Even in NW Arkansas, Venture Capital Hard to Come By

It’s not the money, it’s the mindset.

Affluent northwest Arkansas doesn’t have any more venture capital than the rest of the state. Although many local residents amassed stock fortunes through northwest Arkansas companies, few are willing to risk their cash on “iffy” start-up ventures here.

Why would a retired corporate executive, for example, want to cash in $1 million worth of Wal-Mart Stores Inc. stock, take a huge capital-gains hit and then invest the rest in a business that may never get off the ground?

The answer, said Tyson Foods Inc. chairman and CEO John Tyson, is they wouldn’t.

“There’s a lot of money around the area,” Tyson said. “But no one has really been [focused] in an ongoing, effective way to try to pool that wealth.”

Many of the investors who made money off northwest Arkansas stocks probably also have a lot less entrepreneurial spirit than Tyson’s grandfather, John, who founded what has become the world’s largest poultry company.

“Entrepreneur is French for risk-taker,” said C. Sam Walls, chairman of Diamond State Ventures in Little Rock.

Benton County is not exactly a bastion of risk-takers. This mostly rural, “dry” county has a large retiree population in Bella Vista because of Cooper Communities Inc. and is notoriously conservative in political polls.

West Doss, a former chief of staff for U.S. Rep. Asa Hutchinson, R-Ark., is now the chief operating officer for Vision Technologies Inc. in Rogers. Doss said he helped his company get off the ground with the help of venture capital, but it wasn’t easy.

“It’s hard to start a technology business in Arkansas,” Doss said. “We’ve got much of our financing from outside the state, but we did have some angel investors step up from here who helped us get to the point where we could get significant funding.

“Overall, it’s generally tough. I know of two potential ‘dot-com’ companies that have left the state because they could not find funding here.”

Diamond State Ventures is a venture-capital fund that through its umbrella, Arkansas Capital Corp., is backed by the state treasury. Walls said he ran into some “very strong disappointments” in northwest Arkansas while visiting the area when he was trying to raise capital for the fund.

“There were people I talked to who would not become involved for various reasons,” Walls said. “And there were occasions where people thought what we’re trying to do is significant. We were not as successful soliciting support in northwest Arkansas as we were in other parts of the state.

“With the resources that there are in that area, I wish it had been otherwise.”

Arkansas Capital Corp. in 1999 issued $11.9 million worth of Small Business Association 504(a) loans and $6.5 million worth of SBA 7(a) loans. SBA loans in many markets have come to replace traditional venture-capital sources when investors are hard to come by.

Arkansas National Bank in Bentonville was the only other northwest Arkansas-based institution that made the state’s Top 10 for SBA loans.

The fact Diamond drew little northwest Arkansas support is ironic since two of its first three investments were start-up BAV Software in Fayetteville and a management buyout of Trans State Lines Inc. in Fort Smith. Diamond had a hefty portion of BAV’s $7 million funding, and the venture fund spent $1.5 million on Trans State Lines.

“Clearly our project has significant credibility because we were able to amass 42 financial institution that invested in the fund,” Walls said.

“Stephens Inc. in Little Rock is one of our investors, and I assure you they didn’t do it for philanthropic reasons.”

It’s common knowledge locally that J.B. Hunt has a substantial personal-loan portfolio, which some say reaches in the tens of millions of dollars. And although most of John Tyson’s local side interests aren’t traditional venture-capital projects, he has invested significantly in the community by backing several real estate ventures.

Artran Inc. in Springdale was started by the late Tom Jacoway, whose money came from Wal-Mart stock. Wal-Mart heiress Alice Walton started the Heartland Fund, albeit it Texas, and did make one ill-fated venture capital loan to an Arkansas company — ESI Group Inc. in Little Rock. And now Jesse Hopkins, vice president of marketing for Hudson & Associates in Rogers, has brought Whistler Radar Co. in Bentonville back from bankruptcy with a buyout funded in part by local venture capital.

“There’s tons of money here,” Hopkins said. “But the money is pretty picky. Investors are looking for strong returns, and mutual funds and the stock market have performed so well so long, we’re spoiled with 20-plus percent returns.”