New San Diego VC Firm Emerges as ‘The Moneyball of Venture Capital’

fund-raising efforts in 2007, the firm was ready to close in the fall of 2008—when the financial crisis hit Wall Street. “Morgan Stanley was a lead investor,” Coats deadpans, “and we had to start fund-raising all over again.” It took another 21 months or so for Correlation Ventures to secure its first $8.5 million, and Coats says they didn’t close the fund until November, 2011.

Of the 21 investments that Correlation Ventures has made so far, four are in life sciences startups and 17 are in technology, or consumer products and services. While they invest nationwide, their list of portfolio companies includes Mogl and RQX Pharmaceuticals in San Diego, Aldea Pharmaceuticals in San Francisco, and Framehawk in San Francisco.

While the firm can invest as much as $4 million over the life of a startup, Coats says a first round deal is typically $1 million to $2 million or smaller—and after 21 deals, Correlation has invested only about a sixth of its fund. “We are a co-investor, remember,” Coats says, “so a key requirement is that at least one other investment firm is going in at the same time.”

A deal typically begins with an introductory phone call from the lead investor. Instead of scrutinizing gigabytes of information about a prospective deal, Coats says Correlation gets the information it needs from five documents—the business plan or power point presentation, term sheet, historical financial, capitalization table, and pertinent legal documents.

“We get what we need and put it through our analytical process,” He says. “We guarantee we’ll make a decision in two weeks, but it’s often just 48 hours. We’re often wiring the money within two weeks.”

As part of their decision, Correlation also tells startups up front how much capital will be reserved for follow-on investments—and the firm’s partners won’t take a board seat. “We are literally getting hallelujahs from entrepreneurs for making the decision in record time,” Coats says.

For an industry that invests in innovation, Coats says it only makes sense for some VCs to do some innovating as well.

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Author: Bruce V. Bigelow

In Memoriam: Our dear friend Bruce V. Bigelow passed away on June 29, 2018. He was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Bruce Bigelow joined Xconomy from the business desk of the San Diego Union-Tribune. He was a member of the team of reporters who were awarded the 2006 Pulitzer Prize in National Reporting for uncovering bribes paid to San Diego Republican Rep. Randy “Duke” Cunningham in exchange for special legislation earmarks. He also shared a 2006 award for enterprise reporting from the Society of Business Editors and Writers for “In Harm’s Way,” an article about the extraordinary casualty rate among employees working in Iraq for San Diego’s Titan Corp. He has written extensively about the 2002 corporate accounting scandal at software goliath Peregrine Systems. He also was a Gerald Loeb Award finalist and National Headline Award winner for “The Toymaker,” a 14-part chronicle of a San Diego start-up company. He takes special satisfaction, though, that the series was included in the library for nonfiction narrative journalism at the Nieman Foundation for Journalism at Harvard University. Bigelow graduated from U.C. Berkeley in 1977 with a degree in English Literature and from the Columbia University Graduate School of Journalism in 1979. Before joining the Union-Tribune in 1990, he worked for the Associated Press in Los Angeles and The Kansas City Times.