When the Portland (Oregon) Seed Fund got its start four years ago, the concept of “going to City Hall for seed funding” was a bit of an eyebrow-raising idea. But it was one that started gaining traction in 2011 in Portland (and other U.S. cities), where an increasing number of early startup firms were setting up shop.
And struggling to find seed funding.
The problem facing Portland four years ago was that although the city had an abundance of startups, it did not have much in the way of local success stories. And the complaint about why that was became more uniform: companies were flaming out early due to lack of adequate access to seed funding.
Responding to an increasing demand for a better environment for early stage startups, the City of Portland decided to get into the early stage funding business with the Portland Seed Fund.
Designed as part of an effort to position their city as a hub for high-growth job creating businesses, the fund was initially designed as both a funding source and tech accelerator for participants. Apart from the initial $25K-$50K buy-in, the acceptance entails a 90-day intensive startup “boot-camp” with an established mentor and specific deliverable goals in mind.
"It’s not just some feel-good way to get a lot of companies started,” Patrick Quinton, executive director of the fund’s overseer, the Portland Development Commission, said in an interview. “Long term, we’re looking for big wins.”
And while the program was hailed from the start as “interesting” and “experimental,” it was not quite considered a lock for success, with many questioning if private startups were an appropriate direction for public funds and other wondering if the firms would really be able to attract the kind of outside private interest necessary to bring in additional investment.
In 2015, it seems the results of the experiment have been encouraging. Last week the fund announced its sixth class, and the fund now has $10 million under management. And while the firm has stuck to no “specific company profile” over time and has been able to grow the amounts of initial funding it is offering – co-Executive Director Jim Huston noted on the firm’s blog that it has really stuck to its vision of working with firms that are able to deliver quickly.
"We look for companies who can get to cash flow breakeven on no more than about $1 million or so – sorry, no five-year science projects for us,” Huston noted. “Along those lines, we look for companies who can make real progress in a short amount of time. So while we are sector agnostic, the bias towards companies who can make quick progress on relatively small amounts of capital means we mostly do software companies."
And that preference for software is clear in the fund’s newest class – eight of the 10 are software companies (the other two are a wedding invitation company and a pharmaceutical firm). As it turns out, four are directly related to payments or eCommerce (ActionSprout, Crowd Supply, CrowdStreet and Scratch-it).
The newest class is also somewhat more established than previous graduates from the program – with many of the firms already generating sales and bringing in their own sources of cash.
"Several of the companies raised significant capital even within the three-month bootcamp period,” said Huston. “Others are positioning themselves now for later VC rounds, so the trip [to Silicon Valley to pitch to potential investors at Demo Day – the official end of The Portland Seed Fund’s curriculum] will be particularly valuable."
And it is that continued focus on adding value that has led to the Portland Seed Fund’s growth and ability to be one of the most active players in the seed funding market place. In four years, the Portland Seed Fund has invested in 56 companies – five of which have been acquired. It currently has $10 million under management and has seen the startups it first funded go on to raise a collective $60 million from VCs and angel investors.
And that, Huston said, can be directly attributed to the fund’s commitment to not just funding businesses, but really guiding them and making them ready for every funding round to come. And because the fund is comparatively small when it comes to the world of funding, it means they often have to be willing to think outside of what others take for granted as normal parameters.
"One difference between us and some other programmatic accelerators is that we can, and do, make ‘out of cycle’ investments. In other words, we don’t want to lose a good investment just because a hot new company is closing a round in the middle of one our classes,” Huston said – noting that when there is a timing mismatch, companies funded out of cycle simply join the “next” class.
It also means, he said, having an extensive vision of mentorship – that in some ways even predates a firm’s entry into their program.
"One rich vein we have discovered is applicants from prior classes,” Huston noted. “We often say ‘no’ to a company and explain why, and in 6-9 months they are still at it and have progressed to the point where they are ready for our program and outside investment. In every class after our first one we’ve had at least one company we had previously turned down."
With all the talk in the marketplace about “unicorns” and mega-valuations, it can be easy to lose sight of the fact that not every startup is Uber and valued at $41 billion. It is also easy to forget that long before Uber could take in $4.3 billion in funding and be the service that all startups wanted to be, it needed to get through that first seed round – which six short years ago was worth $200,000.
Portland and the Portland Seed Fund want to make sure that more of those small seed funds can be planted. They may not harvest themselves an Uber – but as the fund’s steadily increasing volume generates, they certainly help a lot of good ideas get on the map.
PYMNTS Innovation Investment Tracker
The Big Takeaways for Payments and Commerce
Another big week in financial activity in the FinTech space, with ~$5.6 billion in financial activity observed across VC funding, private placements, etc. The biggest deal of the week was the acquisition of Fundtech by D+H for ~$1.3 billion. The No. 2 spot was held by Apax Partners’ acquisition of Exact Holding NV for $930 million.
Retail payments nabbed half of the investment activity, with TrustWave Holding’s acquisition by Singapore Telecommunications for $810 million. CAN Capital’s $650 million debt funding, led by Wells Fargo, clocked in in second place. Venture backed and strategic investments on the retail payments side accounted for ~$2.9 billion in the third week of April. Those investments were mostly in Alternative Finance, Security/Fraud, P2P and Data analytics related to retail, shopping, commerce – as those areas accounted 90 percent of total funds invested.
On the commercial payments side, the biggest transaction was the Fundtech acquisition, followed by the acquisition of Exact Holding’s acquisition. From a geographic perspective, the U.S. was the most active region, followed by Europe ex Russia. The median investment amount was $10.8 million.