San Diego Seeks to Remedy Scarcity of Homegrown Venture Capital

4/2/09Follow @bvbigelow

Since the Berlin Wall fell 20 years ago, San Diego has morphed from a Navy town into a capital of innovation that is renowned for its wireless industry, burgeoning biomedical community, and research institutions set like a city on a hill.

Yet it seems like there has always been a dearth of homegrown venture capital firms in San Diego.

Recruiting VCs to the area was a key goal in the early years of Connect, the San Diego nonprofit group started by a feisty entrepreneur named Bill Otterson in 1985 to promote technology and entrepreneurship. Under Otterson, Connect helped recruit Mission Ventures to San Diego in 1997 and launched an annual “financial forum” that brought out-of-town venture firms to San Diego to hear local business plans.

Now, in the midst of the worst recession in decades, and the dramatically lowered profile of some local venture firms, the relative shortage of local VCs has again come to the fore.  Connect, which ended its financial forum three years ago, hopes to address the issue in a new way.

Data from Dow Jones Venture Source shows that VCs headquartered in San Diego were involved in just 8 percent—13 of 158—of the venture-backed deals that were recorded in the region in 2008. That’s almost half the amount in 2003, when San Diego-based VCs were involved in 15 percent (27 of 177) of the venture deals in the local region.

Including the participation of out-of-town venture firms that have an office in San Diego office, such as Domain Associates of Princeton, NJ, increases the percentage of local deals to 18 percent in 2008—and 25 percent in 2003—according to the Venture Source data.

The reduced activity reflects the downsizing that has occurred in recent years at two of San Diego’s most-prominent firms, Enterprise Partners Venture Capital and Forward Ventures. At Service-now, a fast-growing software-as-a-service startup in Solana Beach, CA, CFO Andy Chedrick says he’s fielded inquiries from about 20 out-of-town venture firms that were assessing their funding needs—but nothing from local VCs. “Enterprise hasn’t called,” said Chedrick, who retired in 2004 after working for many years as Enterprise’s chief financial officer.

The relative lack of VC activity also helps explain why Connect and the San Diego Venture Group have organized an event that’s intended to showcase San Diego’s research and entrepreneurs for an invitation-only audience that includes 50 out-of-town venture capitalists. The two-day event, which begins today at a La Jolla resort, is billed as The La Jolla Research & Innovation Summit.

Roth told me he wants the meeting to serve as an intimate gathering for both local and out-of-town VCs, featuring presentations by some of San Diego’s most prominent researchers and entrepreneurs. “The VCs have told me, ‘We’d like to hear where your strengths are, we’d like to meet your serial entrepreneurs and local VCs,’” Roth says.

The Summit’s agenda includes presentations in four categories, including cleantech, biotechnology, IT and wireless technology, and convergence innovation. Also scheduled are keynote addresses by gene sequencing pioneer J. Craig Venter of the J. Craig Venter Institute and advanced computing guru Larry Smarr of the California Institute of Telecommunications and Technology at UCSD.

“For the sake of the San Diego community, we need to work to get more attention, and when we get more attention, more money will follow,” says Peter Shaw, current president of the San Diego Venture Group’s board of directors. “What this event is trying to do is introduce these VCs to the science and innovation that exists in San Diego.”

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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