April 14th, 2009

Chatting with CreditSuisse about the Oregon Investment Fund, Big Idea Bash

Oregon Investment FundAs I’ve mentioned previously, I recently got the chance to sit down with CreditSuisse to discuss the Oregon Investment Fund.

I’m the first to admit that I went into the conversation with my usual blooming buzzing confusion coupled with a heaping spoonful of blissful ignorance of the true nature of the Oregon Investment Fund.

I like to tell myself that that is part of my charm.

But honestly, I thought—rather than enter with pre-conceived notions—it would be better to get the story straight from David Almodovar of CreditSuisse.

Still, I have to be honest, I did walk into the meeting expecting one of two things to happen. Either I was going to find Dave perched atop a giant treasure chest overflowing with gold coins and jewels, cackling as he screeched in a Dr. Evil-esque manner “Here’s one hundred meeeellion dollars that you’ll never see.” Or I was going to find him wide-eyed and rapt with attention, hanging on my every word about the startup community in the Silicon Forest, until he finally gathered his wits and managed to utter, “Let me grab my checkbook. Would $50 million do?”

In reality—shockingly enough—neither of those things happened. I didn’t find a maniacal villain or babe-in-the-woods filled with naivete. Instead, I found a guy simply doing the job he was supposed to do: trying to attract investors for Oregon companies.

And as I walked through the questions I had—and the questions you were kind enough to ask—what became increasingly clear was this: the OIF can’t solve the problem we’re experiencing (and by “we,” I mean you entrepreneurs who are actually brave enough to start your own thing; not me, who sits here pontificating on your activities) because they weren’t designed to do so.

But I digress. Suffice it to say, the bulk of the problem at hand is not one that the OIF is designed to solve. You see, the OIF isn’t meant to be an investor. It’s meant to be bait or mistletoe or whatever.

That is, while they do happen to engage in some co-investment from time to time, they don’t lead on investments. In fact, the OIF is actually a fund of funds.

The Oregon Investment Fund (OIF) is a fund to other funds. OIF is designed to encourage, to build and to invest in growing, innovative enterprises creating risk-adjusted returns for the Oregon Public Employees Retirement Fund (OPERF).

So while OIF has money, that money is meant to serve as a means of attracting larger sums of money. By enticing venture capitalists to Oregon. And by encouraging—nay requiring—them to spend time here, chatting with entrepreneurs and growing companies alike.

Our financial strategy is to spread our risk across several types of funds, ranging from buyouts that invest in more mature and established businesses, to venture capital, and to early/seed stage funds that invest in young, fast growing companies. As of November 2008, we’ve invested in 10 funds in the Pacific Northwest region and in turn, we encourage these funds to invest in the growing local and regional market.

To support our strategy and encourage business growth in the Pacific Northwest, we actively build relationships between our funds and local entrepreneurs.

And they’ve been very successful in that regard, attracting approximately $233 million of investment for 20 companies, resulting in more than 900 jobs for Oregonians.

As part of that effort the OIF has managed to attract investment for some smaller startup organization in our area—and in the tech realm which I tend to cover here on Silicon Florist.

Kryptiq is one example of a company which has benefitted from the assistance of the OIF. AboutUs is another. OIF helped both of these organizations by attracting a venture capital firm that was looking for opportunities. In both of these cases, Voyager wound up being the firm that took advantage of the investment opportunities.

“Voyager invested in our Series A and they are the most active VC in tech startups in the Portland area,” said Ray King, CEO of AboutUs. “I think OIF has done a better job of attracting VCs to invest in Oregon than some other pursuits.”

And that starts to get to the crux of this square-peg-in-a-round-hole disconnect between many of the ventures in the Silicon Forest and the capitalists who are seeking to fund them: side projects and garage projects don’t always make good targets for VCs looking to invest large sums of money.

“We have a definite interest in building the entrepreneurial community here in Portland,” said Dave. “But we have a very institutional mindset. We’re not pursuing incubator-level investments.”

