For San Diego’s Hometown VCs, It’s Déjà vu All Over Again

6/5/09Follow @bvbigelow

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realize the increased valuation of healthy companies in their portfolios while continuing to support others. At the same time, the financial crisis and the plunge in financial markets have made college endowment funds and other institutional investors in VC funds “more circumspect about which asset class they put their money in.”

Last year, 214 venture capital funds throughout the country raised almost $28.3 billion from their institutional investors, according to the Virginia-based National Venture Capital Association. But Kibble expects VC fund-raising will only amount to about $15 billion this year. “In general, people think the industry should be smaller—as long as it’s not them,” Kibble says.

After moving to San Diego in 1996, Kibble and Ryan raised $63 million for Mission Ventures’ first fund and focused their VC investments primarily in early stage companies in IT infrastructure, communications, enterprise applications, and technology-driven services. (MVI showed “good” returns, Kibble says). The firm raised $225 million for its second fund, which, Kibble says, “like most 2000 funds is still underwater.”

Mission raised $210 million for its third fund, which closed in 2005, and is still considering investing in several more deals. It is among just seven San Diego-based venture firms that have raised a fund since 2005—a key indicator of firms that are still actively investing. “We’re still making new investments, but I must say the bar is pretty high,” Kibble says. “And I don’t want to get into any capital intensive investments because you don’t know how much in the way of reserves you need to have.”

Forming syndicates with out-of-town VCs also is harder, Kibble says, because “the Bay Area firms want to keep their powder dry for their own portfolio companies.” Which, by the way, sounds like another reason to encourage the formation of more San Diego-based venture firms.

A few leaders in San Diego’s innovation community seem to be tuning into the situation, including Peter Shaw, current president of the San Diego Venture Group, and lawyer Jeremy Glaser, whose practice at the Mintz Levin law firm focuses on emerging growth companies and the investors that fund them. But there’s been no apparent effort to organize a response, or even determine the dimensions of the ebb tide in San Diego’s VC community. So it’s still unclear if San Diego’s technology sector has absorbed the lessons learned 15 years ago or identified the key challenges to rebuilding its base of venture capital.

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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