Securing the capital for a sustainable economy

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It’s an incredibly complex issue. Finding the capital to grow the next phase of our economy is not simply about venture capital; it takes a suite of capital strategies to build the next generation sustainable Oregon economy.

Here is a capital inventory for Oregon:

1. Venture capital

When we use the words "capital access” there is a knee-jerk reaction to think: venture capital.

Venture capital is a critical component of the innovation industry, but the reality is that institutional venture capital is a very specialized instrument targeting a very small slice of companies. Further, in the last five years or so, venture capital as an industry has systematically changed and many of the traditional sectors that venture capital funded are being de-emphasized. Software and chips are fading while medical and green technologies are rising.

Oregon has historically had a modest venture capital pool. It was already tough to get software and chips funded. It’s going to get tougher. Fortunately the two areas of venture capital investment that are active — biotech and green technology — happen to be areas where Oregon has startup and technology development activity.

The Oregon University System and OHSU have made a decade-long commitment to increasing Oregon's share of federal competitive research dollars. Their efforts have been successful, and we are starting to see this play out in patents, technology commercialization, and spinout companies. ONAMI in the nano-sciences/nano-materials area is an example of a successful state-level "stimulus" that fostered an institution that brought together education, private sector companies and federal dollars to create technologies for commercialization, which now feed startups. BEST, our next signature research center, follows this same approach and aims at building Oregon's research and commercialization capacity in the areas of sustainable built environment and renewable energy technologies.

A recent Milken Institute study for the state of Arizona uses Oregon as peer benchmark state, and points quantitatively to the advances that Oregon has indeed delivered in these areas. The Milken work is just the most recent outside validation that Oregon has been a source of public sector innovation in the area of regional economic stimulus.

This success needs to be coupled with angel and institutional venture financing. Systematically in the venture industry, much of the early stage dollars has shifted from institutional funds towards angel funding (even in Silicon Valley).

Oregon has a smaller angel pool and small VC pool. But these forms of capital remain critical if we are to fully take advantage of the hard work, innovative bets, and successes of the last decade.

2. Banks

Most companies are not venture targets yet are important to a vibrant society. This is a fancy way of saying, as I mentioned earlier, that venture capital is a very narrow specialized instrument. The broader instruments for most small enterprises are informal angel financing and bank loans

Unfortunately we are in the middle of the biggest community bank crisis we've seen since the Resolution Trust Corporation was created in 1989. Except this time it is impacting the profitability of a significant number of the banks in the Federal Reserve’s San Francisco-based 12th district.

On the surface everything looks normal; it is unstable below and credit access to the small-business sector will likely be tight for next 24 months as these issues (closures, bad loans, FDIC orders, etc.) work their way through the system. The irony is that the President and Fed economists believe that small and mid-size enterprises will be our engines of job growth out of this recession.

This is the hardest hit capital access segment.

3. Incentives

Renewable energy projects depend on project financing and incentives.

This is where insightful incentives and targeted use of incentives like BETC can stimulate and catalyze capital to flow to Oregon — as opposed to capital flowing to other states. Incentives are a form of capital and a critical one in these emerging sectors. This is where smart targeting of federal energy loan programs can have huge implications

Given both Oregon’s economy and its growth opportunities in green business, renewable energy and energy efficiency, I can make the argument that incentives, project financing, and debt access is more critical than venture capital access.

4. Overseas investment

Oregon has clusters and regional characteristics that are directly in line with long-term strategic interests of corporations around the world. Li-ning (the Chinese athletic shoe company that has U.S. headquarters in Portland) and Icebreaker (the New Zealand athletic apparel company's that based U.S. operations in Portland) are small examples of this.

We have opportunities to expand Oregon's unique relationship with Asia in natural resource markets, athletic gear and in semiconductors by leveraging the state’s strong position in solar manufacturing, renewable energy development and green building. We can attract Chinese companies that want Oregon to be their launch point into the U.S.

5. Our forests.

In the last year, something has happened in the land business ... it's woken up. Landowners in the U.S. traditionally saw two uses for forestland: harvest timber or sell it for suburban tract home development.

With Waxman-Markey elevating forest carbon credit, landowners are paying attention to the value of their land and the opportunity to capitalize on it.

This is one area of Oregon's history and DNA that truly is a latent resource poised for global attention. Land and timber is such a part of the ethos of Oregon — the lore of the timber industry, our state's innovations in land use, our beliefs in stewardship.

Now we’re using markets and credits to monetize the values in the land. Not to play with words, but this is the evolution from conservation and environmentalism toward sustainability and integration — of man and nature.

A few years ago, this would have been considered high concept, but today it’s central to our carbon legislation, at Copenhagen, in the capital markets, and in the boardrooms of natural resource companies and landowners.

This trend will be an attractor for capital in our region. With wise policy, we can skew this trend in an Oregon way — one that promotes commerce and sustainability.

6. Other private funds

It’s imperative that we engage with private, state and community foundations and pensions in a dialogue on how these capital resources can work together to catalyze regional job growth.

We can build a sustainable economy on our strengths in a new, uniquely Northwest ethos that balances growth, commerce and resource stewardship, with an eye towards the long term.

Our future opportunity is clear.

Dave Chen is the founder and principal at Equilibrium Capital, a board member for the Federal Reserve Bank of San Francisco’s Portland Branch and chairman of the Oregon Innovation Council.