial, DuoTang, and Petersen Publishing.

"We think that as a diversified commercial bank we have a broad enough reach into the market to participate in a whole array of endeavors," said Terry Perucca, a senior vice president and head of global equity investments. "Equity investments are a very legitimate part of the menu that the bank can engage in."

Continental Illinois National Bank originally launched the group in 1970 as a business that would make small investments in start-up businesses. In 1989, the parent raised the bar for the unit, and it began to supply larger amounts of equity for buyouts in order to have a "much tighter capital congruence" with the rest of the business.

When BankAmerica bought Continental Illinois in 1994, it brought the venture capital unit under a global equity investments umbrella, which now covers six other equity investment groups. BankAmerica annually contributes $100 million to the Chicago-based unit, which includes 15 professionals.

Though the group has the security of having $232 billion-asset BankAmerica in its corner, the unit has continued investing in spinoffs from larger corporations and small management buyouts of private companies.

"We try to be focused in identifying particular industries that we think have a lot of promise and have numerous companies that are profitable and growing," said Marcus Wedner, a managing director at CIVC.

"It's always a balancing act, trying to manage what ought to be an entrepreneurial group," Mr. Wedner said. "With the opportunity, it's tempting to dramatically expand, but we have been able to keep the business small and focused, and we've got an outstanding track record."

Greg Peterson, a partner in Coopers & Lybrand's corporate finance group, observed that the venture capital group's business "is a great area for banks to be diversifying" into. These units typically generate above- average returns of around 30% per investment, he said, and they produce business opportunities for other parts of the bank.

"These groups are a great investment strategy for getting in on the ground floor for future business," Mr. Peterson said.

He added that CIVC's target market is fertile for investment. "Nobody can say they've got a hammerlock in that area," he said; "it's a fruitful opportunity."

Still, because these companies are young, the business opportunities have a higher element of risk in terms of management's experience, and banks are typically limited in what they can invest, Mr. Peterson said.

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