State Needs Strong Venture Capital System/ to Attract Capital, Bring Deals to Light

By Tipton, David | THE JOURNAL RECORD, August 20, 1987 | Go to article overview

State Needs Strong Venture Capital System/ to Attract Capital, Bring Deals to Light


Tipton, David, THE JOURNAL RECORD


A strong local venture capital system in Oklahoma is a key to both attracting more out-of-state capital and bringing the deals to light for financing, in the opinion of Oklahoma Department of Commerce officials.

While venture capital leaders such as James Luby, president of the Oklahoma Venture Forum, say there is enough local money available to develop a strong system in Oklahoma, they feel local investors must become more comfortable in putting up money for ventures outside of energy and real estate.

Venture capital, according to Robert Heard, director of the department's newly formed capital resources division, is an umbrella term used for a variety of financing methods - primarily to start up new business firms which conventional lending institutions find risky.

"The reason you get different definitions of venture capital is because it is a lot of different things," explained Heard. "It goes from early stages to more advanced stages. In its early, early stage you have investors who put money into research and development."

Basic research projects, basically just a concept for an invention or product, are more likely to obtain funding from the federal government in one of various available programs than from a company or an individual investor.

When a research project has advanced to the stage where there is a possibility of it being produced and marketed, it is known as the seed capital stage.

"Seed capital is usually the first stage in which institutions or private investors get involved, where there is a prototype of a product which can demonstrate what the final product can do," Heard said.

However, in an instance where the investors are convinced an invention or product will be successful, they often will want a large amount of the company. Heard said in these cases it is not unusual for the investor to want as much as 60 percent or 80 percent of the fledgling company.

The next stage of investment is generally considered typical venture capital, where a traditional venture capital firm makes an investment in an established company which has demonstrated it has a marketable product.

In Oklahoma, there are firms such as Western Venture Capital Corp., Davis Venture Partners and TSF Capital, all of Tulsa, which will make the investment. However, Heard said the venture capital organizations not only need proof of the product, they need quality management.

"In the stage after that, the investors want to invest in companies with the potential to go public, where it can grow large enough and fast enough that they can convert their investment into a liquid investment," said Heard. "The problem for the investor is:

"How, how do you get out once you get in?

"If your brother started a small business and you invested in it, you probably wouldn't get your money out. But if you're a private investor and you are looking to make a lot of money on your investment, the most advantageous way is for the stock in the company to be publicly traded."

In these more advanced stages of capital investment, the investors' greatest concern is to make a profit, so not only are the product and the market for the product important, but the management of the company as well. …

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