A venture capitalist for only five months and the newest partner at Enterprise Partners, Bill Stensrud has already found three companies he considers good investments. And he's not lacking cash to spend. Enterprise, the largest venture capital firm based in Southern California, recently completed raising $200 million for a new fund, bringing the total amount under management to $460 million.

    That's important news for emerging San Diego companies. In the past, Enterprise has invested 85 percent of its money in Southern California and 50 percent of that in San Diego. If the pattern holds true, it could mean $85 million for local firms in the next few years. While Stensrud's most keen on telecommunications firms, the company spreads its investments around in both the high-tech and biotech/biomed areas.

    Stensrud's expecting a lot of growth from San Diego companies. "I’m betting my career on it," he says from his downtown La Jolla office. "This is where the big opportunities are. I spent 20 years in the Silicon Valley. I was recruited down here five years ago to run a telecommunications company called Primary Access. I left Primary Access a year after it was acquired by 3Com. I could have returned to Silicon Valley as a venture capitalist or to run a company.

    "But two things about San Diego are really attractive; one is the quality of life. I have a wife and three kids and they love it here. This is a much better place to live. The second thing is that there is an enormously exciting early-stage environment for making good investments in good companies."

    Stensrud, 46, stresses that the chance to focus on early stage companies was one of the major attractions of joining Enterprise Partners. "The most fun times I’ve ever had," he says, "were during the early stages of companies, when you were swimming upstream, going through the creation process, and really getting strategically focused - building that first product; getting that first sale; getting out there and developing market acceptance. I’ve always felt that somebody who really understood what it’s like to build and run a company would add more value as a venture investor."

From Quarterback To Coach

    Venture capitalists become deeply involved in a company once an investment has been made, usually working with no more than seven or eight companies at a time. "It’s sort of like moving from being the quarterback to being the coach," says Stensrud. "At some point in your career, you just can’t throw the ball down the field anymore. This job is a coaching job. You coach entrepreneurs through the development of their businesses and that’s fun."

    An MIT-educated engineer, Stensrud has participated in the start-up of four high-tech companies, and raised $100 million in venture capital. In fact, Enterprise Partners provided venture funding to Primary Access, which is how Stensrud became acquainted with the firm.

    Stensrud's start-up experience and technical background are two of the reasons Brett Helm, president and chief executive of Servnow, wanted to work with Enterprise Partners. Servnow, a spin-off from the Titan Corp., has developed software that speeds up Web site access by improving the efficiency of the network. Its promising product brought several venture capital firms courting.

    "Certainly Bill's experience was a determining factor," says Helm, "and the fact that Enterprise is a credible, blue-chip venture firm." Servnow received funding from Enterprise Partners in May. Helm is relocating here from Palo Alto and, like Stensrud, is happy to be in San Diego.

    "San Diego has the feel that Silicon Valley had in the early '80s," says Helm. "High-tech companies here are still being started by inventors with the desire to do good and build sustainable businesses. Silicon Valley has become a production system for venture capital where companies are packaged and hyped but after six months it’s on to the next hot idea."

Off A Record Year

    Venture capital investment posted a record year in 1996. Price Waterhouse's National Venture Capital Survey revealed venture capitalists reported investing $9.5 billion in 1996, a 25 percent increase over 1995. More than 2,000 companies received venture backing. San Diego investments represented 3.3 percent of the total, with 72 companies receiving $316.9 million.

    First quarter figures for 1997 were down for San Diego. Price Waterhouse reports 13 deals with a value of $33.7 million, compared to 15 deals worth $79 million in the first quarter of 1996. However, those who monitor the industry are not ready to declare a crisis in venture capital investment.

    Jim Ingraham, an audit partner at the Downtown office of Price Waterhouse, says the quarter-to-quarter numbers in San Diego fluctuate frequently. "I think it’s taking it out of context to try to judge the San Diego market for venture capital by one quarter," says Ingraham. "The common wisdom three months ago was that the national figures would be down in the first quarter and that hasn't happened. Investments actually increased 5 percent, from $2.22 billion to $2.34 billion, representing 572 deals. There's much greater volatility when there are fewer deals because one deal can represent a large percentage of the total."

Art And Science

    Seeking and receiving venture capital is a combination of art and science. The idea has to be good, the technology has to work, but you also have to be able to get your information in front of a venture capitalist. UCSD Connect is working to help local entrepreneurs get the attention of venture capitalists with several programs. Its long-running annual program, The UCSD Connect Financial Forum, screens applicants and then works with those chosen to help them perfect their presentations. During these "dry runs" company presenters learn to tighten up the details and tell their entire company story, including capital requirements, in eight minutes.

    "Brevity must count, because presenting companies from the 1996 forum have raised a total of $80 million," says Abigail Barrow, director of emerging technology programs at UCSD Connect. Barrow also points out that a company has to evaluate whether it represents an appealing investment for a venture capital firm. It is important to know if your company’s growth potential and revenue stream fit the requirements for venture capital. Other types of funding are available, including government grants.

    Connect InVest is a new program with the mission of expanding early-stage capital and management support to San Diego’s growing start-up companies. "Connect InVest will help match local entrepreneurs with private investors, or "angels," who will mentor the entrepreneurs through the earliest stages of business development," explains Bob Leach, chief operating officer of UCSD Connect and the person responsible for organizing the program. "By providing seed capital, which is a small investment enabling an entrepreneur to prove a concept or develop a product, the program will help companies reach the stage where they can attract the interest of a venture capital firm."

    Enterprise's Stensrud is very positive about the Connect InVest program. "We’re really interested in seeing this work," he says. "It takes hundreds of hours of looking at a company to make a decision to invest. We can only look at so many deals so we need a way to screen for the deals that represent the best opportunities. This program would put more people who have both money and experience into the business of looking at these very early stage companies, which might consist of just a technologist or an engineer with an idea.

    "If you get a couple of very early-stage investors who are experienced businesspeople - and they put some money and some time in and help this individual build a business plan, a management team and get the product down the road some - when they come to us, they're going to make it through that triage process. We’re going to look at that deal because it’s a much more mature, well-developed deal. It'll make it much easier for us to do our jobs."

    Stensrud admits that fair or not, most proposals that get a thorough evaluation come in through references of some type, whether it’s a program like UCSD Connect's Financial Forum or a personal contact from an attorney or accountant with whom the partners are familiar. "In the 12 years Enterprise Partners has been in business, only a handful of the 64 deals that have been done came in through the mail," he says. Enterprise Partners receives in excess of 1,000 business plans a year.

    "Get references," is his advice to entrepreneurs hoping to attract venture capital. "Work with service providers who are experienced in working with new companies," Stensrud says. "When someone we know comes to us and says, 'I’ve been working with this company and I think it’s worth a look,' we look. Choosing your attorney, choosing your banker, choosing your accountant, these are really important decisions because they can help provide avenues to financing."