In Search of Capital, San Diego Taking Startups on Roadshows to VCs

3/14/12Follow @bvbigelow

Venture capital and rainfall have always been in relatively short supply in San Diego. Yet somehow this semi-arid region has managed to grow and even thrive as a center of life sciences, technology, and cleantech innovation.

Now, as part of a broader strategic initiative, some of the nonprofit organizations that helped establish San Diego as an oasis of innovation are going to Northern California and Boston in search of new sources of venture funding. Next week, for example, half a dozen local Internet startups will trek to San Francisco to make presentations to Bay Area venture investors as part of a roadshow organized by Connect, the prominent nonprofit promoter of San Diego technology and entrepreneurship.

At CommNexus, another nonprofit industry group representing San Diego technology companies, CEO Rory Moore says he’s been making trips to Silicon Valley to present on behalf of all the startups enrolled in the group’s EvoNexus incubator. There are 22 startups now enrolled in the free incubator, which CommNexus created with financial contributions from scores of San Diego technology companies.

Kevin Hell, the former DivX CEO now overseeing the EvoNexus incubator, also has been making trips. “We’re presenting all of our companies,” Moore says. We go one right after the other, and get feedback in real time.” Moore likes to add that their efforts have been so effective that EvoNexus companies have raised a total of $55 million in venture, corporate, and angel investments since CommNexus created the incubator in 2009.

“One of the issues that San Diego companies face in terms of getting venture capital is that there’s significantly less venture capital here than in other parts of the country, particularly in Silicon Valley and New England,” says Peter Shaw, a Connect board member, veteran CEO, and former partner at Windward Ventures, an inactive San Diego VC firm. Shaw recently volunteered to oversee Connect’s Venture Roundtable, a longtime program that screens local startups, choosing a handful that are “investment ready” to make presentations to venture investors.

Even when the times were good, Shaw says venture funding in San Diego was a fraction of the capital being invested in Silicon Valley and Boston. Today there are roughly half as many VC firms nationwide as there were a decade ago, and a handful of firms account for a disproportionate amount of venture activity. As we reported earlier this year, first-time venture deals are down nearly 43 percent nationwide since 2006, with investments in San Diego and other secondary markets receding even further. So it was only practical for local startups to search for new funding sources in Silicon Valley as some of San Diego’s local springs dried up.

“It’s not a new concept for local startup companies to trek to VCs in the Bay Area,” says Medipacs CEO Mark McWilliams, who accompanied a group of San Diego life science companies to Palo Alto, CA, in the first Connect-sponsored venture roundtable roadshow four months ago. “What’s new is the local venture roundtable putting a group together to go? up there. I think it was a very smart thing for Connect to do. It really says a lot about what a struggle it is in San Diego to raise money.”

The trip paid off for Medipacs, which has been talking regularly with a Bay Area venture firm that attended the session, McWilliams says.

Medipacs was among six life sciences companies that made the Dec. 1 trip, and gave presentations to 10 partners from nine Bay Area venture firms, says Camille Sobrian Saltman, Connect’s president and chief operating officer. “I hadn’t anticipated that level of interest from the VCs,” she says. “I think the economy has been improving, and that helped.”

Biocom, the nonprofit industry group that represents San Diego’s life sciences companies, has been approaching the problem differently, according to CEO Joe Panetta.

“We bring three or four out-of-town VCs in [to San Diego] for the day,” Panetta says. “We pair them with companies for one-on-one presentations, and we hold a full attendee and VC roundtable session on financing models and strategies,” Panetta says. Biocom also has been working to extend the concept to its annual pharmaceutical partnering conference. The recent CalBio conference, which drew 1,000 attendees to San Francisco, also involved sessions on partnering and financing that included San Diego companies, as well as VCs, biotechs, and pharmas in the Bay Area.

Connect has been working more broadly on several initiatives to attract more startup capital to San Diego, but its first excursion up north actually occurred somewhat by chance, Saltman says. “We talked last year about opening a Connect office in the Bay Area, and building relationships with VCs up there,” Saltman says. When that idea was shelved, “We were going to do a webcast, but the [San Diego] companies said if you have a roomful of VCs we want to present to them in person.”

The nonprofit group also recruited a number of prominent out-of-town venture investors to its upcoming “Rock Stars of Innovation Summit,” such as Juan Enriquez, the chairman and CEO of Boston-based Biotechnonomy and  one of the world’s leading authorities on the economic and political impacts of life sciences. Connect also has been working with the San Diego Venture Group to include more presentations by local companies at its annual venture summit this summer. Connect also has been advocating changes on a variety of policy issues, such as SEC regulatory reform, and changes in corporate accounting and taxation rules.

The nonprofit group says its next roadshow consists of six Internet startups, which were culled from nearly 90 companies that applied through Connect’s venture roundtable program. Connect staffers forwarded 10 business plans from the pool to a panel of volunteer judges, who selected six finalists after hearing presentations from all 10. The six Internet startups—Antengo, Barc, iTel Companies, LiquidGrids, ShowUhow, and SwoopThat, will make their presentations in the San Francisco office of the Allen Matkins law firm on March 22.

Connect plans to make similar venture roundtable excursions to venture firms in Boston.

The nonprofit’s venture roundtable program is organized to focus on a different sector every few months. Saltman says the screening process is already underway for the next round, which is focusing on San Diego startups developing wireless technologies focused on mobile health, productivity tools, and the connected home.

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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  • http://www.ai-one.com Tom Marsh

    It’s been this way for as long as I’ve been in San Diego, better now than before thanks to CONNECT, CommNexus and others but still an embarrassment nationally.

    It’s not that we are a backwater without a local pool of high net worth individuals. How does that work? Do the VC’s from Palo Alto fly down here to raise money? Maybe Xconomy could look into how much venture and angel capital is sourced here and deployed elsewhere.

    Crowdfunding to the rescue?

  • http://www.xconomy.com/author/bbigelow/ Bruce V. Bigelow

    Tom, this is the $64 million question isn’t it?

    My impression is that San Diego’s angels are numerous but they would prefer not to be known — maybe they don’t want to get insistent entrepreneurs calling them at 2 am? Yet San Diego’s angels really do represent an important part of the solution, so maybe the question is really a matter of understanding who they are and how they operate.

    A slightly different aspect of the problem is that startup CEOs, and San Diego’s Internet startups in particular, are yearning for true mentors.