It?s difficult to mourn the market bust if you never benefited from the boom. Move away from the domestic coasts and the high-tech downturn and the dotcom decline doesn?t mean that much. In fact, in 1999, California captured 43% of all VC investments and 80% of those went to Silicon Valley.
The Small Business Administration hopes to change all that with its New Market Venture Capital program, which will address the rest of the country?s lack of access to VC money, concentrating on low-income areas.
The SBA has chosen seven newly formed venture capital firms to participate in a program designed to bring capital to 15 under-funded states.
Athens, Ohio-based Adena Ventures will focus on investing in Ohio, West Virginia, Maryland and Kentucky. The VC, which was formed two years ago, never intended on becoming involved with the New Market Capital Venture program when it began fund-raising. However, when the program was announced, the founders realized their firm met all the SBA?s requirements and had almost enough money to participate.
Lynn Gellerman, Adena?s chief operating officer and president, said the firm has raised a majority of the required capital and is getting ready to put the finishing touches on the fund.
The SBA will match between $5 million and $12.5 million in capital and between $1.5 million and $3.75 million in grant money. As part of the agreement, the VCs have to invest in companies across all sectors that range from early to late stage companies.
“We will end up with a $32.5 million fund. We had helped come up with the idea [for this program] but we didn?t think it was going to pass so we put our own effort together. But as we were about to close our fund, the SBA did go through with the program so we delayed our close,” said Gellerman.
The LPs are all institutional investors and include the West Virginia Economic Development Administration, the American Electric Power, The National City Bank, the Huntington Bank Shares and the Ohio Bureau of Workers Compensation.
“We all believe the VC can be used as a tool to create new companies and employment opportunities,” Gellerman said.
At the end of the day Adena expects to invest in almost 25 companies, with its first investment to be made in October, which is when Adena will receive its money from the SBA. Investments will range from $250,000 to $2 million.
In Adena?s geographic area there are three sectors that seem to have the most promise: technology, high-end food processors and manufacturing.
While Gellerman sees the New Market Capital Venture program as a step in the right direction, he also said, “Adena is only one of many resources the needs to be built. We have seen a lot of enthusiasm for our effort but we can?t solve all the problems.”
According to Peter Gibbs the deputy director of SBA?s New Market program, no one thinks all the areas? problems will be solved. But, for the SBA, “the main thing is job creation in low income areas. We want some wealth in undeserved communities. One the main links that is missing between wealth and low income areas is equity capital.”
Other than Adena, CEI Community Ventures Fund based in Wiscasset, Maine will focus on Maine, New Hampshire and Vermont. Dingman Center for Entrepreneurship, of College Park, Md., will look to improve the VC status in Maryland and the District of Columbia. Philadelphia-based Murex Investments I will concentrate on Pennsylvania, New Jersey and Delaware. Pennsylvania Rural Opportunities Fund in University Park, Penn. will provide funding in Pennsylvania. The Phoenix-based Southwest Development Fund will invest in Arizona. And The Southern Appalachian Fund based in Oak Ridge, Tenn. will provide funding in Tennessee, Kentucky, Alabama and Georgia.
Gibbs said once the funds are invested, the SBA will examine them annually and the VCs will have to prove that they are creating jobs and impacting the community they are serving in a positive way.
Contact Danielle Fugazy: Danielle.Fugazy@tfn.com