Founder, The Orange Coast Venture Group

Linder (Charlie) Hobbs, 68, got an early start in the high-tech industry working as a computer engineer for Ford Motor Co. in the 1950s. In 1982, he founded Hobbs Development Associates in Irvine, a venture capital partnership that provides seed money to start-up companies. Four years later, he began the Orange Coast Venture Group, a networking organization for entrepreneurs and investors. Last year, the group established a fellowship for UCI business students. Hobbs spoke with Times staff writer Susan Christian.

How tough is it for start-up companies to find seed capital?

You’ve opened the door for my favorite crusade.

Here’s the problem in Orange County: There’s a lot of venture capital here for an established company or a new company with a proven management team. If the founders of AST Research wanted to leave and start another company, they could get all the money they wanted.

But let’s say you have two people working for Hughes or Western Digital who have a very good track record from a marketing standpoint, but who don’t have a track record in management. It would be very hard for them to get money to start a new business.

That’s because Orange County comes from a real estate background. The majority of wealthy people here are developers, landowners and builders. They understand the real estate market, but they don’t understand health-care and high-tech markets.

In contrast, there are lots of private investors in the Silicon Valley and in San Diego who have made money investing in new high-tech companies--so they tend to invest again in these sorts of companies.

What we’re missing here is seed capital from private investors to help companies get started through their first year or two, until they’re in a position where larger venture companies will invest in them.

Is high-tech intimidating to potential investors who don’t have any background in the industry?

Oftentimes, private investors--and I see this particularly with doctors--will invest in a single company. Someone’s neighbor tells him a friend has this hot new high-tech company. He invests in it, but he doesn’t understand the business and he can’t evaluate personally how qualified the founders are or how good the idea is. Perhaps more importantly, if the company gets into trouble, he’s not in a position to work with it.

And so a lot of people have been turned off from investing in high-tech companies, because they’ve made one investment and it was unsuccessful.

But the idea of a venture capital fund is that it’s a pool from which investments are made in a number of companies. You know some of them are going to fail, but hopefully the winners will outweigh the losers.

Should government do more to help start-up companies?

If government agencies throughout the county invested a small percentage of their reserves in a fund to start new businesses, it would contribute greatly to the growth of the county. Small business is the major creator of new jobs, and the high-tech industry creates relatively high-paying jobs.

What is the Orange Coast Venture Group?

It is a networking vehicle for people interested in creating new businesses--entrepreneurs, venture capitalists, private investors, banks, consultants, patent attorneys. We have monthly meetings with the hope of matching up entrepreneurs and investors.

Our major activity has been in high technology, although we have been involved with some health-care companies.

And what does your company, Hobbs Development Associates, do?

I’m the general partner of a small fund that makes seed capital investments. Unlike most venture capital groups, which have a number of investors, I have a single lending partner--Brentwood Associates, one of the larger venture groups in the area. They wanted to be involved in providing seed capital in the very early stage of businesses, but did not want to spend the extensive time it takes working closely with the companies. So they put up the money for me to go out and do the work.

Our typical scenario is: two or three people with a good reputation, a good idea and a good background--though not necessarily extensive management experience--want to start a company. We would make an investment in the $100,000 to $400,000 range, and then I would spend a significant amount of time helping them get the business going.

How many companies have you invested in over the 11 years you’ve done this, and how many of those have been successful?

We’ve invested a little under $2 million in six companies. We’ve only had one loser in the bunch--a $100,000 investment in a company that lasted just six months.

In one case, we eventually sold our equity in the company for a gain of 11 to 1. And we sold our position in another company for a gain of 2 to 1.

How do you identify a promising start-up company?

We look very carefully at the people. We must be convinced that they have a sound technology base and good marketing abilities. The people who started one of our companies, Corollary (a Brea-based company that manufacturers multiprocessor boards for computers), ran a division of Texas Instruments. The founders of Multiplex Technology (a Fullerton-based company that makes video distribution systems) came from Beckman Instruments.

We also evaluate the product--its uniqueness, feasibility and competition.

Do you think that, in a sense, it’s the civic duty of a successful business person to help other people coming up by investing in start-up companies?

I’m enough of a conservative that I don’t believe anyone owes anybody anything. But from a personal standpoint, I feel there is some obligation to help people in the way that someone helped me in the past.

On the limitless possibilities for new high-tech products . . .

“At the turn of the century, the government considered closing down the patent office because there was nothing left to invent.”

On government’s reluctance to invest in new companies . . .

“I’ve heard the statement, ‘If we had extra money, we’d put it into libraries.’ That doesn’t take into account that providing seed money isn’t an expense, it’s an investment.”

On the difficulty of starting a company . . .

“Initially, most entrepreneurs are restricted to finding friends and relatives to finance their companies.”

On his group’s scholarship for entrepreneurial business students at UCI . . .

“If someone’s career goal is to go to work for General Motors or the Bank of America, they probably would not be a strong candidate.”