Private Equity Investing in Alaska: The Need for Corporate Strategic Investing
When I learned recently that Alaska is last in the US in private corporate venture capital investment in early stage ventures, it was not a surprise to me.
However, after spending a couple months in Serbia witnessing a struggling economy without private investors, I returned to see more clearly the positive impact that current Alaska private investors have on our startup ecosystem.
Early stage companies that need capital and want to continue to grow often exceed the investment capacity and tolerance of friends, family and founders before they get to a point that is “bankable.” These early stage companies can be an attractive investment opportunity for those with business experience who tolerate higher risk new ventures. This is where private investors come in.
Private investors — individual and corporate — are the lifeblood of early stage venture creation in the US. Last year in the US, private venture investment totaled about $80 billion. (Crunchbase)
This is not looking at later stage merger and acquisition activity, just the risk capital for early stage ventures. Last year in Alaska, looking for corporate venture capital, there was nothing reported...zero. (Actually, I know there were some deals, but they were not enough to be captured or reported.)
Individual private investors, often referred to as angels, invest for many reasons, of which a financial return is only one and may not even be the most compelling reason. Without angel investors, a startup ecosystem is incomplete. It is not incomplete just because of the missing private money; it is missing the practical experience, direct constructive advice, and real world perspective guiding founders’ decisions and methods.
Until you are at the table with a checkbook and pen in hand, choosing to give your personal money to another person to use and hopefully make money for you, it's hard to appreciate the difference in perspective and advice you have to offer and the commitment you are making to a founder.
It takes an experienced angel investor at the table, one who could invest but chooses to offer sage advice instead, to say, “you have great idea, but it’s not an investable business...yet!” Hearing such feedback from a potential future investor is invaluable. To succeed, early stage founders need that practical support from angel investors more than general encouragement to be an entrepreneur.
For corporate investors, the value and motives are similar but with some different outcomes. Companies use corporate venture capital investing to gain valuable insight into new and adjacent market trends; test out new technologies without having to enter the market under their own company name; learn about new teams and potentially valuable recruitment opportunities; and sometimes, for the first-rights to continue investing and potentially acquire a valuable new business unit.
For some it's a financial investment strategy, but more often it is a how the company innovates. Where an angel is looking for an outcome related to the vicarious thrill of a new company growing and a financial outcome, the corporate venture investor is seeking strategic market intelligence, new business unit opportunities and talent, while also achieving a reasonable financial return.
In Alaska we have a number of organized private investor activities such as the 49th State Angel Fund and its funds and the Alaska Investor Network. What we are missing are strategic private corporate venture investments in our early stage ecosystem.
Active private corporate funds stimulate a region, competing for investment opportunities while influencing the type of new ventures that align with known markets and the needs of the existing companies. A few large companies that do business in Alaska have national investment funds seeking out innovations and startups, but they have not been active in our startup ecosystem.
While there are a few examples of early strategic investments such as BP’s early engagement with Dowland-Bach Corporation helping them grow to an international controls equipment manufacturer, we’ve not seen the emergence of Alaska corporate startup investing as our efforts to diversify our economy have increased.
There are many successful Alaska-grown companies that have been acquired by an Alaska native corporation or a national company. However, we don’t yet have an Alaska-grown business that has matured into developing its own active corporate venture capital investing programs in the state.
Often times, and I’d argue it is necessary, vibrant startup ecosystems have locally grown companies that become strategic investors in the region; Microsoft in Washington and Nike in Oregon are examples.
During my time volunteering in Serbia, I was confronted with an emerging innovation ecosystem that had essentially no active private investment from individual or corporate investors. The ecosystem was out of control—missing the test for investability, the advice and mentoring of experienced private investors.
The ecosystem lacked the necessary filtering and crucible that speeds up the demise of one idea or team in favor of the next better idea and team that can execute. The engagement and feedback from private investment is essential to a healthy innovation ecosystem.
I came back to Alaska with a fresh perspective and appreciation for the early stage private investors who have been actively participating in our startup community by mentoring, judging, evaluating, saying no — and sometimes saying yes — and investing. I also brought back a renewed commitment to addressing the last major missing element of our innovation ecosystem, the private corporate venture capital investors.
Driven by their need for innovations and growth, these corporate interests will unlock next wave of private investment in Alaska by uniquely focusing us on creating new ventures that address the real and practical challenges companies and communities in Alaska are facing.
When they do, I won’t be surprised to see Alaska become a national innovation leader in private venture investing, leveraging our legacy assets to create a new diversified value-added economy with statewide multigenerational opportunities.
Alaska Startup Week is an opportunity for entrepreneurs to connect across the state and is a collaborative effort by multiple organizations to diversify Alaska’s economy, largely led by entrepreneurs. This year, Alaska Startup Week has grown from three communities to ten, with over 70 events in Anchorage, Fairbanks, Juneau, Sitka, Kenai, Soldotna, Palmer, Bethel, Homer, and Seward. Alaska Startup Week is on Facebook.
Ky Holland assists UAF students, staff and faculty with technology commercialization. He is also a fund manager of the Alaska Accelerator Fund and private angel investor and is working with a couple struggling technology startup companies that are looking for more investors.