As Xconomy has reported on many occasions, hometown venture capital firms have been receding from the startup scene in San Diego. This new reality might not seem apparent because the broader economic downturn has slowed activity across the board, and because some venture capital continues to flow into San Diego’s life sciences and technology companies from Northern California and elsewhere. But there are reasons why we need to address this issue.
I believe that we can work ourselves out of this capital formation mess. One example is the MarketLink program created by CommNexus, the local non-profit group representing San Diego’s telecom industry.
The idea for MarketLink originated during a CommNexus subcommittee on capital formation whose mission was to increase capital flow to local tech companies. About five years ago, San Diego was sorely aware that the OOTVCs (out-of-town-VCs) were notoriously slow at coming here to look at our great startups. Even then, there wasn’t enough local capital to do right by our new ventures here. Mike Krenn (DLA Piper) and I began thinking about giant companies as other sources of capital for our jewels. At the time most large corporations like Samsung, British Telecom, Qualcomm and many others had both venture arms and strategic investment groups that were looking for investments, partners and potential acquisitions.
At first we thought about running a San Diego based company showcase for multiple strategic investors to attend, similar to the kind of event Connect used to run in the old days for OOTVCs. But the attendance at these events for OOTVCs was waning significantly, and we feared a similar lack of attendance among strategic corporate investors. At that point the then-CommNexus CEO, Julia Wilson, came up with a brilliant idea. Rather than hold a general company showcase for multiple strategic companies, why not create a local showcase event that was tailored to a specific strategic investor. The strategic investor would tell CommNexus what types of companies and technologies they were seeking, and CommNexus would solicit applications from local technology companies, screen them, and work with the strategic investor to select the companies they would meet with when they came to town. I happened to be present when Julia vetted the idea with the Qualcomm venture people and they blossomed with excitement at the idea. The rest is history.
Since the first MarketLink program began in 2006 with France Telecom, CommNexus has held 13 MarketLink programs with such companies as LG, Nokia, Verizon Wireless, and Ericsson. Each MarketLink event typically draws more than 70 applicants, of which 16 are selected for discussions with the strategic investment team. Out of this program four local companies have received strategic investments and 31 percent have formed partnerships. It is a great example of one innovative approach to help overcome the capital formation problem in San Diego.