Two venture capital firms are working together to find Orange County companies in need of capital.
Costa Mesa’s CerraCap Ventures LLC has formed an unofficial alliance with Mark IV Capital Inc., a Newport Beach firm chaired by James Slavik, whose various family members count a multibillion-dollar stake in W.W. Grainger Inc. (NYSE: GWW), the Lake Forest, Ill.-based industrial supplies and equipment provider.
Mark IV, which also invests in real estate, has “been focusing on SoCal and Orange County way longer than we have,” CerraCap Managing Partner Saurabh Suri told the Business Journal. “They’ve had some great successes.
“We are co-investing together in deals. Ecosystems are being jointly developed,” said Suri, who declined to reveal those investments, saying they will be announced in the coming months.
“This is a typical collaboration you’d see in the Bay Area,” said Michael Beaudoin, Mark IV’s director of private equities and a former venture capitalist for AT&T in Silicon Valley. “Bay Area firms do collaborate in their ecosystem. Hopefully, there will be more collaboration here.”
Local VC Lagging
Orange County for many years has lagged in venture capital when compared to Silicon Valley and even to a lesser extent Los Angeles and San Diego.
Several initiatives are trying to boost venture capital funding, everything from the Octane accelerator to the Irvine Innovation Council to the CEO Leadership Alliance.
“Our aspiration is to make Irvine the poster child for innovation hub in Orange County,” said CerraCap Operating Partner Abhi Mukherjee. “Similar hubs can be constructed in Anaheim, Garden Grove, Santa Ana and Newport Beach.
“If we can take that template and apply to different cities, soon everything will be aggregated to a county level,” he said.
Slavik, who founded Mark IV in 1974, until 2020 was a director at W.W. Grainger. His family owns a 9.2% stake in the company worth about $2.2 billion as of mid-July; the family’s representative at W.W. Grainger now is Susan Slavik Williams, a Missouri resident who is also a director at Mark IV.
Slavik, who has also held directorship positions at the Hoag Foundation, has long been interested in startups, serving as a director at the UCI Beall Applied Innovation center.
Mark IV Capital describes itself as “a boutique investment manager focused on commercial estate development and investment, as well as venture capital.”
It typically makes 10 transactions annually and has a longer time frame than the three to five years that venture capitalists usually hold onto their investments, according to Beaudoin.
In Orange County, Mark IV has invested in firms like Irvine’s OnSite Waste Technologies, which has a proprietary desktop device for small-scale medical waste processing, and Newport Beach’s TitanHST, a provider of an emergency alert app.
CerraCap was co-founded in 2015 by Suri and Chief Executive Saurabh Ranjan; the pair previously helped build Aliso Viejo-based UST Global Inc., which now has more than $1 billion in annual sales.
CerraCap’s style has been to study technology problems facing firms in areas such as cybersecurity, enterprise AI and health tech and then search for software engineers or early stage companies that can solve those issues. In that way, the companies they invest in aren’t getting just introductions but also purchase orders.
“We’re always backing the jockey, not the horse,” Suri said. “The jockey is the leadership team, and the horse is the product. That’s the real difference maker.”
When CerraCap’s executives, who often travel the country looking for investments, decided they should take a deeper dive into their own back yards, they found themselves calling Beaudoin.
“We’re constantly looking to Mike (Beaudoin) for his insight, especially on Orange County and SoCal,” Suri said.
“Mike’s introduced us to the ecosystem. We’ve been fortunate enough to shadow Mike to understanding the underlying market, where the talent is coming from. Mark IV brings deal flow and CerraCap brings operational knowledge. When I’m talking OC deal flow, Mike’s the guy.”
Beaudoin said he wants to invest in companies that can improve the productivity at Fortune 500 companies or governments.
“I’m looking for that management team that needs capital to continue to grow,” Beaudoin said. “They’ve already proven their product. They already have customers and are getting great feedback. They’re real operators at that point.”
Currently, Mark IV is finding deals through referrals, particularly from law firms focused on startups.
Suri and Beaudoin said executives seeking to raise funds should call them.
“We want to tell all the entrepreneurs out there in Orange County that we are here to listen,” Suri said. “We want to give them a chance, assess where they are at and see if that fits in our investment thesis.”
Cerra Cap is looking to invest $50 million in qualified opportunities based in Orange County.
“Everyone in the world wants to replicate the Bay Area model,” Beaudoin added. “The key ingredients are quality of life, research, the amount of talent and the amount of capital.
“If you look at Orange County, it has some of the best standards of living. You have universities like UCI and massive companies. There’s a lot of research that’s happening. There’s a lot of talent.
“There’s a lot of capital in Orange County. However, it’s in other areas, real estate, hard assets. The other key ingredients are already here.”
THE MONEY: Family controls a sizeable stake in W.W. Grainger Inc. (NYSE: GWW), a supply company from Lake Forest, Ill., valued at about $24 billion as of mid-July. Beneficial ownership of company shares predates Grainger’s IPO in 1967.
THE MARK: Newport Beach’s Mark IV, founded in 1974, makes direct investments in commercial real estate, both in existing properties and new development. It also makes investments in private equities and venture capital. Slavik is also a founder and manager of Emerald Bay Ventures LLC, a private investment company.
THE NUMBERS: W.W. Grainger shares are up 2.5% year-over-year, boosting the stake of family’s varied interests in the company past $2 billion. Slavik stepped down from the company’s board in 2020, after 30 years of service. Replaced on board by another family member and Mark IV director who is reported to live in the St. Louis area, and who controls a stake in the company that tops 9%, according to filings.
CONTROL: Slavik has previously contended that he’s just one of many beneficiaries in the supply company, and that his own worth is too low for our listings.
VENTURES: Has served on the Advisory Board for the Cove Fund, a seed capital fund affiliated with UCI Applied Innovation at UCI, is a founding director for UCI Applied Innovation.
PHILANTHROPY: Has served as a director of the Hoag Hospital Foundation.