State-supported funds draw private investment to fledgling firms
The state stepped up almost two decades ago to help Oklahoma-based startup companies bridge the investment gap and leverage other private, federal, and institutional sources of capital.
i2E Inc., in partnership with the Oklahoma Center for the Advancement of Science and Technology, has been the primary source of concept, seed stage, and startup capital for Oklahoma’s emerging small businesses for more than a decade.
When the state authorized our first state investment fund, there was no early stage venture capital here. Without these publicsector funds, Oklahoma would have missed out significantly on the up to 975 full-time equivalent employees, 500 new products, and $129 million in revenue produced by the nearly 150 companies that have received investment over the life of the Technology Business Finance Program Concept and Oklahoma Seed Capital Funds.
Could one or two of these startups have found capital some other way to grow a business here without the state funds? Possibly — entrepreneurs are an intrepid bunch.
But it’s much more likely that many great ideas would have died on the vine or moved to some other state, causing Oklahoma to forfeit a significant portion (if not all) of the economic impact. Certainly, we wouldn’t have had the early stage capital to invest in Selexys or in WeGoLook, two Oklahoma startups with major exits — Selexys was acquired by Novartis for up to $650 million and WeGoLook (with 85 percent of the company selling for more than $36 million) by Crawford and Co.
Without statesupported concept and seed funds, we could not have pulled in the $590 million in additional private investment that i2E’s portfolio companies have attracted from banks, venture capital funds, angels, and other strategic investors.
One of the limitations of these state funds that traditional venture capitalists don’t have is our investment cannot be more than 50 percent of any round. We must price our deals at a level that pulls money into Oklahoma and into the startup space; we continuously seek co-investment from angel investors (one of the reasons we founded SeedStep Angels) and venture capitalists. And it is working.
Another intriguing aspect is that as we’ve expanded both ends of our continuum of capital, we now have investment products for later stage deals that aren’t yet bankable. We were concerned whether we could find enough coinvestors for these later stage funds to achieve our required 50 percent match.
It turns out that our later stage fund, which is more of a rate-of-return product, gets co-investment more quickly. Investors tend to be more institutional, family or corporate funds, or other entities that are more risk-sensitive than angel or venture capitalists.
Capital begets capital. We continue to find that the more diverse our investment options, the more interest we have from beyond Oklahoma and the better we can support our state’s entrepreneurs with access to capital through the stages of their growth and development.