State venture capital angel market makes solid increase

Boise probably won’t become the next venture-capital hotbed any time soon because the metro area produces one or two deals a year considered fundable, said Mark Solon of Highway 12 Ventures.

Deal volume has not increased much compared to that found in neighboring states, he said.
But Solon likes what he sees in the Boise area. The venture capitalist previously based in Boston founded the Highway 12 venture-capital firm in Boise eight years ago and has been a local advocate for the venture capital segment. Highway 12’s approximately 15 funded companies include Idaho enterprises.
“The quality of businesses we see since we started in 2000 has increased noticeably,” he said.
At Highway 12, Solon is managing partner. Phil Reed and Glenn Michael are general partners. Most of their peers are based in larger metro areas.
Michael said the infrastructure emerging-growth companies need beyond venture capital has increased in the Boise area since 2001, particularly in the last two to three years. Examples include law, accounting and marketing firms that increasingly focus on emerging-growth companies; organizations that cater to the needs of the people who run these companies; and resources like Boise Angel Alliance, Boise Angel Fund and a chapter of the large Keiretsu Forum angel network (IBR 7-7-08).
“Highway 12 and others will see the fruits of that,” Michael said. More companies are submitting business plans to Highway 12, he said.

Still, about 1 out of 100 companies progress to the point that a venture-capital firm wants to invest, Solon said. Idaho has few companies that combine the high revenue and high growth potential that a venture-capital firm wants and needs, he said.
For example, Highway 12 makes $2 million and $3 million investments in a venture-capital industry that is hit-and-miss, he said. Based on 40 years of data on venture investing, three out of 10 investments will not make money, five or six will return one to three times capital – making up for other losses and returning capital to investors – “and one or two will be home runs.

“But all 10 must have home-run potential,” Solon said, referring to returns in the five- to 10-times-capital range.
Michael said Boise’s improved infrastructure for emerging-growth companies is important given that investments must be made early in the life of a venture-capital fund, and the average deal-exit period is about seven years. Funded companies need to perform well early, “so you need quality, high-growth companies with potential for massive growth.”

Venture capital firms thrive amid plentiful education and research-and-development resources, Solon said.
“This change takes time, and it will pay off,” Reed said.
Payoffs will include an increase in the number of people who can stay in an area and earn a high wage, he said.
Venture capital is counter-cyclical to an extent, Reed said. For example, when Hewlett-Packard Co. downsizes, more spin-off businesses emerge, he said.
Telemetric Corp., Boise, is one of the companies in which Highway 12 invested. The nearly decade-old Telemetric has a combination of angel and venture investors, CEO Tom Loutzenheiser said. The company provides “intelligent grid” applications to more than 200 electric utilities.
Telemetric required a large amount of capital, which it used in areas such as developing and testing hardware, software and complex systems, he said. The investment in intellectual property was substantial.

“It took quite a bit of capital to basically establish a position in that market,” Loutzenheiser said. “The electric utility market is a conservative market. You need proven, installed, working solutions that are referenceable.”
He led the former Boise office of venture capital firm Akers Capital before coming to Telemetric in 2004. The cumulative annual growth rate for Telemetric is more than 45 percent over the last four years, he said.
The Boise area has the angel and venture capital resources it needs – for the right companies, Loutzenheiser said.

“For people with experience and a track record, I think there is plenty of capital,” he said. “It’s harder to access as the experience rate goes down. That is the case in every market.”
Paul Hiller, who directs the Boise Valley Economic Partnership, put it this way: “We probably have what we need, but do not have what we’d like to have.”
Having venture capitalists in the area sends a positive message to companies considering Boise for a new or expanded facility, and gives existing emerging-growth companies easier access to resources they need, he said.
But having angel and venture-capital investors nearby does not guarantee that they will invest in local companies even though some investors like to be in close proximity to their funded companies, Hiller said.

For example, he worked in economic development in Irvine, Calif., which had many medical, biomedical and pharmaceutical startups as well as a large angel network. The angel network did few of the deals locally, he said. Irvine-area angel investors often found a better investment fit elsewhere, and there were venture capitalists from all over the United States that were investing in Irvine high-tech startups.

http://www.idahobusiness.net/archive.htm/2008/07/21/State-ventur

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State venture capital angel market makes solid increase