In 1986, when most venture capital funds were gearing up to chase the next big technological breakthrough, a Dallas fund formed to find the next big retail chain.

Twenty years later, Phillips-Smith Specialty Retail Group is closing up shop.

One of its last ventures, the 585-store Jamba Juice chain, went public last week as San Francisco-based Jamba Inc.

Equity in Jamba, the Starbucks of the healthy beverage and smoothie business, and an investment in Internet retailer Cooking.com, are the last assets being liquidated by the fund's co-founder and managing partner, Cece Smith.

The investors compiled a list of 47 retail companies they funded in their earliest stages of growth.

The list also tells a big part of the story of retail's evolution over the past two decades.

The fund started by investing in some of the first "big boxes" that were carving out categories after Toys R Us showed how it was done. Arlington-based office supply chain BizMart, Dallas-based CompUSA, PetsMart and the Sports Authority got expansion funds from Phillips-Smith.

So did some of the early specialty apparel chains, including maternity shop A Pea in the Pod, teen chains Gadzooks and Hot Topic, and more recently the White House/Black Market, which has since been acquired by the parent company of Chico's.

"When we invested in the White House, it didn't yet have the Black Market side of the store," Ms. Smith said. And when they invested in RedEnvelope.com, it was called 911-Gifts Inc.

Ms. Smith and co-managing partners Donald J. Phillips and G. Michael Machens had worked together as top executives of Pearle Health Services, before it was sold in 1985 to a U.K. company. At the time it was based in Dallas and was the largest U.S. retail optical chain.

"Don and I wanted to work with rapidly growing young retailers. Traditional venture capital funds weren't doing that," Ms. Smith said. "It's been terrific working with lots of really good entrepreneurs."

Ms. Smith wouldn't disclose the fund's performance, but she did say it was consistently in the top quartile of venture capital funds. It raised money three times for a total of $140 million.

"In the venture capital business, out of every 10 investments, you have three or four that won't work out; three or four where you make a little money; and one or two real home runs," she said. "It's a high-risk business, but when we invested, it [a company] had to have the appropriate infrastructure, systems and people. It had to have a management team in place able to open 100 or more stores."

As most venture capital investors do, they would typically exit with the company's initial public offering, or reasonably after.

They stayed on a little longer with mall-based teen apparel and accessories chain Hot Topic, and later Gadzooks Inc., and benefited from run-ups in the stock price. "Hot Topic was terrific," Ms. Smith said.

Gadzooks was the only company the fund invested in twice, and both netted big returns, she said.

The chain, then based in Carrollton, later went into bankruptcy and was sold in 2005 to California-based Forever 21 Inc.

The fund's investment in discount travel company Cheap Tickets allowed it to evolve onto the Internet and became a lesson in good timing.

"It was a very successful company selling tickets from call centers and newspaper ads. We moved them onto the Internet, and they did very well," Ms. Smith said.

Phillips-Smith had a signed agreement to sell its stake in Cheap Tickets to Cendant Corp. when the Sept. 11 attacks happened and the travel industry collapsed. "We had a firm contract to sell," she said, and the deal went through.

What else did these investors look for in a new retail business?

"It had to address a consumer need," Ms. Smith said. "Marcelo and Dana Rosen founded A Pea in the Pod because it was a new way to approach the customer. Women wanted better maternity clothes for the office and other events. ...

"Superstores reflected the changing ways customers wanted to shop. Specialty apparel stores were filled with their own exclusive private labels," she said.

When there was no shortage of online shopping start-ups, RedEnvelope "had a broad vision to expand into a gift Web site," Ms. Smith said. "They were also early in understanding and using multiple channels of distribution by launching a catalog at the same time."

Mr. Machens said they had another initial rule of thumb: If you want a company to grow, it needs to address a market of a meaningful size, at least $2 billion. "We called that the refrigerator-magnet rule. Maybe you can have a chain that dominates the category, but what size company would you have?"

Each new store also had to have a clear path to a good return on investment.

"We probably did as many investments in growth capital in retail as anyone in the country. But the opportunities aren't as apparent anymore," Mr. Machens said. "We're not in a big evolution for big box, or mall-based specialty stores or Internet phase anymore.

"But we hit it right, and Dallas was a hotbed for new ideas, and expanding chains always put a store here early on," Mr. Machens said. "All and all, it was a wonderful run."

Of course, they had some failures. Arlington-based LiL' Things was a children's superstore, but the market became crowded fast, and discount chains improved their children's departments to defend the business.

And the biggest one to get away was Starbucks.

"We almost invested in Starbucks. That was our worst decision," Ms. Smith said. "We loved Howard Schultz, but they had just gone into Chicago and weren't doing well. It wasn't clear.

"Even with those issues, they priced the investment as if they were a proven concept," she said. Ms. Smith said she personally invested in the stock and made $40 for every $1 she invested.

Ms. Smith is on the board of Dallas-based Brinker International Inc. and just left the Michaels Stores Inc. board when it was taken private in November. She says she wants to pursue other board positions.

Mr. Phillips has been retired for several years. Mr. Machens has new partners in a venture capital fund called Roaring Fork Capital, and it too has an interesting niche: Orphaned microcaps, or small publicly traded companies that need money but have no market following.

E-mail mhalkias@dallasnews.com

Phillips-Smith Specialty Retail Group focused on specific types of investments in its 20 years:

BIG BOXES: In the 1980s, when superstores and big-box retailers were carving out merchandise categories, the fund invested in CompUSA, Bookstop, BizMart, Sports Authority and PetSmart.

SPECIALTY STORES: Specialty chains grew with the construction of new malls in the 1980s and 1990s. The fund invested in teen chains Gadzooks and Hot Topic. Other niche stores included A Pea in the Pod and White House/Black Market.

ONLINE: In the 1990s, when the Internet retailing took off, investments included travel site CheapTickets.com, gift Web site RedEnvelope.com and Cooking.com.

FUND CLOSES: Cooking.com and Jamba Juice are the last investments for the fund, which will close by year's end. Jamba Juice went public last week and trades under the symbol JMBA on the Nasdaq Stock Market.

BIGGEST MISSED OPPORTUNITY: Starbucks. The fund's biggest concern? Whether it had legs.

SOURCES: Phillips-Smith; Dallas Morning News research