Venture capital is reaching out to new regions of US
If America's entrepreneurial talent is busting out in Silicon Valley and along Boston's Route 128, why did Robert Pratt start his venture-capital firm in Richmond, Va., last winter? ''To fill the gap in the Southeast,'' he answers.
Most of the country's venture-capital firms - companies that spend their energy rounding up money and then investing it in entrepreneurs and new businesses - are located in California, Boston, New York, Chicago, and Minneapolis. Now, it seems, there is not as much room for new venture-capital firms in these areas as there once was.
''It's difficult for a new (venture capital) firm to start up in the traditional areas now, unless they have a new twist to them,'' comments Jane Morris, managing editor of Venture Capital Journal, in Wellesley, Mass. She says new firms are gradually filling geographic pockets in the Colorado-to-Texas region and in the Southeast.
Robert Pratt, general partner in Atlantic Venture Partners, said he was able to raise $15 million in capital last year. The firm has invested in eight starting businesses - most of them high-tech - covering the Eastern Seaboard from Washington south to Florida. He terms the venture opportunities in the Southeast right now ''adequate.''
Mr. Pratt sees greater potential in this area, though. More entrepreneurs are beginning to recognize the advantages of the Southeast from a business standpoint, he believes. ''Labor is less expensive, the tax structure is better, and quality of life is improving . . . The (public relations) work being done by state chambers of commerce is beginning to pay off.'' He cited Research Triangle in North Carolina and Atlanta as ''hot'' areas.
Other venture capitalists are paying more attention to the Southeast. ''The Carolinas as a whole are good,'' says Fred Adler of Adler & Co. in New York, one of the country's largest and well-established venture-capital firms. Though the company feels it can cover its territories well by plane travel and from its California office, it is considering a third office in the Southeast.
When Michael Faherty talks about venture deals in Texas, the whole image of vast opportunity in the dusty West whips up. ''There are more opportunities than time and money to do,'' he says. Mr. Faherty is a general partner in the Austin venture-capital firm, Business Development Partners, a company launched in 1981 to specialize in financing entrepreneurs in their first development stages.
But the budding geniuses in Texas are a rough breed, and it takes a special strategy to work with them, Mr. Faherty says. ''The entrepreneurs (here) are much less well informed than a comparable group of people on the West Coast or in Boston,'' he observes. In areas like New England or California, where entrepreneurs have many years of experience finding venture capital, the process has been worked into a fine-tuned system, a process Texans are just now learning. ''It is a lot harder to bring these companies up to level than anyone suspects,'' Mr. Faherty says.
Up north, in Denver, John Hill says, ''There are a large number of outstanding opportunities here. The triggering element is the base of technology companies - Hewlett-Packard, IBM, Storage Technology, Digital, Bell Labs, Texas Instruments.'' Mr. Hill is the founding partner of Hill Partnership, which started in early 1982 with $12 million in capital. Mr. Hill says there are several firms getting started in the Denver area. More will get involved, he predicts.
There is no doubt the tap runs freely as more investor money splashes into new businesses via venture-capital firms. Last year a record $1.6 billion was raised.
How much of this is going to developing pockets outside the traditional areas? It's hard to tell, says Ms. Morris, but probably not that much yet. Of the 70 new firms started in the last five years, ''a lot'' were in California or Boston, she says. And the established firms are still generally keeping their investments in their own backyards.
''Certainly, we are seeing several promising new ventures being formed in Texas, also in Colorado . . . but consider it in comparison to the steadily growing number in Boston and California,'' says John Doerr, a general partner in Kleiner Perkins Caufield & Byers, a major venture-capital firm in San Francisco. Established firms like his ''will continue their investing patterns of the past, '' he says.
At Brentwood Associates, a top firm in Los Angeles, Fred Warren says: ''I don't think we're cramped in California. There are so many new opportunities coming to pass all the time . . . the entrepreneurs know the capital is there.''
But even with this prevailing attitude, some of the firms have branched out - not by establishing their own offices, but by co-funding others. For example, Brentwood Associates was one of four major firms which started Mr. Faherty's Austin firm. ''We got coverage in that area for a relatively small investment,'' Mr. Warren says. And Hill Partnership in Denver got some of its starting capital from Mayfield Fund and Intervest, two well-established firms.
While older firms aren't streaming into new areas, ''they're working at it,'' says Ms. Morris. Developing these areas ''takes time.''