Comstock's magazine 1218 - December 2018 - Page 40

FINANCE T he centrifuge is to a chemical engineer what the anvil is to a blacksmith. For scientist-turned-en- trepreneur John Bissell, the centrifuge was the critical bottleneck in the early days of his com- pany, Origin Materials. Centrifuges can cost $10,000, but amazingly, Bissell found one used for $22. It looked like a 1970s washing machine merged with a ’60s-era NASA control panel — “like it could launch the Gemini mis- sion,” Bissell remembers — but it worked. However, it required polyethylene jars, which cost $2,000 each. “There’s no way we could afford $2,000 jars for a machine that cost $22,” Bissell says. One day, in a mix of desperation and sleep deprivation, his cofounder bought cheaper glass jars and set out to see if the setup could fer- ment sewage into biodegradable plastic. The machine whirred to life; it spun the jars at approxi- mately 10 Gs — 10,000 times the Earth’s gravitational force. Then, the jars shattered. “It didn’t fail a little bit,” Bissell says, “It failed spectacularly.” Every seam of the centrifuge was coated with glass, dust and what Bissell refers to as “shit paste.” Without money for a new machine, he and his busi- ness partner spent four days with paper towels, scrubbing away the fecal goo. These are the things that young, hungry founders do when strapped for cash. Bissell and his team at the West Sacramento-based startup needed to grow — they had dreams of transforming abstract, next-level chemical equa- tions into new materials that could make plastic bottles more eco-friendly. Could they get funding? That’s a question every entre- preneur faces. The Sacramento region is ramping up efforts to position itself as a strong ecosystem for startups — ef- forts like the Greater Sacramento Economic Council’s push to recruit tech companies, and the new Sacramento Ur- ban Technology Lab’s goal of connecting government, ac- ademia and startups. Yet attracting and retaining growing businesses takes money. So, does the Capital Region have enough capital? The short answer is yes. And no. MONEY MATTERS After he finished wiping sludge from the centrifuge, Bissell struggled to find enough funding in the region. “Histori- cally, it has been challenging to find that financing locally,” he says. Bissell was able to cobble together $500,000 from his extended personal network but says Sacramento lacked an “active angel network,” and that the pool of financing “wasn’t very deep.” That was 2009. It’s the same environment investor Lokesh Sikaria wanted to change when he launched Mo- 40 comstocksmag.com | December 2018 neta Ventures in 2013, based in Folsom and targeting pri- marily local companies. His goal was to invest 70 percent of the fund locally. Investors were skeptical; people told him he wouldn’t find enough deals. “We’ve always had really wealthy people in town, but they’ve invested in things like real estate. Venture cap- ital has not been their cup of tea,” Sikaria says. For that first fund, 60 percent of the $25 million raised came from outside the region, state and country. “I went out seeking money here, locally. And that’s when I realized that there’s no local money to be had.” Once Moneta had the $25 million, it had no trouble finding worthy investments — over 70 percent went to local companies, including HomeZada (an app for digi- tally managing your home), TeleMed2U (a remote health care provider), Pocket Points (an app that incentivizes stu- dents not to grab their phone in the classroom) and a dozen other local firms. The fund is now tracking a 20 percent return for the year, accord- ing to Sikaria. “That was very telling,” he says. “People said, ‘Wow. You can actually invest in companies in Sacramento, be based in Sacramento and ac- tually make a good return? Why wouldn’t we invest in that?’” Sikaria doubled down on the strategy. He took the first fund’s success as proof of concept to regional small investors. He pitched them on local companies being not just the right investment, but a profitable one. His second fund grew to $65 million — 70 percent of which came from local investors. And, once again, he plans to spend 70 percent on local companies. In addition to Moneta, the region’s capital ecosystem includes funds such as DCA Capital Partners, Central Val- ley Fund Capital Partners, Velocity Venture Capital, Akers