Golden Capital Network
By Don Lipper
If some firms are matchmakers between entrepreneurs and venture capitalists, then Golden Capital Network is the king of speed-dating.
Several times a year this Chico-based nonprofit corporation sets up conferences where 48 entrepreneurs make 10-minute presentations to angel investors and venture capitalists in an investment-seeking round robin. The firm says that since they started in 1999, presenting companies have raised over $500 million in happy hookups.
Since its inception, GCN has presented more than 450 companies to nearly 300 active, angel and VC investors. GCN claims that over half of these companies received interest and follow-up meetings with one or more of these investors, and approximately 60 of them went on to close deals. Most of this activity has occurred “post-bubble.”
The firm highlights Seed, A and B round companies in four major areas: Software & Internet Services, Communications & Networking Technology, Biotech & Medical Devices, and Emerging Technologies. It costs companies $595 to throw their pitch.
GCN originally focused on investment opportunities in the Sacramento region, now they draw investment opportunities from the 11 western states and venture capitalists from as far away as the east coast. They are starting to have conferences in Nevada and the Bay Area.
For the Sacramento region, GCN conferences are drawing dollars. “The Sacramento Angels [an angel investment consortium] rely heavily on GCN’s venture capital conferences for scouting quality deal flow. Our group has invested in the neighborhood of $5 million over the last three years in companies who first presented at a GCN conference,” said Jim Kitchel, Chairman of the Sacramento Angels.
“I think it is a centerpiece of the Sacramento equity market. GCN is where 90 percent of our deal flow comes from,” said Kitchel. “It totally owns that market in northern California and is probably the largest in the western states.”
GCN is expanding pan-regionally. “We’re able to connect entrepreneurs, service providers, investors and like-minded people across regions,” said Jon Gregory, president of GCN. “For example, you could have an entrepreneur in Folsom, with their legal services in Sacramento, their accountant based in Silicon Valley, their seed investors in Nevada, their CEO comes out of an executive search from San Diego and later-stage investor from Seattle. I have never seen a company in our pipeline where all the components came from one region.”
“Having Sacramento as the host location raises the city’s profile to the investment community around the country,” said Gregory. “My vision is to connect the dots between Sacramento and the rest of the west.”
The firm started in February of 1999. A year later the NASDAQ plummeted and the Internet bubble officially burst. But Gregory was undeterred. “Because of my newness to the field, I just battled through and realized there was lots to do with or without what happened in March of 2000,” said Gregory. “I wasn’t as discouraged as others. The fact remains, entrepreneurs are the key ingredients for growing the local economy.”
Right before the bubble burst, they had 475 attendees. Today attendance is in the 300-400 range.
“We’re like the opening night on Broadway for startup companies in the western US. You want to be there opening night to see that act,” said Gregory. “Investors get to hear the companies’ stories and the companies get to hear the perspective of investors, executives, customers.”
“It isn’t just the network of people there the opening night, it is the networks that extend from those networks at opening night,” said Gregory.
WHAT IT MEANS TO THE ENTREPRENEURS
For local entrepreneurs, a GCN event is a coming out party where they are introduced to investing society. But before you get to present, you have to go through an investment presentation finishing school where GCN will help you prepare your pitch.
The GCN board of directors will vet the entrepreneurs’ proposals and only the strongest companies get to present. The firm will also give guidance on how to target your market.
For some companies, one dance at the GCN ball turns into a Cinderella story. “The last GCN event I attended was excellent and directly contributed to our success in [getting] Series A [financing],” said Douglas Erwin, CEO of Advanced Fluidix Laboratories in Incline Village that recently secured $500,000 in angel investments.
But for other companies, the GCN event is just a stepping-stone to their ultimate goal. “I presented at GCN and was approached by a Sacramento VC firm. Every month they’d give a call to check in as soon as we hit certain milestones,” said Libby Alumbaugh, President and CEO of Compass A.I. an El Dorado Hills enterprise software firm. “One of the partners knew of another venture capital fund that might be interested. With that second firm, we had our investment within two weeks. So our funding source was one degree of separation away from GCN.”
“From an entrepreneur point of view it is a networking event that will eventually get you introductions to the right people that it would impossible to do otherwise,” said Alumbaugh.
Alumbaugh found the pitching process was instructive. “With ten other companies pitching in that hour, you have to find a way to rise above the smoke, not with flashy videos but by having a solid business proposition,” said Alumbaugh. “When you start hearing the VC questions, you learn what makes you attractive to get funding. With every pointed question, we refined our pitch.”
But entrepreneurs must have realistic expectations. “No one is going to walk out with a check in their hand,” said Alumbaugh. “If someone asks you to send your business plan, you’re doing great.”
