Eleven high-tech companies, including some in the capital region's nascent clean-technology movement, are receiving an infusion of $15 million in venture capital money – all raised locally by Velocity Venture Capital.
Velocity's investments should snowball into 10 times that amount coming from other investors once the companies reach a phase where they go for subsequent rounds of funding, predicted Jack Crawford Jr., general partner of the Folsom venture capital firm.
Beyond that, he said, Velocity is about to launch its third fund, this one targeting $60 million to seed yet more regional high-tech companies. Velocity is the lone VC firm that keeps its entire focus on Sacramento-area companies.
"We've seen a huge increase in the number of companies being started in the Sacramento area," Crawford said. "These companies are interested in staying here, and the thing that's exciting is you see the caliber of the companies has dramatically improved."
He said the area is benefiting from the addition of thousands of executives who have poured into the capital area from Silicon Valley over the past several years.
Several analysts welcomed Velocity's move and agreed on the significance of the firm's pouring 100 percent of its fund into local companies.
Josh Morgan, a principal at Morgan/Dorado Public Relations of El Dorado Hills and a technology specialist, said the $15 million fund is "substantial in the commitment it shows to the Sacramento region and opportunities for growth here."
"There's been a strong entrepreneurial commitment in Sacramento for a long time that quite frankly has left the area for (lack of) funding," Morgan said. "Now there's been a significant rise in available funding sources in the area. Velocity Venture is definitely a driver of that."
He also said that if Velocity follows through on its pledge to put another $60 million into local firms over the next few years, "it's going to change the game."
The 11 companies funded so far, seven of which are based in Folsom, are small startups with products ranging from portable fuel cells to wind turbines to flat-panel digital audio speakers.
They are receiving investments that range from $100,000 to $3.5 million. Individual amounts were not disclosed, as is typical with small, private companies.
"That's a reasonable amount for early-stage investment money," said J.D. Stack, CEO of the Sacramento Area Regional Technology Alliance. "What's unique about Velocity is their intent to focus on local companies. They keep investment here and companies here. They are working in the early-stage arena, sometimes known as the 'valley of death.' It's a challenging time for most any entrepreneur. So it's a very welcome thing for our region."
To put the $15 million in perspective, however, the 50 companies on the SARTA Tech Index have raised an average of $50 million to $100 million a year since the index's inception in 2003.
"It's great that there is more early-stage money coming into the Sacramento area," added Oleg Kaganovich of the DFJ Frontier venture capital fund in Sacramento.
Velocity not only funds the companies but takes on many key management functions to get them on track. It recruited some executives and partners to run some of the newest companies, and its experts are helping with strategy, product development, recruitment and more fund-raising.
In fact, Crawford, said, they put several of the newest companies into the same Folsom office building that Velocity occupies.
One CEO recruited by Velocity was Paul Misso of Marquiss Wind Power, which is among the 11 firms getting seed money. It manufactures ducted wind turbines to make companies more power-efficient.
"They've certainly provided a lot of assistance and mentoring," said Misso, who started in August. "Now our dependence on Velocity has been weaned significantly."