That said, there are investors that have been attracted by the OIF—Voyager for one and DFJ Frontier for another—who are interested in participating in much earlier rounds.

The OIF, it seems, is actually doing their job. It just so happens that that job doesn’t exactly line-up with the areas where our startup community needs assistance.

And that’s not really a “problem” per se. It’s just the way things are.

By way of analogy, it’s like having a hammer and needing to drive a screw. Looking at the two, it seems like it should work. But in practice, the two are fairly incompatible.

So, it’s very interesting to have the OIF out there, attracting VCs. And they’re very open in talking to any entrepreneurs and providing advice and guidance. Whether you’re interested in pursuing major funding or not. But when it comes right down to it, there is no knight in shining armor patiently waiting to fund very early stage companies in our startup environment.

But that knight is ready and waiting when companies—like Kryptiq and AboutUs—reach a point where the OIF can lend a hand.

So despite all my years of watching Geraldo Rivera and John Stossel, this little piece of investigative journalism fell a wee bit short. No big boogeyman. No bad guy. Just a series of seemingly complementary situations that, in fact, were not complementary.

Come to think of it, it was a bit like Geraldo’s whole Al Capone’s Vault thing. But didn’t we all learn something there, too? What’s that? Oh, I see.

Long story short, there’s still a funding problem or a “how we work on these projects and still manage to eat” problem. And we’re still searching for a solution. Currently, OIF isn’t the organization designed to solve it. In fact, there may be no existing organization designed to solve it.

Why? I like to think of the Portland startup scene as an untapped natural resource. But it’s not obvious how to use it. And we can’t take the current method of running in and depleting that resource. Because that either won’t work or it will kill it completely. We have to find a new way to work with those resources in a sustainable manner. And I think that calls for a new method of funding.

I could go on and on. But that’s an argument for another time, you special snowflake you.

So where do we go from here? Maybe the Big Idea Bash

So that’s that.

Next up? Beginning conversations with the politicians, entities, and investors who hold an interest in very early stage investments and maybe, just maybe, incubation. In other words, we need to find the solutions that are designed to solve the problems. Solutions like the Startup Now Oregon pursuit.

As Chris Logan writes:

Small businesses drive employment. Venture models have demonstrated the potential return of small growth companies. We have the opportunity to spawn high growth businesses that will deliver additional employment and high return on capital. These businesses will succeed because the crisis we face will economically reward new businesses the deliver solutions to our problems.

And if those solutions don’t exist? We may need to find a new way to make it work. But let’s at least start the conversations first.

And lo and behold, it just so happens a great place to start some of those conversations may, in fact, be an event hosted by the Oregon Treasurer Ben Westlund that the OIF is helping organize: the Big Idea Bash on April 29.

The Big Idea Bash is a social gathering created to connect entrepreneurs to the organizations that can help them flourish. This year the event will feature a speed pitching session, creating a unique opportunity to present new company ideas to a select group of Venture Capitalists who are funding emerging companies in Oregon.

I’m going to try to make it. And I would encourage you to try to attend, as well. Or don’t. I mean, it would be great to have you there, but you can also be sure that I’m likely to blather on about the event here afterwards.

But I must say, it would be great to have a contingent of entrepreneurs like you in the audience. So try to make it, won’t you?

One thing is for sure. Recent activity has clearly shown that I need more—arguably much, much more—education on what solutions currently exist and what they have been designed to do. And we’ve still got a long way to go in helping people understand the startup environment in which we find ourselves.

We’ve all got a lot to learn. But we’re already making strides that may resolve some of these issues. And we’ve proven, time and time again, that we can come up with creative ways of solving problems about which we’re passionate.

In any case, I’m looking forward to digging into this more and figuring out the ways to get you entrepreneurial types the kinds of help that will enable you to make your products a reality—and that will, in turn, make the Silicon Forest a success.

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6 Responses to “Chatting with CreditSuisse about the Oregon Investment Fund, Big Idea Bash”

  1. Harvey says:

    Good post, Rick. You’re very fair to all involved and your depth on the story rivals any of our local business newspaper coverage.

