Finance: VenturePlex, Venture Catalyst
Retooling for Future
Business incubators may be a viable way of launching start-up firms, but two local companies that used the model recently ran into financial problems.
Venture Catalyst, a 10-year-old public company traded on Nasdaq, and VenturePlex, a for-profit, privately funded incubator that was launched last February with much fanfare, each disclosed some changes in their business plans that reflect the harsh realities of the dot-com industry bust.
Venture Catalyst, headquartered in Rancho Bernardo, said it laid off 34 employees , about half its staff , and will close down offices in Los Angeles, Orange County and Phoenix as a result of changes in its operations.
Glenn Smith, Venture Catalyst’s executive vice president, said the company decided to focus only on clients with connections to the California Indian gaming industry, rather than on clients who are not in that arena.
“To maximize shareholder value, the opportunities seem to be greater for us in gaming and gaming-related technology,” Smith said. “Those that aren’t related to that, we ended up having to say good-bye.”
While Venture Catalyst’s primary focus has always been on Barona Casino in Lakeside, it also provided some incubator services to about four or five start-ups. Smith said that part of the business had no bearing on the company’s most recent decision.
In addition to the layoffs, Venture Catalyst said it would take a $6 million to $7 million charge in its second quarter, which ended Dec. 31. It was largely caused by the loss of goodwill from prior acquisitions.
Venture Catalyst reported a net loss for fiscal 2000 ended June 30 of $1,029,000 on revenues of $14.8 million compared to a profit of $792,000 on revenues of $14.7 million in the previous fiscal year. Its 52-week stock range was $21 to $1.34.
Meanwhile, VenturePlex, which had the backing of a local venture-capital firm, had to close its Sorrento Valley office at the end of October and is revamping its business model.
Dante Fichera, VenturePlex’s managing director, said his partners, Hamilton Ventures of Del Mar, were forced to divest their stake in the incubator or lose possible funding from the Small Business Administration. As a result, Fichera purchased Hamilton’s interest for $150,000 and is looking for a new partner.
Fichera offered several ideas to turn things around: move the facility Downtown; use a different method to invest in start-ups; and focus on industries that have nothing to do with the Internet.
Fichera said his incubator, like many others, attracted a large number of dot-coms, and when that industry fell on hard times, so did his business. His new incubator will focus on the telecommunications and life-sciences industries.
Of the 10 or so companies assisted by VenturePlex, all are still in business, and several have attracted venture capital and angel financing , proof the incubator model can be successful, Fichera said.
Despite the recent setbacks, Fichera is convinced business incubators can be a viable business model.
“I’m a contrarian. I’m going to go for it no matter what the rest of the populace thinks,” Fichera said. “This is a great time to position ourselves for when things do turn around.”
Tyler Orion, executive director of the Pacific Incubation Network, a trade association of about 150 incubators along the Pacific Coast from Alaska to Baja California, agrees Fichera’s model is sustainable, but depends on finding the necessary financial investors.
“There is no lack of entrepreneurial start-ups, no lack of capital, and certainly no lack of need,” Orion said. “If he can get the financial backing, he’ll be fine.”
Not all incubators were struggling. San Diego’s ideaEDGE Ventures LLC, a private entity started last April, said it will soon announce its first company launch, a joint partnership financed by Ericsson, Qualcomm Inc. and Enterprise Partners.
The big advantage ideaEDGE has over other incubators is its corporate investors and its focus exclusively on the mobile Internet industry.
Investors in ideaEDGE include Qualcomm, and VC investment firms Enterprise Partners, Siena Holdings and Investor AB.
The business ideas nurtured in the incubator usually originate from its investors, and benefit from global partnerships these investors now have, said spokeswoman Liya Sharif.
Said Orion of ideaEDGE, “They have the capital, are very focused on one market, and are incredibly selective in who they choose That is the way private, for-profit incubators are going to evolve.”
