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New Oregon Investment Funds Take Aim at Millions

After several blah years, Oregon’s venture capitalists are, again, excited.

For instance, Scott Gibson, the mild-mannered founder of Sequent Computer Systems and one of the state’s most prominent investors, outright beams when he discusses the fruits of the Invest Oregon program, a state-sanctioned investment fund that could steer $100 million toward startup companies.

By:
Andy Giegerich
The Business Journal of Posrtland

http://www.nasvf.org/web/allpress.nsf/pages/8635

The money arrives via investment-earmarked cash drawn from the Oregon Public Employees Retirement Fund.

"It’s created quite a buzz in the venture capital community," said Gibson, who’s recused himself from seeking funds because he wears several public policy hats. "It’s a good source of funds, and venture capitalists are excited about helping the state and the retirees get a return for their money."

Invest Oregon, through which Credit Suisse First Boston will theoretically distribute funds to local venture capital firms, and other private funds, could also provide a template for Oregon’s future economic development. The initiative, created by last year’s House Bill 3613, charges Credit Suisse with giving 80 percent of the money to venture capitalists and co-investing 20 percent themselves. The Credit Suisse money will go into the same companies funded by the venture capitalists and private funds managers.

"It’s going to have a ripple effect, starting with [Credit Suisse]," said state Treasurer Randall Edwards. "They’ll bring in their expertise, their connections and eventually, they’ll bring in other investors."

The fund could further validate the use of publicly enabled investment plans. Already, the state has re-energized the Oregon Growth Account, a capital-alloting arm funded by the state’s lottery, by steering $4 million of new money toward venture firms.

The Portland Development Commission is also hoping its new Portland Family of Funds, a federal grants-funded concept, will contribute to the redevelopment of the Oregon National Guard Armory, among other things.

As the PDC unveils its Armory plans in the coming weeks, Credit Suisse and the state will have finalized the New York-based manager’s contract terms. Credit Suisse plans to lease office space in the Portland area and finalize industry targets with which it will seek investments.

The Oregon Investment Council, the state investments manager that hired Credit Suisse, wants the "fund-to-funds" administrator to "seek quality investments inside Oregon." Yet House Bill 3613 does not mandate purely in-state investments.

"Getting the top return for retirees is the primary goal; economic development is second," said Gibson.

Edwards, though, believes Credit Suisse will look to Oregon firms first, giving local capital-seekers an edge.

"Fund managers in Oregon would have tendencies to look here first," Edwards said. "This isn’t money that will disappear somewhere else."

Kelly Williams and Mike Arpey, the Credit Suisse managers who’ll oversee the Oregon fund, said they couldn’t discuss money management tactics until the firm finalizes its administrative contract with the state. Local firms, though, will provide input into where Credit Suisse can invest the cash, they said.

Credit Suisse, said Arpey, is also contributing $5 million of its own money to the fund.

"We’re not only accountable externally for the performance of this, but internally as well," he said. "We have every motivation to perform well."

Credit Suisse officials said they’d reveal which industries will receive investments at some point after it signs the state contract. A similar fund it manages in Indiana, though, mandates investments in the life sciences field, which includes biotechnology, pharmaceuticals and medical devices.

Given the company’s expertise in that area, "I think it’s pretty likely we’ll see a lot of investment in life sciences. There’s an enormous funding gap there," said Gibson.

The perceived funding gap, added Gerry Langeler, a general partner in the venture capital firm OVP Partners who lobbied on behalf of House Bill 3613, means that Invest Oregon should spark heated competition among early stage companies.

"Here’s $100 million, and if a company doesn’t get the money it’s looking for, maybe it’s because it doesn’t measure up against its competition," he said. "Not everyone deserves to get funded. You have to earn it."

Dan Loague, executive director of the Oklahoma City-based National Association of Seed and Venture Funds, also warned that politics could make such future funds harder to secure.

"This business is into long-term returns, and when the fund manager says, ‘Wait until it matures in three years,’ the politician might say, ‘But by then, I’ll be out of office,’" Loague said.

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