Venture Capital Loosens up for Growing Firms

In recent years, the lack of available venture capital has been the local death wail of developing technology companies. Now a quartet of venture capital funds is honed in on Northwest Arkansas.

Two seed-stage and two mature-stage funds offer growing companies the resources to perfect and commercialize their products. Along with the presence of a major research university, it makes for the type of environment that spawned economic pearls such as North Carolina’s Golden Triangle and the Research Boulevard loop in west Austin, Texas.

But given the sudden spurt of speculative money — culminated by the Jan. 24 announcement that The Alpha Fund would start in Fayetteville — the question becomes, are there enough deals to go around?

Sam Walls, executive vice-president and chief operating officer for Arkansas Capital Corp., said if venture firms limit themselves to the technology sector “the answer is probably no.” Two independent funding arms of Arkansas Capital — Arkansas Ventures and Diamond State Ventures — are focused on supporting in-state companies but will also consider smart deals in neighboring states and proposals from outside the technology sector. He said remaining open to a slightly broader field of potential clients should help.

Diamond State, the only local fund far enough along to fund projects, aims to over its life put 75 percent of its money back in Arkansas. That number is at 56 percent today, but more Arkansas-based projects are in the works. The local funds include:

• The Alpha Fund — A developing $2 million-$5 million fund that will use investments from $50,000-$500,000 to provide working capital for very early seed-stage companies with promising technologies. Its investments are intended to leverage the companies’ acquisition of federal research and development dollars from sources such as the Small Business Innovation Research (SBIR) program.

• Arkansas Ventures — A developing $25 million-$40 million fund that will use investments of $50,000-$2.3 million for seed-stage companies and more developed entities that have profit potential. Will consider all industries as an independent arm of ACC.

• Diamond State Ventures — An established $56 million small business investment company (SBIC) fund with 52 investors that’s been in operation for more than two years. It leverages buyouts and aides expansions and is another independent arm of ACC. It funds companies that generally already have a revenue stream of about $1 million.

• Signal Hill Venture Partners, formerly of El Granada, Calif., moved its headquarters to Rogers’ Pinnacle Point office park in January. The developing Signal Hill Fund will be a $25 million-$50 million competitor to Diamond State that prospects deals nationally. It will focus on technology investments, but will review other opportunities.

Mark Nydam, managing director of Signal Hill Venture Partners, said the funds focused on the area offer sequential funding steps toward maturation. He sees the potential competition between Signal Hill and Diamond State as nothing but positive. Generally, he said, it’s better to have more venture funds because the individual lenders can co-invest and stay diversified.

“This isn’t Silicon Valley, where there are a couple hundred deals on the street every day,” Nydam said. “But there won’t be a couple of billion dollars of capital trying to chase those deals either.”

Ron Goforth, managing partner of Fayetteville technology due diligence firm Beta Rubicon Inc., said thoroughly scrutinizing prospective projects will ensure the funds’ success. Walls added a reminder for developing firms that he attributed to Stephens Inc. Chairman Jack Stephens:

“Good deals get funded.”