The 50th State has volcanoes, pineapples and leis in abundance. But Hawaii lacks the venture capital necessary to give a shot in the arm to local entrepreneurs, according to a study by Enterprise Honolulu and the Harvard Business School.
Harvard Business School MBA candidate Daniel Cook conducted the study over a two-month period from interviewing more than 100 fund managers, entrepreneurs, institutional investors and government officials in Hawaii and the mainland. Cook has studied Connecticut, New York, Mexico, Argentina, Brazil, Chile and Uruguay in the same way.
Cook found many promising Hawaiian entrepreneurs in need of financing. But he reported a lack of capital exists there to nurture these future businesses. Cook estimates Hawaii needs $95 million in local venture capital and another $138 million co-invested from outside sources over the next five years based on a historical analysis of Series A and Series B funding of local firms.
Cook suggests putting together a capital fund, one big fund that would support a series of smaller venture capital funds. He admits that such a fund would take an alliance of public and private interests.
On the plus side, Cook found a large number of wealthy people, including more than 100 venture capitalists with full or part-time residence in Hawaii who could help give rise to a venture industry in Hawaii. In fact, the top six wealth holders in the state are worth an estimated $14 billion collectively, he points out, and 24,000 wealth holders in the state have a combined net worth of $23 billion.
However, investors in Hawaii typically pump their dollars into real estate, not in technology. Cook, citing U.S. Department of Treasury data, found that more than half of the $23 billion in net worth has been invested in real estate.
One other positive note about Hawaiian venture capital, Cook notes, is the lack of competition. Because venture capitalists and angel investors in Hawaii don’t have tough competition, nobody’s overbidding.