Why should places like Arizona place so much emphasis on the presence
or absence of venture capital? Only a very small percentage of
companies ever get venture capital. Most start with self-financing and
raise money later, typically from angels. Especially in places like
Arizona, most companies have to do without venture capita forever. Can
they still succeed? Does Arizona have the kind of companies that spin
off serial entrepreneurs and help build the local economy?
This is a question hotly debated by entrepreneurs and economic
development officials alike. The entrepreneurs want to know where the
money is, and the investors want to know where the experienced
managementment teams are. Usually, it’s the lawyers who do the deals
who know the answers.
Bill Hardin, a partner at Osborn Maledon, one of the go-to law firms
for entrepreneurial companies in Phoenix, says both capital and
management teams do exist in Arizona–in ample suppy. In nearly thirty
years of doing mergers and acquisitions work, he has seen companies
like Viasoft and Sales Logix , venture-backed themselves, thrive in
Phoenix and get acquired, releasing skilled management to do other
things, like form new companies. There have been a surprising number
of mid-tier enterprise application companies in Arizona, with
successful — if less trumpeted — exits.
In a half hour phone conversation with Bill, he reeled off the names
of about a dozen people who had come out of Viasoft and SalesLogix
alone and gone on to start Homebid and run Netpro, which itself was
recently sold to Quest. Some of these companies I remembered, and some
I had forgotten about. But all of them had raised money, hired
people, and proceeded down the road to an exit.
And these are the deals Bill himself has worked on with partners at
his firm. It’s just a microcosm of what has happened over the past
twenty-five years. He also reminded me of Greg Patras’ National Health
Enhancement Systems, which was also successfully sold.
In Bill’s opinion, which should be taken very seriously, it’s a night
and day difference in Arizona over the past 25 years from the
entrepreneurship perspective. The state is now seeing a lot of action
in medical device and healthcare IT companies, and in alternative
(He also says a recently completed (but not yet released) report from
Governor Napolitano’s Arizona Economic Research Organization, which
he co-chaired, will talk about further capital formation initiatives.)
The good news is that innovation is on everybody’s lips in Arizona,
especially since the collapse of the real estate market, which keeps
the entrepreneurs and the financiers busy in the good times and stuns
them with the ferocity of its downturns in the bad. The entrepreneurs
I work with, often earlier stage than Bill’s clients, have plenty of
innovation. Watch for that innovation to lead us out of the downturn,
money or not. It is, after all, really about changing the world.