    That said, I want to cry “bullshit” – not on you, but on the Oregon Investment Fund.

    Maybe Credit Suisse isn’t pure evil, but they haven’t done what they said they would do. I was in the audience when Credit Suisse pitched the Oregon Investment Council to manage the Oregon Investment Fund money back in ’03. If they would have done what they promised back then, my back-of-the coaster calculations say that we should have seen over 3,000 jobs created in Oregon by now.

    When $233 million in investment capital that the legislature thought was being dedicated to Oregon entrepreneurs has only created 900 Oregon jobs in 6 years…I think someone has to call “bullshit”.

    Wow – 900 jobs – that’s right up there with the economic impact of the Dutch Brothers coffee franchise.

    And I have to call “bullshit” on their website’s makeover of the description of the Oregon Investment Fund in the last 3 weeks. Lame.

    When we’re looking at 12% unemployment and hundreds of talented entrepreneurs unable to get any kind of funding…Credit Suisse’s argument that their role is to “encourage other funds” and the commensurate lack of results they have delivered leaves me…underwhelmed.

    I hope the Big Idea Bash does deliver – thanks for cajoling us to attend!

  2. Ron says:

    Hi Rick,

    I was wondering if you were familiar with the Maryland Venture Fund as a possible model for Oregon. Their Challenge Investment Program offers $150k in matching seed funds to get a new venture off the ground (with the opportunity for larger follow-on investments thru their Enterprise Investment Fund.) http://tinyurl.com/2ga4tj

    I’m on my 3rd startup and am seriously considering locating in Maryland specifically to take advantage of this program but, if Oregon had a similar program, I’d probably be moving to Portland instead of staying on the east coast.

  3. Rick Turoczy says:

    @Harvey Thanks so much for taking the time to comment on this. Obviously, you’ve got a history with and vantage on this situation that provides valuable insight. And I’m hopeful that your continued efforts in this area—like the Startup Now Oregon effort—will create a viable environment for the smaller startups here in the Silicon Forest.

    @Ron Thanks for the pointer to the Maryland Venture Fund! I’ll definitely check it out. Hopefully, we can still find a way to woo you to the Rose City—or we’ll see some other funding options come into being that make it viable for you.

  4. James says:

    There is clearly an expectations gap here. I wasn’t there but I think the Oregon legislature thought it was authorizing PERS to actively invest in its own back yard to help stimulate the economy, add jobs, and bring badly needed money to local entrepreneurs. State Treasurer Randall Edwards, on the other hand, thought the $100M should be used to provide “good returns for the Oregon Public Retirement Fund”. See this 2004 article: http://portland.bizjournals.com/portland/stories/2004/09/27/daily34.html?jst=b_ln_hl

    900 jobs over five years is certainly helpful, but is a far cry from what I think legislators had in mind when they authorized the original $100M.

  5. [...] that’s exactly the idea behind the Big Idea Bash, sponsored by the Oregon Investment Fund and hosted by the State Treasurer of Oregon, Ben Westlund, Wednesday night at the Olympic Mills [...]

  6. Rick- Pretty good article, Just saw it so I am commenting really late.

    The difference between OIF and the Maryland Venture Fund is that Oregon’s is funded with pension dollars, which by law, must be invested with the prudent investor standard or jeopardize it’s tax-exempt status and risk litigation. Maryland’s program is funded by the legislature.

    Oregon has a legislatively-funded program that fills the early stage gap discussed in the article and receives lottery dollars called the Oregon Growth Account, but the legislature just cut their allocation in half for the next four years. Supporters of VC in Oregon should contact their legislators and voice support for the OGA between now and the February session to ensure it isn’t cut completely.

    Harvey- we’ve been over this many time before, OIF is just one avenue Treasury pursued to implement the legislation within it’s restrictions. But if the legislature’s intent really was to put economic development first when they created OIF, then they chose the wrong pot of money to pull from. Legal and fidicuary obligations require the OIC to have returns as their first priority, pension shortfalls must be replaced by state and local government employers.

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