About nine years ago the Central Valley Fund took the first steps in developing a healthy capital acquisition ecosystem with its first fund. Now, with more than $175 million in committed and invested capital, it’s looking to build upon that success with the second fund, which recently closed at $120 million.
The Central Valley Fund — with offices in Davis and Fresno at the Lyles Center for Innovation and Entrepreneurship at Fresno State — raised its first round of funding in 2004 and started building its investment portfolio in 2005, with the California Public Employees’ Retirement System (CalPERS) as the lead investor.
The portfolio for the second fund has a strong focus on agricultural food processing, energy, and companies targeting the Hispanic market. Those are the three areas the fund’s partners have seen the most growth potential in the next five years.
“The Central Valley needs to take advantage of our strengths here and not try to emulate Silicon Valley. Our strengths are agriculture, the Hispanic market, and energy,” said Brad Triebsch, a Central Valley Fund principal. “If the next Google pops up in Chowchilla, then great, but that’s not what we’re here to do.”
Other areas of interest include manufacturing, distribution, and health care.
Triebsch was told nine years ago the Central Valley was not capable of producing investment-grade returns. However, after the money was put to work, the returns from the 12 investments of the first fund ranked in the top 5 percent in the nation in 2005.
“It showed Central Valley ventures are investment grade-worthy, not because they invented the latest gee-whiz gadget or created the new Google in Chowchilla, but our entrepreneurs have a dedicated work ethic you don’t see in other areas,” Triebsch said.
After the success of the first round, 98 percent of the investors returned to the table to invest in the second fund.
In addition to CalPERS, other investors include Rabobank, Union Bank, the Small Business Administration, and local businesses Central Valley Community Bank, United Security Bank, Bank of the Sierra, and Valley residents Pete Weber and Claude Laval.
The Valley has developed a respectable collection of angel groups and other early-stage founders, and the Central Valley Fund provides later-stage venture capital. However, the Valley lacks the missing gap between those two stages — a strong pool of Series A investors to provide the capital needed just before a company starts generating high profits, Triebsch said.
The fund bankrolled a management buyout for Fresno-based MuniServices, LLC, from then-owner MBIA, Inc., in the form of a loan and small exchange of equity to the fund.
“It wasn’t just a financial transaction, but a business relationship that worked out great for all of us,” said Mark Herman, president of MuniServices.
Not only was Herman a beneficiary of the first fund, but he also signed on as an investor in the second fund.
“We feel very close with them and we certainly believe in their mission,” Hermann said.
MuniServices was sold to Portfolio Recovery Associates, Inc. five years ago, but is still headquartered and operated in Fresno with Herman is serving as president.
Another transaction the fund was involved in five years ago was Madera-based fertilizer company Ultra Gro, LCC’s acquisition a company with the backing of the Central Valley Fund, along with some intangible assistance.
“They gave us the financing and they’ve been good at challenging us as managers,” said Craig Fourche, one of the partners of Ultra Gro.
Not only has the investor pool improved since the first fund in 2004, but local companies’ understanding of the capital acquisition process has also grown light-years, according to Triebsch.
“I remember the people of Modesto looking at me with a blank stare,” Triebsch recollects of one of the fund’s first investments in a Stanislaus County nut company.
About eight years later the firm was sold to a private equity group.