Eric Rosenfeld of Capybara Ventures on the Portland Technology and Innovation Scene
Any venture firm named after a rodent, especially the world’s biggest rodent (100 pounds), is OK in my book. But I did have to ask co-founder Eric Rosenfeld where the name Capybara Ventures comes from.
Rosenfeld explained that the capybara is a “majestic, noble, inspiring rodent.” It’s also a “category leader,” he added, and “spends most of its time beating the bushes” for food. It’s much like how he and fellow Capybara co-founder Bob Ward beat the bushes of Oregon looking for the next great company to fund.
Earlier this week, I dropped in on Rosenfeld at his office in Portland, OR, for a wide-ranging chat about his investment philosophy, the Portland tech scene, and the state of venture and angel capital in Oregon. Rosenfeld is a managing partner at Capybara Ventures, and is also a co-founder of the Oregon Angel Fund (which has seeded Portland companies like Elemental Technologies and RNA Networks). In April, he and Ward were also named venture partners with DFJ Frontier, a branch of Menlo Park, CA-based Draper Fisher Jurvetson. Let’s just say these guys are connected. They’re also Portland natives who have known each other since sixth grade.
Rosenfeld and Ward started Capybara Ventures in 2004. Since then, the firm has made investments in 10 companies, all early-stage, including RSS software startup Attensa, telecom networking firm Clear Access, and optical tech startup Phoseon. “We look for companies that are at the intersection of what grows well in Oregon, including semiconductors, electronics, Internet software, wireless communication, and where we have experience,” Rosenfeld says. He adds that Capybara’s seven active portfolio companies are doing between $3 million and $11 million in revenue this year, and about half are at cashflow break-even.
Here are a few highlights from our discussion:
Xconomy: Talk about your connections to other venture firms on the West Coast, especially with your recent DFJ Frontier relationship. Do you collaborate much with Seattle-area investors, for instance?
Eric Rosenfeld: We talk to them quite a bit. The ones we’re most close with are Buerk Dale Victor, Voyager Capital, and Madrona Venture Group. We collaborate quite a bit with the angel groups. The DFJ Frontier is a close relationship, but there’s nothing formal yet. They want to be active in Oregon. We have co-invested in one deal with them—Capybara and DFJ led a Series A round in Clear Access in Vancouver, WA. We hope to do more with them. They’ve been wonderful partners. They come up at least once a month, and we try to introduce them to companies they should know. They share their due diligence, we share our due diligence. We have a similar relationship with Walden Capital in the Bay Area.
X: What are your thoughts on the strengths and weaknesses of the Portland innovation scene, as compared to Seattle and Silicon Valley?
ER: When we started Capybara, the semiconductor industry here was more diverse and in better shape. It was Intel plus a whole ecosystem. It’s been a long time since we’ve had a startup really succeed in the semiconductor world. One company we’re involved with is Avnera, which does analog wireless audio chip sets. They’re doing very well, hopefully they’ll be the one that revives people’s confidence locally.
If you step back, Portland’s got an enviable quality of life which draws people from all over. That’s part of the solution. Our research universities are not necessarily world-class, and that’s hurt us. Even just being able to focus on the needs of local industry would be helpful. Having an orientation of market-driven research industry, contracts, and internships—more of that would help. The sportswear and apparel cluster has been strong here. That’s doing just fine. Nike and Adidas and Columbia have driven that.
What we haven’t had, that Seattle and the Bay Area have had, is this virtuous cycle of success breeding success. If you look at the venture capital in Seattle, my sense is it all traces back to Immunex, RealNetworks, Amazon, Microsoft, Starbucks. Same thing with the Bay Area, with a different set of companies. In Portland, it’s been a while since we’ve had a big success that created a new generation of managers who want to start new businesses, or wealth that can be reinvested. Other VCs in town trace their experience to Mentor Graphics, which went public in the mid-80s, Digimarc, and Apple Computer. If we can just get a few companies to have some nice exits, generate some local wealth, and get that reinvested… It happens to some degree, but we don’t have the critical mass like Seattle has. That’s one of our biggest challenges. Entrepreneurs complain about the lack of capital here. But investors complain about the lack of a real success.
X: In terms of up-and-coming tech sectors, alternative energy and cleantech seem pretty strong in Portland.
ER: There’s a lot of interest, I think. Cleantech and sustainability is something very natural for Oregon, and part of the Oregon brand. We have utility companies that have been progressive. The foundation of state law has been very supportive of solar, wind, geothermal, and wave energy. Vestas wind moving here has been very helpful. I still think it’s very early. What we’ll need is some real successes, where real money is made through equity, not just salaries. That will give people more confidence to start businesses.
On the solar side, we have good manufacturing expertise and design, good test and measurement companies, but we don’t have the weather for solar [laughs]. Some of that manufacturing might move to sunnier climes. A lot of the manufacturing of solar is here, partly because of state tax credits and cheap electricity, cheap water, and cheap labor. So there may not be the right reasons—associated with cost, not necessarily high value. That’s one thing to watch.
X: So what are you seeing in the Portland talent pool these days?
ER: The talent in the electronics industry is still very high, coming from Tektronix, Intel, Xerox, HP, Pixelworks. There’s a lot of expertise in manufacturing and design. Internet and software, like any city, we have our fair share. There’s a nice cluster. Image processing and video are good. Pixelworks and InFocus were the anchor tenants. There’s a new generation coming up we’re hoping will carry the torch forward. A lot of good people came out of those companies. Healthcare IT is a very interesting area. Capybara is an investor in Clinicient, which does software for physical therapy and rehabilitation. Other companies [which Capybara is not involved with] are Vigilan, one of the leading companies for nursing homes and assisted living, and Kryptiq.
X: How would you sum up your investment philosophy?
ER: Beggars can’t be choosers. Oregon is sort of a secondary market. Every year, there are 10 or 20 companies that really deserve funding. We have to be kind of opportunistic here. If we can find an entrepreneur who really knows their technology and their market inside and out, they’ve been part of a larger company like Intel or HP, they’ve also been part of a startup, and they know which 20 customers they’re going to sell to first, because they’ve already worked with them and they know their pain, and they really have domain expertise, drive, ambition, and skills… We focus on the people. We can’t narrow ourselves too much to any one sector or industry.
Our culture at Capybara is, we like companies who can get to second base, third base, and home on a couple hits, not all on one at-bat. I think in Seattle and the Bay Area, there’s more emphasis on making investments to see if you can grow really quickly. Our approach is, what does it take to get a company to profitability as soon as possible? Then, once it’s at a break-even point and has proved the market, what can we do to grow it from there? It’s a more conservative approach that’s tailored to the kind of companies that have a history of growing in Oregon. I’d rather be involved with 10 out of 10 companies that are growing at 50 to 100 percent, than try to swing for the fences and strike out on all of them.