December 2023
Eric Rosenfeld
In Oregon, we’re famous for shopping local and eating local. With the Oregon Venture Fund, we can now invest local. How did OVF start and how did the fund develop its unique structure and focus?
When we created OVF in 2007, we didn't ask, "How can we compete against larger VCs?" Instead, we said, “We think we can build a better venture fund. Let's go do that.”
We interviewed local entrepreneurs and asked what they needed. Predictably, they said, “money, advice, and introductions.” We asked investors what they wanted and they said, “make money, share advice, and provide introductions.” So, we got to work creating a new fund structure that we thought would best serve the needs of both entrepreneurs and founders.
We drew inspiration from three trends at the time…
The advent of YouTube and social media – People don’t want to just consume, they want to contribute and share. From Web 2.0 we conceived Venture 2.0 and the world’s first collaborative venture fund was born. We selected our initial investors based on their ability to add value to startups and help the fund make better decisions. Today, as in 2007, 90% of our 180 “venture partner” investors have founded or led a company. They represent some of the most accomplished, insightful, and well-connected entrepreneurs and business and technology leaders in our region and they go to great lengths to support our portfolio companies with introductions to talent and customers.
Software-as-a-Service – Salesforce was one of the first to successfully pioneer an annual subscription revenue model. Rather than bind our investors to a 5-year period of capital calls, as nearly all venture funds did at the time, we thought we could improve on the model. Why not take a page from Salesforce and create an annual subscription service for OVF investors, where investors would have the option, but not the obligation, to invest each year? Voila! The first Venture-as-a-Service business model was introduced by OVF in 2007. If our portfolio companies could earn the repeat business of their customers by performing and communicating well, we could do the same with our investors.
Oregon: overlooked and underserved – In 2006, just $153M of VC was invested in Oregon startups, and nearly all of that came from out-of-state funds. You could see the venture capital flying overhead on its way from Silicon Valley to Seattle. We knew entrepreneurs and investors often take great pride in the communities in which they work and live. What if we could facilitate investing local and do so in a rigorous, methodical, and professional way? Our 2007 fund was one of the first in the country to introduce and champion the concept of place-based investing, which has now become a bona fide large-scale movement. Founders like the fact that OVF can serve as the friendly, local, supportive investor and bring in sector-focused national VCs. Investors like the fact that OVF is supporting companies who are creating local jobs and wealth. Seattle and Bay Area VCs like the fact that we’re not competing with them on their home turf and that we can serve as their feet-on-the-street in Oregon and Southern Washington. Why not occasionally invest in Seattle or California startups? Have you ever seen a dog try to eat the kibble out of another dog's dish?
Sustainable strategic competitive advantage comes not just from being better, but from being different. OVF was, and remains, very different and proudly so, for the benefit of our entrepreneurs and investors.
Of course, during the early years it wasn’t all ducks and bunnies. One major problem was that lawyers, accountants, and advisors told us it couldn’t be done. The idea of a collaborative, annually-renewing, community-based, regionally focused venture fund was met with a healthy dose of skepticism.
Some said you can’t raise money in Oregon. The conventional wisdom was that Oregon was home to only a few people with deep pockets. And, unfortunately, they had very short arms. The point: even if we could raise a small fund and try to bootstrap, the economics wouldn’t pencil.
Some speculated that our geographic focus on Oregon and Southern Washington would be too narrow. The fear: we wouldn’t find enough fundable startups to create a diversified, winning portfolio.
A few lawyers said our collaborative model posed too much liability. And some accountants concluded that our annual venture-as-a-service subscription model would be too administratively complex.
Like many of the entrepreneurs we back, we ignored the conventional wisdom and advice and followed our conviction that we were onto a more powerful model, a model with the potential for greater impact and returns. We followed the lean startup playbook and bootstrapped. OVF’s 2007 annual fund was just $900K, but it generated a 6.1X net cash-on-cash return.
Today, OVF has invested $170M in 77 regional startups that have grown to over $4 billion in value and created 5,500 jobs. We’ve worked hard to invest in, and profit alongside, intrepid, big-thinking entrepreneurs, resulting in a 21% avg net annualized rate of return and a 2.8X average net cash-on-cash return for our investors, who now include our region’s largest foundations and universities and most successful business and tech leaders.
The success we’ve enjoyed as a fund is, of course, entirely attributable to the hard work of the exceptional entrepreneurs we’ve been fortunate to support. They are harvesting clean, renewable energy from ocean waves. They are reducing the cost of developing and manufacturing the next generation of biologic drugs. They are creating inspiring mobile games that empower young girls to make themselves and their world better. They are creating local jobs and local wealth. They are inventing the future and doing it right here in the Pacific Northwest.
Oregon Venture Fund investors are showing the world how a state can, and should, invest in its own citizens. They are showing the world the genius, power, and magic of Oregonians investing in Oregonians.