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Craig Allen: Santa Barbara Needs Venture Funding Structure for Business Start-ups

All who live in Santa Barbara recognize how unique this community is, and many understand how important entrepreneurial innovations are to our local economy. We have a powerful combination of new ideas from some of the most creative minds in the world along with substantial wealth capable of funding new ventures. Unfortunately, we lack the infrastructure necessary to link ideas with capital.

Since 1960, $450 billion has been invested in 27,000 companies through venture capital funds. Venture-funded companies employ more than 12 million Americans today. Things like the Internet, the personal computer, the semiconductor, the microchip, gene therapy, gene splicing, synthetic vaccines, nanotechnology and countless other inventions would not be in existence without venture capital funding.

Starting with Arthur Rock in the late 1950s, venture capital has been responsible for building Silicon Valley, and for virtually every company that has created the way we do business, create new medicines and entertain ourselves today. Think Apple, Atari, Cisco, Genentech, Intel and many others. It was the combination of creative minds concentrated in the Santa Clara Valley and venture capital that created Silicon Valley.

Here in Santa Barbara, we have the same ingredients. Unfortunately, for a host of reasons, we do not have a well-developed conduit that links the two to form a process through which those with ideas can get the capital they need to build new businesses.

UC Santa Barbara has five Nobel laureates:

» David J. Gross, former director of the Kavli Institute for Theoretical Physics and winner of the 2004 Nobel Prize in Physics

» Alan J. Heeger, a professor of physics and of materials, and winner of the 2000 Nobel Prize in Chemistry

» Walter Kohn, research professor of physics and winner of the 1998 Nobel Prize in Chemistry

» Herbert Kroemer, professor of electrical and computer engineering and of materials, and winner of the 2000 Nobel Prize in Physics

» Finn E. Kydland, a professor of economics and winner of the 2004 Nobel Prize in Economics

There are numerous other professors, assistant and associate professors, and graduate-level researchers developing exciting new technologies, each of which holds the potential to start new businesses to commercialize these ideas into new products.

Santa Barbara needs to develop a more formalized infrastructure for connecting these ideas and the entrepreneurs who develop them with local sources of capital. More important, we need assistance from the city, county, UCSB and other local organizations to help entrepreneurs establish businesses locally. We need the jobs, we need the tax revenues, and we need to keep the talent that UCSB is developing local.

Each year, UCSB graduates receive their degrees, pack up their belongings and leave Santa Barbara. Some of them will go on to start companies that will employ thousands of people, and will generate billions of dollars in revenues. While we cannot expect to keep every potential new business local, there is no reason why we cannot foster an environment conducive to entrepreneurial success.

I often write business plans for local entrepreneurs looking for funding, who want to remain here in Santa Barbara. They want to lease space; hire employees; buy equipment, technology and furnishings; buy homes eventually; raise families; and be permanent members of this community. Invariably, the first question I get from these clients, once I complete their business plan, is: What do I do now? They want to know what the next step is to raising the capital they need to execute the business plan I’ve just written for them.

I would love to be able to refer them directly into a network of venture capital funds that were actively seeking deals in our local market. Unfortunately, this just doesn’t exist. The money is here. In fact, I would say from personal experience in working with investment-management clients over the years, that a very high percentage of local, wealthy investors have money invested in venture capital funds. Unfortunately most are not operating locally.

I work each year with Jerry Knotts of the California Coast Venture Forum on the Clean Business Investment Summit. We have held this event for the past few years at UCSB and it has been a tremendous success. Efforts such as the CBIS are bridging the gap between entrepreneurship and capital in our local market, but more needs to be done. We need a sustained effort on the part of UCSB, local entrepreneurs and local investors to forge lasting, meaningful connections. But more than this, we need a systematized process that entrepreneurs and investors can access and follow that streamlines the funding process, to facilitate these connections and that can result in successful venture funding on a consistent basis.

?A locally focused database of deals, similar to the GUST architecture, would be a good start. Using this type of website, local entrepreneurs could enter their opportunities into the system, making the information available to local investors. UCSB, the city, county and other organizations could provide facilities, technology and personnel to facilitate regular, recurring events, such as the TechBrews that Alan Tratner hosts through his organization, Green2Gold, which provides a forum for making direct connections between local entrepreneurs and local investors.

All of us have a personal stake in fostering this process, and all of us will benefit from successful venture funding on a localized basis. We all need to do more to help improve this process, to bring great local ideas and motivated local investors together.

Craig Allen, CFA, CFP, CIMA, is president of Montecito Private Asset Management LLC and founder of Dump Your Debt. He has been managing assets for foundations, corporations and high-net worth individuals for more than 20 years and is a Chartered Financial Analyst (CFA charter holder), a Certified Financial Planner (CFP) and holds the Certified Investment Management Analyst (CIMA) certification. He blogs at Finance With Craig Allen and can be contacted at .(JavaScript must be enabled to view this email address) or 805.898.1400. Click here to read previous columns or follow him on Twitter: @MPAMCraig. The opinions expressed are his own.

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