Deals

Need startup cash? An Oakland VC firm wants to lure you East

Randy Hawks - Claremont Creek

San Francisco’s East Bay is known for its hippie movement, Berkeley’s Telegraph Avenue, and oil refineries — not so much for venture capital. Claremont Creek Ventures wants to change this perception.

Claremont Creek is a technology VC firm located right off a downtown subway station in Oakland, Calif. It’s an unusual location: Menlo Park and Palo Alto, across the bay and to the south of San Francisco, have long been the epicenter of tech investing in the Bay Area, with more than 100 VC firms and hundreds, if not thousands, of startups. The East Bay? Not as much.

But Claremont Creek wanted to put down roots in a town not known for a startup culture, though it does have VC brethren such as Kapor Capital, North Venture Partners, and Kaiser Permanente Capital. So, when it got started in 2005, it picked a location just a few train stops away from UC Berkeley.

“We were all East Bay entrepreneurs ourselves,” said Claremont Creek managing director Randy Hawks (pictured above) in an interview with VentureBeat. “We built our own companies in the East Bay. We’d taken our companies public here.”

Hawks served as Identix Inc.’s chief operating officer through its initial public offering. The company, which created face recognition technology, is now L-1 Identity Solutions after merging with a facial authentication company Viisage.

For Hawks and his team at Claremont Creek, the Easy Bay had been fertile ground for raising a startup, so an understandable nostalgia drew them back. Their office isn’t particularly noteworthy: high ceilings, glass walls, conference rooms, and cubicles like many corporate environments. The employees, however, were welcoming and calm, unlike their bloodshot startup kin across the bay.

Hawks’ firm works with companies through what he likes to call “life-cycle venturing.” His goal is to take a company from an early stage investment, inject as much advice and knowledge into it as possible, and spit it out on the late-stage investing side, hopefully on its way to an acquisition or IPO. This investing team focuses on “heavy tech,” including energy and clean technology, IT, sensor-based systems, and security technology. (In other words, don’t look for lightweight social-media Instagrams in Claremont’s portfolio.)

Still, it’s hard to avoid the gravitational field of Silicon Valley’s VC community.

UC Berkeley v. Stanford

A tale of two cities

Stanford University in Palo Alto is one of the keys to Silicon Valley’s success. Throughout the past century, Stanford has educated students while also providing strong and liberal support to their entrepreneurial endeavors. Meanwhile, Berkeley’s state-run university was more hampered by monetary restrictions and bureaucracy.

“Historically, the thing that helped both Boston and Silicon Valley … was MIT, Harvard, and Stanford: all private institutions,” said Hawks.

Being a private institution meant that Stanford was able to take and allocate funding however it wanted to. It also made it a lot easier for the university to license its technology as it saw fit, meaning students and graduates could use and build on Stanford-owned technologies more readily than students at UC Berkeley could use that school’s technologies.

A third reason comes down to what each university focused on. During World War II and the subsequent Cold War, government funding built Berkeley into a hub for nuclear physics and energy, while the same funding built Stanford into a center for information technology and computing. When the personal computing and Internet revolutions arrived, Stanford — and the area around it — was fully prepared.

But the real kicker was that Stanford could hire entrepreneurs as professors, a tactic public universities shied away from. According to Hawks, Berkeley’s attitude was along the lines of “you can be a professor, you can be an entrepreneur, but you can’t be both.” So, while Stanford began employing people with side jobs, real-world experience, and deep connections, Berkeley’s faculty remained more cloistered.

Stanford’s faculty would eventually sew a tech web across Silicon Valley that would catch the likes of Sergey Brin and Larry Page of Google, Reid Hoffman of LinkedIn, Steve Ballmer of Microsoft (a Stanford business school dropout), and countless others.

UC Berkeley is finally growing out of its aversion to entrepreneurship and now has its own startup endeavors, too. Claremont Creek works directly with the university’s Lester Center for Entrepreneurship, acting as an advisor to the center and to Berkeley students who have “startup fever.”

“The real value is when you walk the [Berkeley] halls, you know the people and they know you,” said Hawks. “Many of the deals that we’ll see [in the future], they may not come from UC Berkeley directly, but two years after they’ve graduated … they’ll come back to us.”

Don’t expect that argument to carry much weight with most VCs, who remain firmly committed to Silicon Valley.

“The distance between Bangalore and Santa Clara is less than the difference between Bangalore and Pleasanton,” said Ashmeet Sidana, who heads up Menlo Park, Calif.-based Foundation Capital’s Indian startup investments.

“There have always been centers of excellence,” said Sidana. “Hollywood is for movies, at one time it was clearly Boston for VCs. Then they thought it would be Austin, and now it is clearly Silicon Valley.”

Tesla electric car

Charging up the East Bay

Even Claremont Creek occasionally looks to Silicon Valley capital and talent. In September 2011, Claremont Creek welcomed Dave Lyons, the former director of engineering at Palo Alto-based electric car company Tesla, as an entrepreneur in residence. Before Claremont Creek, Lyons performed the same role for Silicon Valley venture firm Accel Partners.

“I have been a Palo Alto guy for the last 23 years, and have been really deep into Silicon Valley,” Lyons explained to us. “I think it’s really cool to get over [to the East Bay] and get a fresh perspective. It’s not like Silicon Valley has a monopoly on bright, enthusiastic entrepreneurs by any means.”

Claremont Creek has also joined forces with a number of Silicon Valley venture firms, such as the well-known Kleiner Perkins Caufield and Byers, in a number of deals.

But the East Bay does have one advantage over the rest of the Bay Area.

As Hawks points out, San Francisco is known for life sciences and media companies. Travel toward San Jose and you’ll pass social and consumer tech companies before hitting the heart of the semiconductor industry. For the East Bay, with Berkeley’s energy- and nuclear-focused labs, energy is the sweet spot.

The green movement and energy consumption have become huge buzz words in tech, and Claremont Creek is looking for a piece of the action. Currently, the company has investments in several energy management and conservation companies, such as Alphabet Energy, which uses waste heat to create electricity. Alphabet Energy was founded out of the Lawrence Berkeley National Laboratory.

“We’re turbocharging the uncommon startup,” said Hawks.

In the end, Hawks is holding out for the East Bay’s big break. For him, the venture culture can only trickle up.

“The thing that I look for is where the natural deal flow is happening,” he said. “I think people will be attracted up here. But it’s a bit of trek.”

Randy Hawks photo via Claremont Creek Ventures, football photo via Flickr, Telsa photo via Flickr

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