0122_Finance Digital Edition - Page 9

“ To give us the return on investment we are looking for , ( business owners ) have to be laser-focused on growth at a higher velocity than the business would grow on its own .”
SPECIAL PROMOTIONAL SECTION
It takes money to make money , according to a well-worn saying . In business , it also takes a good idea or concept . The marriage between the two is often officiated by a banker . But for entrepreneurs whose ideas are bigger than their bank accounts , venture capital funding is an increasing source of seed money to sprout ideas into a real business .
When reviewing a loan request , a bank looks at cash flow and collateral as guarantees of being repaid , “ and banks don ’ t like losing money ,” says Steve Mills of DCA Partners , which provides flexible capital across a broad array of industries and investment structures . Venture capital funds don ’ t require collateral in return for an investment , but they gamble that a company will become much more valuable than its current balance sheet .
As private equity investment vehicles , venture capital funds invest in startups or companies in the earliest stages of generating revenue when growth potential is high . These funds in essence partner with a company and earn a return when the company “ exits ” to a new stage of growth through an IPO , merger or acquisition .
Venture capital fund investments are growing statewide and within the Capital Region , an expanding economy shows potential growth beyond the traditional foundation of real estate and retail . California ’ s Legislative Analyst ’ s Office reports $ 34.4 billion in new venture capital funding statewide through the third quarter of 2021 — nearly three times greater than the beginning of 2020 . “ Venture funding has really grown in Sacramento over the last five to seven years , since the end of the last recession ,” Mills says .
“ A decade ago , our options for venture funding were sparse ,” says Kevin Nagle , a member of the Moneta Ventures investment board . “ But Sacramento has done a tremendous job of attracting expertise from the Bay Area and growing opportunities organically .” The expansion of tech-related industries through projects
“ To give us the return on investment we are looking for , ( business owners ) have to be laser-focused on growth at a higher velocity than the business would grow on its own .”
Steve Mills Partner , DCA Partners
like Sacramento ’ s Aggie Square and the California Mobility Center and Woodland ’ s proposed Research and Technology Park will provide new clinical space that Nagle says will “ spawn more opportunity .”
But venture funds also look beyond the tech industry . “ The businesses we invest in run the gamut ,” says Tom Kandris , CEO and managing partner of PK1 Inc . ( and member of the Comstock ’ s editorial board ), who has funded 36 companies in the last four years . “ We are industry-agnostic ,” he says , emphasizing that growth and profit can be found anywhere if “ we bet on people .”
Beyond a solid business plan and financial projections that will set a company apart from the competition and promote rapid growth , Kandris says the key to a successful deal is the people behind it . He looks for a personal connection and an appropriate motive to decide if a prospect is someone he wants to work with . Wanting to be rich is not enough . “ I ’ m looking for chemistry with people who have a passion for what they are doing and can communicate a vision ,” he says .
That passion and personal commitment are vital to satisfying venture fund investors . “ To give us the return on investment we are looking for , they have to be laser-focused on growth at a higher velocity than the business would grow on its own ,” DCA ’ s Mills explains .
José Blanco , a managing partner at CVF Capital Partners , whose fund includes 40 different companies , notes that “ part of our overall strategy is to diversify ” as a hedge against some investments falling short of expectations .
“ All of us invest at different stages ” to mitigate risk , Mills concurs . “ If we invest at an early stage , we would expect a ten times or greater return .” He explains that for every 10 investments at that stage , “ half or more don ’ t go .”
Some funds will wait for second or third rounds of funding before jumping in . “ We will wait to see if a company gets some traction and cash flow and valuations change ,” Mills says . “ In that case , we take less risk but expect less in return .”
In a market where a $ 10-15 million valuation is considered a startup and $ 250 million is mid-size , the Legislative Analyst ’ s Office report suggests that most venture capital funds are looking for more certainty . In the third quarter of 2021 , only $ 868 million out of the $ 34.4 billion statewide total was
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