FINANCE
It was a big risk for Hemant Sikaria to be driving .
In 2017 , his car had been recalled for software issues . This wasn ’ t like a phone you could plug in overnight to install updates . With 50 to 150 microcontrollers , vehicles need a higher level of coordination for performing software updates to avoid being a safety hazard . But the dealership , overrun with repair orders , couldn ’ t service his car right away .
“ We knew we were driving something that was not safe ,” he says , “ but we had no choice .”
Even after that problem was fixed , he says , two more recalls occurred in a year and a half . In 2018 , these technical difficulties ( plus his prior experience working at Tesla ) inspired Sikaria to launch Sibros , a technology startup developing a connected vehicle platform that provides software updates and event-based data collection to improve the safety , security and reliability of vehicles . But , of course , the business wasn ’ t going anywhere without funding .
“ It becomes a chickenand-the-egg problem ,” says Sikaria , the CEO and cofounder of Sibros , which has offices in Sacramento and San Jose . “ I need money to build my product , but I need to build my product to make money . The only way out is to take investment .”
The past 20 months have been a wild ride for businesses all over the globe . But investors are clearly willing to take risks on startups showing promise — venture capital is breaking records in the U . S . and globally . In the first two quarters of 2021 , $ 280 billion has been raised worldwide for venture capital , compared to $ 275 billion in all of 2020 .
Last year also saw the return of the SPAC , ( Special Purpose Acquisition Company ) a blank check company with no specific business plan except to finance mergers and acquisitions as an alternative route to an initial public offering . These types of deals used to be a back-of-the-shelf financial model , but in 2020 they spearheaded a record year for IPOs .
In June , Origin Materials , a West Sacramento-based green tech company that uses patented techniques to convert wood chips into renewable plastics to replace petroleum-based materials , completed a nearly $ 1 billion merger with a SPAC .
“ It becomes a chicken-and-theegg problem . I need money to build my product , but I need to build my product to make money . The only way out is to take investment .”
HEMANT SIKARIA CEO and cofounder , Sibros
“ Even though it ’ s called the VC market , more and more of that money is not from VC investors ,” says Ayako Yasuda , professor of finance at the UC Davis Graduate School of Management and Research Fellow of the Private Equity Research Consortium . “ That ’ s something we ’ ve never seen before .”
As global venture capital investments continue to demolish records , U . S . private equity firms have flocked to early-stage startups in specialized areas , such as automation and ag-tech , which puts the Capital Region in a prime position for growth .
Following the money
There are four types of private equity investment : angel , venture capital , growth equity and buyout . In the Capital Region , you have the big funds with pools of $ 50 million or more , including Moneta Ventures , CVF Capital Partners and DCA Partners . Then you have the newer funds such as the Growth Factory and the Black Star Fund . Each fund has its own interests and invests at varying stages , but if you follow the money , common trends emerge .
The region ’ s notable startups in the past two years have adapted to new changes , some benefiting from people staying at home and needing software to collaborate remotely , according to Lokesh Sikaria , founding partner at Moneta Ventures , a Folsom-based venture capital firm , and Hemant Sikaria ’ s brother ( more on that later ). Companies that manufacture locally also look more appealing to investors in this economy . Quality and cost still need to be competitive , he says , but reshoring reduces the risk of a company going belly up due to a disrupted supply chain .
According to Steve Mills , a partner at DCA Partners , another factor shifting investment tides is the silver tsunami . Baby boomers are leaving the workforce and typically don ’ t have family members that want to take over their businesses . These senior entrepreneurs want liquidity , Mills says . DCA usually invests smaller amounts ( in the $ 3 million to $ 7 million range ) in companies at the later stages , which may include buyouts . To that end , DCA ’ s primary competitor is banks . But unlike banks , Mills points out that DCA doesn ’ t just hand over a check but offers managerial support from a team that has business experience .
54 comstocksmag . com | December 2021