Those who have pitched suggest the entrepreneurs do due diligence on the VCs attending. Find out which firms are targeting your market and which firms are actively investing. Some VC firms seem to be just window-shopping until the companies they have already financed get acquired or go public and then the VC firms will have new money to invest.
“I would say that investing has continued at a steady pace. There have been a couple of notable companies funded this year. Sierra Logic got $15 million,” said Corley Phillips, founder, American River Ventures, of Roseville.
“Although we have not funded something yet, we’ve seen things that were worthy of continued investigation. I think GCN does a good job screening wannabes out,” said Phillips. “What GCN does very well is preparing them to be successful. They provide a lot of coaching to teach an entrepreneur how to talk about their business plan in such a way as to raise capital.”
The odds are still stacked against many of the entrepreneurs. For example, American River Ventures looked at over 1,000 business plans and made four investments in 2002. In 2003, they looked at the same number of business and invested in two. “If you see 30 people your odds are still low,” said Phillips. “You might be lucky and find the right person at the conference. You attend the conference to learn how to speak to investors. Even if they aren’t at the meeting, you may get introductions to the right people down the line.”
“I expect to see a serious uptick in IPOs, perhaps as much as a 50 percent increase,” said Sacramento Angels’ Kitchel. “I believe the money is coming out of the wrappers again. The VCs have been keeping their powder dry. Now they are starting to look at making new investments.”
“We’ve been plugging along been pretty consistently, investing in five to seven deals a year during this “dry” period,” said Ktichel. “That has been $2-3 million.”
GCN’s Gregory is optimistic. “I would say that there have been major advancements over the past three to five years on a number of fronts,” said Gregory. “For example at UC Davis there is a tremendous focused effort to advance the entrepreneurial spirit in the community. The technology transfer efforts are really sending a message that UC Davis will be a growing and important player in fostering entrepreneurial innovation in California.”
On the seed and venture capital front, Gregory points to organized angel investor groups such the Sacramento Angels and venture capital funds such as DFJ Frontier, Akers Capital, American River Ventures, Technology Funding and Capital Valley Ventures that are focused on funding deals in the Sacramento region. Collectively these funds represent over $100 million in capital that did not exist before 2000.
A side benefit of the bubble bursting is that the talent pool moved out of the overpriced Bay Area and Silicon Valley housing to more affordable abodes in the Sacramento region. According to Gregory, the mass migrations of engineers, executives, marketing people, etc. is the lifeblood for startup companies.
In addition to GCN, Sacramento has grown an entrepreneur support infrastructure with groups such as the Sacramento Area Regional Technology Alliance (SARTA), TechCoire, Company X, Davis Area Technology Association (DATA), the McClellan incubator and other organizations creating an environment for the Sacramento region to succeed.
“Finally we have Intel, HP, and Agilent up here,” said Gregory. “Over time having such big tech companies creates a pipeline of future entrepreneurs who get frustrated working for big corporate entities and want to work on their own. For example, some of the executives of Agilent left and formed Sierra Logic in Roseville and raised an additional $15 million in venture funding.”
Sacramento is also the location of The California Public Employees Retirement System, or Calpers, the largest US pension fund, handling $150 billion of assets, and its sister fund, California State Teachers Retirement System (CalSTRS), the third largest fund in the United States, which makes it easier for local companies to pitch to the big guns.
Despite all these factors, the deal flow hasn’t increased dramatically, Gregory predicts a few things will break the investment logjam. “If some of the more mature companies had a successful acquisition or a public offering, that would have a major impact in the region,” said Gregory. “We need the larger venture capital funds to create a satellite office in Sacramento.”
“Just as Sacramento markets the region to manufacturing companies, we need a similarly aggressive outreach campaign to get entrepreneurial companies to move here,” said Gregory.
CHANGES IN FORMAT
Their 5th Annual Sacramento Venture Capital Conference will be on February 10-11. In response to complaints that their first two conferences were too general and scattershot with 15-20 companies pitching to all VCs, the new approach will feature intensively targeted investor presentations. That way a life sciences VC doesn’t have to sit through a semiconductor pitch. (For more information visit www.Goldencapital.net)
GCN did three events last year. In 2004 they plan to have two large-scale conferences and three or more one-day conferences that focus on specific sectors.
In response to criticism that too many of the companies at GCN events were early stage companies, the firm is adding a new format where on the first day of the conference they will focus on showcasing “the 12 best more mature companies that we can find in the western US. Those companies will not be charged a fee,” said Gregory.
On the second day, they will be showcasing 36-48 first stage startups. “We’re trying to fill a larger section of the food chain so that those more mature companies can benefit from coming here and giving their perspective to the younger companies. It gives us an extra carrot on the table to lure investors to Sacramento.”
Title: President and CEO