Investors shy away from region
Local entrepreneurs lament venture capitalists' seeming reluctance to invest in Central Oregon
Published: January 16. 2006 4:00AM PST
Tyson Pardue says his business could be a blockbuster.
RetailOnDemand, a software leasing company that could let small retail stores compete head-to-head online with the biggest of the big, is the type of concept that technology investors like to call "disruptive" - something that could change the way everyone does business, something capable of quickly building sales and fortunes big enough to rival the Googles and Yahoos of the world.
Pardue says he could build his vision at home in Bend, but he's found no luck so far in getting venture capitalists from Portland or Silicon Valley to invest the $2 million he says he needs to ramp up his sales and product development muscle.
At least, not if he plans to do it in Central Oregon.
"That's kind of the crux of where I am with respect to raising money, is trying to make some of these people who don't know Bend comfortable with Bend as a place where you could have a company with two- or three thousand employees and be making hundreds of millions of dollars a year in revenue," Pardue told about 120 entrepreneurs, business owners and potential investors at a Central Oregon Pub Talk event Thursday. "And it's easier said than done, at least for me."
Nationally, 2005 was a year that saw investor money flow back into risky startups and new ideas.
Investors poured $5.49 billion into 555 deals in the third quarter of 2005, according to the Quarterly Venture Capital Report released by VentureOne, a Dow Jones company, and Ernst & Young, a prominent national accounting firm. That was up 9 percent from third quarter 2004 and one of the highest quarters since the dot-com-crash years of the early 2000s.
California sopped up the biggest share of investor interest, at $2.5 billion. Washington state accounted for $242.9 million, fourth in the nation.
Central Oregon's nascent high-tech investment world, on the other hand, is still trying to find its way.
When it does, it will probably find success with ideas that are smaller than the one Pardue is pursuing, and much smaller than the average $9.9 million investments the national-scale venture capital investors are making, Bend Capital Partners managing partner Dan Hobin said.
On the other hand, companies that need only $200,000 to $250,000 - too small to interest the big investors - with the prospect of hitting $2 million to $5 million in revenues within a few years?
"That's the kind of company that's going to happen in Bend," Hobin said.
There are increasing efforts to jump-start that kind of growth here.
Bend Capital Partners is one of a small handful of local investor groups that have formed in the last couple of years to look for opportunities in the growing pool of talented people who are moving to Central Oregon from Silicon Valley, Seattle and other high-tech meccas.
The monthly Pub Talks at McMenamins Old St. Francis School, organized by Economic Development for Central Oregon and the Oregon Entrepreneurs Forum, represent another attempt to try to bring investors together with local companies and entrepreneurs.
In their first couple of years, the Pub Talks have attracted a steady stream of entrepreneurs looking for money, including a company that makes designer computer equipment and a would-be filmmaker.
Thursday's event brought a panel of three entrepreneurs and two investors together to try to shed light on a key question: What's unique about trying to attract investment capital to a company that wants to operate in Central Oregon's relatively rural business climate?
The size and character of the local labor market is an obvious factor that tends to limit the potential size of local startup companies - and consequently the scale of investor interest.
Attracting educated young people can be tough because their social lives aren't rich enough here, said Paul van Eikeren, a chemist who founded IntelliChem, a local startup company that produces process management software for research scientists, with his son in 1998.
Landing young, married professionals with children is a little easier because the area's attractions are family-oriented. On the senior end of the scale, the area is rife with talented retirees, but active top-level executives tend to be gunshy about the prospect of moving away from corporate power centers.
The local investor pool is also constrained by its relatively small size and by the types of considerations that tend to define and limit all individual investors - their capacity for risk, and their individual range of expertise and interest.
Robin Gould, a former finance executive with the Mars Corporation, the makers of M&Ms, and with winemaker E&J Gallo, said he has sunk part of the high-risk end of his diversified portfolio into local startups. Among the keys for companies that have attracted his money: All are willing to accept his help and input as well as his cash; all are willing to give up some equity; and all are based on concepts he can personally understand.
"A lot of people have a lot of ideas, and some of them may be great," Gould said. "But if they don't resonate with me, I'm not going to invest. And I'm tellin' ya, not many resonate."
The founders of two successful local startups said they developed systematic approaches to locating investors, then stuck to the plans long enough to make them work.
Van Eikeren's experience with the pharmaceutical industry through stints at Bend Research, Sepracor and Argonaut Technologies led him to realize that product development scientists with big drug companies could make profitable use of electronic organizing tools like an intelligent lab notebook - a marriage of software and chemistry that no one was working on.
IntelliChem, the company he and his son, Josh, formed to fill that need, systematically enlisted potential customers both as investors and as product research collaborators.
Between $100,000 investments from customers and a pair of Small Business Innovation Research grants from the National Science Foundation and the National Institutes of Health, IntelliChem raised about $1 million in funding, van Eikeren said.
The company was acquired by Symyx Technologies, a larger research services company, in 2004 for $30 million. Van Eikeren promptly formed a new company, Blue Reference, to work on more process control software.
Bill Briggs used a similarly systematic approach.
Briggs' company, Net Worth Strategies, makes software to help companies manage stock option benefits, and to help employees figure out how to use them.
His startup had the advantage of timing - he started it in 1998, just before an explosion in high-tech investing led to a profusion of stock option plans. But Briggs solidified his investment base by producing a formal initial private offering for Net Worth Strategies, which eased potential investors' ability to research it, and by systematically marketing it to wealthy investors through a series of small seminars, a process that attracted several local investors, including Gould.
On a smaller scale, Bend Capital Partners has put less than $50,000 apiece so far into six companies since it was formed two years ago, Hobin said, with ideas that include a medical equipment refurbisher, a maker of natural-fiber clothing, and his own Internet search-engine marketing company.
If the real estate market cools, freeing more investment money both locally and nationwide, he's predicting a resurgence in high-tech and startup investing that could begin to transform the local business landscape, despite its current small scale.
"The conversation last year was clearly real estate," said Hobin, who, like Pardue, is a former Silicon Valley executive who transplanted his family to Central Oregon after the dot-com bust. "This year, I think you're going to hear that conversation change."
David Fisher can be reached at 541-383-0862 or dfisher@bendbulletin.com.
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