CapitalSource was founded by two financing veterans: JohnDelaney, who started and last year sold HealthCare FinancialPartners for $500 million, and Jason Fish, former general partnerwith Farallon Capital Management.Based in Washington, DC withoffices in Boston, San Francisco and Philadelphia, the company aimsto fund small and mid-sized companies that have trouble gettingfunding. Lenders have focused intensely on companies in hotindustries like telecommunications and the Internet.

"Liquidity is much more narrow in its focus since late 1998,"when Russia defaulted on its debts and plunged financial marketsinto a tailspin around the globe, Delaney says in publishedreports.

They plan to make available senior and mezzanine debt vehiclesworth $1 million to $40 million. It plans to finance nationalcompanies with $20 to $100 million in revenues, in targetedindustries such as specialty real estate, retail, high tech,telecom and media. They chose these industries because they are allcomplicated and experience lots of change. That will requiretracking trends, but that's part of CapitalSource's plan. Thecompany plans to start out as a generalist then divide itself intoindustry-focused groups.