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Tech Industry

CalPERS shines light into VC void

Although many venture capitalists have become stingy with making new investments, the pension fund giant has decided to pump hundreds of millions of dollars into fledgling businesses.

Although many venture capitalists have become stingy with making new investments, pension fund giant CalPERS recently decided to pump hundreds of millions of dollars into fledgling California businesses.

From the rural, delta communities near Sacramento to inner-city Oakland, the California Public Employees' Retirement System is investing nearly $500 million in private companies that operate in regions typically overlooked by venture capitalists and banks.

The investments represent a fraction of CalPERS' mammoth portfolio, valued around $152 billion. But coming at a time when many VCs have pulled in their horns, the money will be welcomed by small companies that have few funding options.

"Silicon Valley, the Bay Area and San Diego are all areas that attract venture capital. But places like Sacramento, Merced and Stockton are places where venture capital has not flowed through," said CalPERS spokesman Brad Pacheco. "We recognized there are areas in California that are underserved for capital and have opportunity for growth."

To that end, CalPERS announced recently that it will give $495 million to 11 venture and private equity firms to reinvest for the organization.

Silicon Valley Community Ventures, which provides capital and advice to businesses in low-income areas such as Oakland, received $10 million.

Its Silicon Valley Community Ventures Fund II will provide initial investments of about $250,000 to companies that are seeking early rounds of financing, said Penelope Douglas, co-founder and president. The investments will be targeted at industries ranging from consumer products to manufacturing.

"The mainstream venture community has been focused on technology and not investing in the broader industries. Also, networking plays a role in (determining) which companies get funding, and there hasn't been much tech investments in low-income areas," Douglas said.

CalPERS selected Silicon Valley Community Ventures because of its connections to community development organizations and granting agencies. It also offers its portfolio companies a strong advisory board that includes noted venture capitalist John Doerr from Kleiner Perkins Caufield & Byers.

Formed more than two years ago, Silicon Valley Community Ventures has yet to have one of its companies go public or be acquired. However, Douglas said the organization's goal is to offer its investors a 15 percent rate of return on their investments.

American River Ventures Fund, which also received a $10 million investment from CalPERS, hopes to offer its investors at least a 10 percent annual return over a five-year period, said General Partner Corley Phillips.

American River is a new fund that plans to invest in technology companies along the Interstate 80 corridor from the Bay Area to the eastern Sacramento Valley. Initial investments in companies seeking early rounds of financing will range from $1 million to $1.5 million, Phillips said.

Wireless, telecom, business software and semiconductor-related companies will be its focus, he added.

The fund aims to raise up to $75 million, with assistance from other outside investors and matching contributions from the Small Business Administration's grant program.

Phillips, who has six years' experience as a so-called angel investor, said he has invested in 22 companies during this time. Three companies have gone public, three were acquired and three have folded.

"I've been an active investor in this region and had success in investing in these underserved markets," he said.