A new venture fund with big-name backers aims to fill a financing gap with money for early stage companies.
Laguna Beach-based Okapi Venture Capital LLC has raised roughly $30 million for a fund that targets early stage companies with good ideas but sometimes little more than a business plan.
Dwight Decker,chief executive of chipmaker Conexant Systems Inc. and founder of technology group Orange County Technology Action Network, or Octane,helped launch the fund, which closed its fund raising last month.
“The ultimate object is more new, innovative technologies formed in Orange County,” said Decker, a fund investor.
Conexant also invested in the fund.
The fund has about 25 investors, said Marc Averitt, co-managing director of Okapi Venture Capital. Backers of the fund topped their goal of raising $25 million.
Aside from Decker and Conexant, other investors include: Lake Forest-based disk drive maker Western Digital Corp., Irvine-based Edwards Lifesci-ences Corp. and Santa Ana-based Advanced Medical Optics Inc.
Leaders from the investing companies are on the board of Octane, which is made up of local companies and investors.
Fund backers believe there are plenty of startups that one day could be the next Western Digital or Edwards Lifesciences, Decker said.
Okapi plans to focus on computer and medical technology companies and is likely to make 10 investments.
The fund isn’t huge. Others are four times as big or larger. But few funds target entrepreneurs at the earliest stages of development, when most young companies fail.
After the Internet bust, fund managers have put their money in companies with revenue and a clear path to profitability. Meanwhile, some angel investors have become more conservative, too.
A lack of funding for early stage companies is common across the country, said Randy Churchill, director of business development for PricewaterhouseCoopers International LLP’s technology practice in Los Angeles.
Still, many say OC trails other regions in Southern California for early stage investments.
Churchill said that 4.6% of venture funding in the U.S. went to early stage companies in 2005. Los Angeles and San Diego saw 4.8% targeted for early stage companies while OC had just 1.3% in such startups.
There are “five or six” other funds in Southern California that target early stage companies and are trying to find investors, without success, according to Churchill. These are typically much larger than Okapi, he said, with targets of around $100 million.
It took about a year to raise the money for the Okapi fund.
OC hardly is a poor region. But locals often haven’t made their money in startups, Decker said.
“There is a lot of money, but most of the money here has been made in real estate,” Decker said. “They’re much more familiar with that than making early stage, high-tech investments.”
Now that Okapi’s money is raised, the fund must perform, Decker said.
“This is not charity,” he said. “This is about making money.”
Another firm targeting young local companies recently started: Laguna Hills-based Fjord Ventures LLC, which was formed by Olav Bergheim, formerly a general partner with Domain Associates LLC.
Okapi is targeting extremely young companies and entrepreneurs with potentially lucrative technologies.
Okapi’s Averitt expects to find companies that need $250,000 to $1 million. Including later rounds, the fund plans to set aside $2.5 million to $3 million for each investment.
There are two types of young companies: seed and early stage, Averitt said.
Seed companies tend to be in the idea or research stage.
“It may be a professor, some grad students and some interesting research,” he said. “They may or may not have a patent.”
Early stage investments would include companies that might have done some financing themselves with credit cards or money from friends and families. They are looking to launch marketing plans and might even have customers.
Okapi would offer the first official round of funding. After the initial investment, the second round could come in six months to two years, Averitt said.
At that point, Okapi could team up with bigger venture funds, he said.
The fund is targeting OC but is willing to look at all of Southern California to ensure investors in the fund get their returns.
“Our fishing ground starts in Orange County and moves outward,” he said.
The fund plans to follow the typical time frame of about five years of investing and then another five years of cashing out of companies in sales or initial public offerings.
If the fund does well, Averitt said he hopes to raise money for another fund.
Averitt is handling technology investments. The plan is for the fund to devote about a third of its money to technology, a third to medical companies and third to a mix of the two areas.
Hailing from Intel Corp., Averitt helped find companies to fund as the director of strategic business development for chipmaker’s software and solutions group.
Averitt sees funding prospects with content for wireless phones, e-commerce and radio frequency identification tags for shipping and logistical tracking. He said he’s also interested in material sciences.
Sharon Stevenson is the co-manager at Okapi and is heading up medical investing.
Stevenson formerly was senior vice president of technology and planning for Carlsbad-based SkinMedica Inc., a venture-backed company focused on the dermatology and “human appearance” markets.
Prior to SkinMedica, Stevenson was a principal with Domain Associates.
Okapi plans to target biotechnology companies, medical device makers and traditional drug startups.
Where computer and medical technology could overlap is with “nanobiotechnology,” the application of nanotechnology,or the study of things on the molecular level,in medical science.
That could include glucose sensors that are attached to diabetics, Stevenson said.
“It’s kind of stunning from a healthcare perspective,” she said.
Gary Augusta, executive director of Octane, said he’s talked to young companies that just need some help, the kind Okapi can provide. The problem hasn’t been a lack of prospects, he said.
“There’s a lot here,” he said. “That’s a very common misconception” that there isn’t.
