Is Alaska Ready for a Collaborative Venture Capital Fund?
Alaska is in need of a sophisticated capital source to initiate venture capital projects (sponsor) so that Regional and Village Native Corporations can refer unsubstantiated investment opportunities for due diligence, screening, and refinement. In the lower 48 states it is common for venture capitalists to require entrepreneurs to attract several concurrent investors rather then depend on a single capital source. This process is very important to catalyze and incubate new business development (deal flow) in Alaska. I strongly believe that the timing is right for more active venture capital activity to be started in Alaska and I predict that we will see the first investment vehicle of this nature formed within the next 24 months.
If we can identify an individual or local organization with a demonstrated history of successful operational and collaborative business skills then the opportunity to raise a critical mass of venture capital from various native corporations and/or other institutional investors currently exists. This type of collaborative vehicle should encourage mentoring as well as the mutual sharing of expertise and opportunities. As lead active capital sources develop a successful track record in Alaska some of the billions of dollars of passive capital on the sidelines could be accessed for co-investment opportunities in Alaskan related investments. If we are serious about wanting to create high quality high paying non resource related jobs in Alaska then we need to encourage and support this type of economic evolution.
Several individuals and organizations are currently evaluating various aspects of getting one or more venture capital companies going in Alaska but most of the conversations are on a small scale. If instead a larger investment pool formed it could attract the managerial skills and could provide incentives by employing the traditional 2% annual fee with the 20% backend participation.
Initially the fund may establish a track record and credibility by engaging in at least some leveraged buyouts where the investments have a demonstrated cash flow. There are a number of Alaskan investments available where local management can purchase assets and businesses from out of state entities and improve on the bottom line return through the elimination of high allocated costs from expensive New York, London and Tokyo headquartered companies. This strategy would lessen the risk of the first fund while assisting in reversing the brain drain that happens when national firms purchase local companies and the high-end professional services are consolidated “outside”. These high-end professional service providers are a critical source for knowledge and expertise in maintaining the competitiveness of local businesses and are quite frequently the breeding grounds of new CEO’s and CFO’s for our most dynamic companies. Some of these individuals would most likely be part of management teams in the leveraged buy out process while others might join new management teams as acquisition opportunities present themselves.
The purpose of this paper is to stimulate discussion on this issue and to identify the potential funders, managers and opportunities that are needed to condition the economic environment to encourage active capital formation in Alaska. If you would like to participate in this process I would appreciate your comments and suggestions. Allan Johnston drafted this initial discussion question with considerable input and clarification from Art Fredston.Please add any comments or thoughts you might be willing to share on this subject in the following text box and I will post it to the message thread within 48 hours. Thank you for participating.
