The Portland Seed Fund is readying a sequel.
The two-year-old investment vehicle, which backs promising ideas at their earliest stage, plans to launch a second, larger edition this fall. It would offer more financial “runway” to startups as they move from intriguing concepts into plausible businesses.
The Portland Development Commission votes Wednesday on granting $500,000 from the city’s general fund for the investment fund’s second act, plus $75,000 to help establish a new intermediary to handle the money and manage any proceeds.
Plans call for the second Seed Fund to launch this fall with at least $4.5 million in additional backing, including $750,000 from the state-run Oregon Growth Account and the balance from private investors.
The Seed Fund’s first iteration emerged in 2011 with $3 million, most of that public dollars. It was an experiment in using taxpayer money to kick start what had been a tepid entrepreneurial climate.
Two years later, the picture has changed considerably.
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Several other organizations have emerged to nurture and finance Portland startups, including Wieden+Kennedy’s Portland Incubator Experiment, Upstart Labs and the Nike+ Accelerator.
The pace of investment in Oregon startups has surged, at least through the first part of this year, and the software industry at the heart of the entrepreneurial renaissance has undertaken a hiring binge.
Public money provided most of the Seed Fund’s first stake; this time, it will be 25 percent or less. Other investors include veterans of Oregon’s chip industry, according to the fund, who are seeking technology’s next wave.
Even so, the city believes there’s more to do. In addition to the $575,000 grant slated for PDC approval Wednesday, the budget the City Council approved last week includes $150,000 for a follow-in investment in the Seed Fund next year.
“We would acknowledge that the seed environment has improved. I don’t know that we’ve reached the point that it’s saturated,” said Chris Harder, the PDC’s business and industry manager.
The Seed Fund invests $25,000 apiece in four classes of roughly eight startups, holding most of its money for follow-on investment in the most promising companies.
Portland startup Vizify was a member of the Seed Fund’s first class in 2011. The company, which creates graphical profiles of users’ online identities, has since landed a pair of high-profile partnerships with Twitter and some blue-chip Silicon Valley investors.
Still, Vizify chief executive Todd Silverstein said the seed fund provided financial support and mentorship at a key moment — when other forces were pulling the company away from Portland.
“It wasn’t that much money,” he said, “but it was enough to give us a signal to trust our instincts in staying here.”
A few things have changed for the seed fund’s second go. For one, it’s going to evolve more slowly. It will back a new class of startups every nine months, instead of six. The longer time frame will enable the fund to better handle follow-on investments, according to seed fund managers Angela Jackson and Jim Huston.
It’s also raising more money, which Jackson and Huston said will allow it to make more follow-on investments in portfolio companies and join in subsequent rounds where outside investors require more capital to participate.
The structure of Portland’s participation will change, too.
The state doesn’t allow cities to own stock in private companies, so the PDC backed the first seed fund with a grant through the Oregon Entrepreneurs Network. This time, the PDC has created an intermediary that will manage the grant and reap any proceeds to put into future economic development efforts. The Portland Business Alliance and Greater Portland Inc. will manage the new Portland Economic Investment Corp. with the PDC.
The seed fund could invest without public money, Jackson and Huston said, but not as often and not as much. Ultimately, Jackson said, Portland and the state are backing the fund because it makes financial sense.
“Find a better way to make money by pursuing your economic development strategy,” she said. “If you can find one, you should do it.”
The seed fund’s portfolio has had just one profitable exit so far — last year’s sale of mobile mapping startup Geoloqi. Terms of that deal haven’t been disclosed.
But returns from investing in startups come slowly, and the first seed fund still has five years of follow-on investments and returns ahead of it. Jackson and Huston won’t say how much they’re personally collecting in management fees, but will say they expect most of their own return will come from proceeds the fund generates.
And while neither would say what level of return investors should expect, Jackson said she’s confident the fund — and its managers — will come out ahead.
“Yes. Hell, yes,” Jackson said. “Jim and I, our wagons are hitched to this.”