Some Venture Funds Taking Root in Low-tech Areas

Venture capital funds, long concentrated in Silicon Valley and other tech hot spots, are spreading fast to low-tech places.

By:
Jim Hopkins
USA Today

In those areas, there are now 62 funds, with most begun in the last five years. The latest: Adena Ventures in Athens, Ohio. With $34 million, Adena last
month became the first venture capital fund backed by a new Small Business Administration program to create jobs in areas venture capitalists often
snub.

VCs invest for institutions and wealthy individuals. Their money is critical to young companies that create jobs and innovations. VCs like to be close to
their investments so they can better monitor progress. As VCs spread, their economic impact widens, and more out-of-the-way companies get start-up
money.

The funds are focusing on:

New markets. About half the funds are in Ohio, Kentucky, Tennessee and other areas where VC money typically hasn’t flowed. Almost 60% of the
$37 billion invested by VCs last year went to start-ups in Silicon Valley, New York City, Boston and Texas, places where most VCs are based.
Adena has $34 million for Old Economy factories and New Economy tech start-ups in Ohio and other Appalachian sites. Investors include banks, an
electric utility and the SBA, which plans to invest in other such funds. Despite the SBA endorsement, Adena’s Lynn Gellermann says raising funds in the
downturn has been "extremely hard."

Steady profits. The new VCs often fund companies that already have revenue and earnings. Those companies don’t always have the explosive
growth potential of tech start-ups. But unlike dot-coms, they’re less likely to implode.
They include electric utilities supplier Applied Thermal Coating in Chattanooga, Tenn., which had to buy a $350,000 furnace. It borrowed from
Technology 2020, which is creating two VC funds for Tennessee and most of its border states.
The new VCs also profit in rural areas, because labor, rent and other costs are 62% less than in the top venture markets, says Village Ventures in
Williamstown, Mass., which has focused on underserved areas since 2000.

Job growth. Murex Investments in Philadelphia, begun in 1998, is starting a $14 million fund for start-ups and firms in low-income parts of
Pennsylvania, Delaware and New Jersey. Murex invests in firms that share profits and stock ownership with employees. It invested $600,000 in a
Philadelphia eyeglass factory three years ago. The company, once burdened with debt, has 25 employees, most from poor neighborhoods. They’re paid
$9 an hour, $2 more than their industry’s average local wage.