The Next Economy initiative aims to accelerate job creation and new investment in the Capital Region by developing key economic areas, or “clusters,” of growth. The critical motivator to these clusters, experts say, is venture capital, a cash investment.
“We need to have a funding mechanism for launching these types of firms within a region in order for the region to be successful,” says Curt Rocca, managing partner with DCA Partners, business advisory and private equity firm.
The truth invites a challenging reality. In light of the past 10 years of underperforming venture capital (VC) returns, VC has received fewer funds to allocate.
“Large institutions that are all about driving optimal, risk-adjusted returns are reducing the amount of dollars they’re investing in venture capital funds by as much as 80 percent,” Rocca says.
Fewer dollars means greater selectivity among venture firms looking to back promising startups, even in the booming clean tech industries.
“People generally are hesitant to bet on anything that relies upon specific assumptions that are political or regulatory in nature,” says Rocca. “Much of clean energy is still in that category.”
The Sacramento Regional Technology Alliance (SARTA), a partner in the Next Economy initiative, works with entrepreneurs to prep their businesses for investment. Ingrid Rosten, director of SARTA’s CleanStart program, which focuses on the clean tech cluster, says the few regional VCs are making a difference.
Folsom’s Velocity Venture Capital, she says, has shown “exemplary results” funding local software companies Revionics, emTRAiN, anyCOMM and hosting events like their Entrepreneurs Showcase at which 10 entrepreneurs present business plans to VCs and angel investors.
Rosten also suggests seeking capital beyond Sacramento through strategic networking and tapping deep pockets at competitions like Silicon Valley’s Cleantech Open.
“If you have a clean tech investor that’s based in Silicon Valley, he’s not only looking in Silicon Valley for clean tech investment,” Rosten says.
But seeking dollars outside the region is risky. Out-of-town investors threaten to lure away local jobs. But economic stakeholders don’t have much choice. Even with firms like Velocity Venture Capital, the current local VC offerings remain ill-prepared to move Sacramento’s economy from its rut, says Rocca.
“We’ve had a lot of good, high-quality people try to step in and be that capital source,” he says. “But for a variety of reasons, we’ve not been able to have something that’s able to be perpetuated and sustainable.”
Rocca points instead to the institutions, corporate investors or high-net-worth individuals with stakes in regional prosperity as the answer to the difficult question of raising capital.
“Somehow,” he says, “we need to tap into the people that have a vested interest in the success of our region and convince them of the merits of reinvesting by supporting both venture capital and private funds within our geography to help both attract and fuel growing businesses.”
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