3rd venture capital firm coming – Seattle-based Frazier to open office in Boise

The Treasure Valley will get its third venture capital firm next week when Seattle-based Frazier Technology Ventures http://www.fraziertechnology.com/showpage.asp?page=0 opens a part-time office in Boise.

Frazier Technology is currently raising its second fund, expected to be by far the largest fund with a presence in Boise.

Julie Howard
The Idaho Statesman

http://www.idahostatesman.com/apps/pbcs.dll/article?AID=/20040422/NEWS0203/404220305/1029/NEWS02

The effect of an office here will mean regional companies will have more access to venture capital funding, with the potential of more Idaho start-ups receiving financing.

Jefferson Jewell, president of Kickstand, a 400-member entrepreneurs organization in the Treasure Valley, welcomed the idea of more venture capitalists in the region.

"There are companies here that are good candidates for venture capital funding," said Jewell. "This is a huge thing. It’s encouraging that another firm will be here even one day a week. That’s how it all starts."

The two firms currently in Boise are Highway 12 with a $27 million fund, and Akers Capital with a $15 million fund. Stellar Technologies in Meridian also funds young companies, but takes a majority ownership, making it different from other venture firms.

According to documents filed with the Securities and Exchange Commission, Frazier intends to build a fund worth up to $250 million, though these types of funds typically don’t achieve the levels listed in their initial SEC filings.

Together, Frazier Technology and its sister firm — Frazier Healthcare Ventures — account for more than $750 million invested through six funds. Five of the funds are in the health-care industry and one is in technology.

Venture capital firms invest in young companies, typically in the fast-growth technology industry, and traditionally take a partial ownership in exchange. The funds are raised through investments from high net-worth individuals and other investment groups.

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How venture capital works

Venture capitalists provide funding to companies poised to grow quickly, typically helping young but already established firms.
Those seeking funds can submit a business plan, and the process of receiving funding can take months. The company has to prove it has strong market potential for its products and a solid management team.

If the venture firm is interested in investing, negotiations will occur over what percentage of the company or seats on the board of directors it will gain, and how involved in running the business it will be.

Many young companies aren’t interested in pursuing venture capital because a loss of control of the business can occur.

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The Public Employees Retirement System of Idaho has committed up to $20 million to the new Frazier fund, said Bob Maynard, PERSI’s chief investment officer. In return for that commitment, said Maynard, PERSI required Frazier to establish an office in Boise.

"We’re not here to subsidize anything, we’re here to make money," said Maynard, who estimated the new Frazier fund will be at least $90 million. "But to the extent we can provide a public benefit, we’ll do it. I would love nothing more than for us to be in on the ground floor of another Micron here."

Micron Technology, the world’s second-largest maker of electronics memory, started 25 years ago in Boise and is now the state’s largest private-industry employer.

PERSI, with $8 billion in assets, also has about a 40 percent stake in the Highway 12 fund, with a commitment of about $12 million. Maynard said he relies on an outside consulting firm that also advises CalPERS, the California fund that is the nation’s largest public employees retirement fund, on investments.

Most of the new Frazier fund will be invested in Oregon and Washington companies, with no part of the fund guaranteed to go to Idaho companies, said Len Jordan, a general partner with Frazier. However, Jordan has strong ties to Boise and Idaho — he grew up here and his grandfather was governor and a U.S. Senator for Idaho — and Jordan would like to see the region benefit. The Jordan Ballroom at Boise State University and the Len Jordan government building in Boise were named from his grandfather.

"I have a deep personal passion for wanting to help Idaho build both great technology companies and a durable ecosystem that can repeatedly regenerate great companies over time," said Jordan, who has a primary home in Seattle and a second home in McCall, Idaho.

The local office is in the Union Block Building, 720 W. Idaho St., Suite 32, in Boise. Jordan said he will be in Idaho regularly to evaluate and work with potential portfolio companies.

"Idaho is a place where we think we’ll invest but we’ll prospect aggressively at first," said Jordan, who has been with Frazier for two years and previously was senior vice president of RealNetworks, the maker of RealPlayer and RealSystem streaming technology.

Jordan is already involved in the Boise venture capital community as an advisory board member for Highway 12.

"I would love to see Idaho create reproduceable opportunities — it’s disappointing that Idaho hasn’t done that yet," he said, explaining that the presence in the Treasure Valley of Hewlett-Packard Co. and Micron should spin off more new companies.

Kickstand’s Jewell said while there are already two venture firms here, there is room for more, and he pointed out that several successful local firms have received venture funding from firms outside the state. In turn, Highway 12 and Akers do not invest just in Idaho companies. Mark Solon, managing partner at Highway 12, said different venture firms have different criteria for investing and that Boise would benefit from another firm coming here.

He added that venture firms tend to be more collaborative than competitive, meaning another firm in the region would only help Highway 12.

"We like to syndicate our deals to mitigate risk," said Solon. "Most people think the biggest risk venture firms face is with the technologies or the young teams they invest in. But the biggest risk is running out of money before the company takes off."

Highway 12 had already established its base in Boise when PERSI made its investment into the fund, but it also received the same request from the Idaho retirement fund to be open to local companies.

"They have asked us that when an Idaho company comes to us we give them a fair shake," said Solon.

Venture capital firms typically invest in companies close to home so they can keep a close watch over the growing concerns. Frazier Technology Ventures has made eight investments out of its first $48 million technology fund — four in Washington, one in Oregon, two in the Midwest and one in the East.