SunAmerica Hopes to Reap What It Sows in Venture Capital Unit
It seems everyone these days wants to be a venture capitalist. And nobody more so than those pillars of the old economy, America’s biggest corporations.
With returns on many early “dot-com” investments approaching the stratosphere, a number of corporate giants are racing to get into the venture game. While some are turning to partnerships with existing venture capitalists as their path to profit, Los Angeles-based retirement savings giant SunAmerica Inc. has quietly carved out its own venture division.
SunAmerica, which merged with American International Group this year and holds about $53 billion in assets, has put aside $500 million of assets that are not directly linked to people’s retirement savings for venture capital investments, making it one of the bigger venture efforts of any major U.S. company.
“A lot of people don’t know, even today, that we do this,” said Rick L. Smith, managing director of L.A.-based SunAmerica Ventures, which has invested in fast-growing tech companies such as Alhambra-based PropertyFirst.com Inc., an online service that lists commercial properties, and in venture funds run by Pasadena business incubator Idealab.
Although the challenge for any corporate giant in a venture role is to muster quicker decision-making and accept bigger risks than what the company may be used to, Smith said that hasn’t been a problem for SunAmerica.
“We bring deep pockets and arms long enough and fast enough to reach these companies,” he said. Investment decisions can be made within hours or days, he said, because the division operates with significant autonomy.
SunAmerica Ventures next year will open an office in Silicon Valley and will hire four more venture capitalists, two of whom will be based in Los Angeles, Smith said.
“The rewards have been greater than anything I have ever seen in my lifetime, even in the days of the leveraged buyouts” in the 1980s, said Eli Broad, chairman of SunAmerica. “We’re going though economic changes that we haven’t seen in the world in the last 100 years.”
The fund was launched 2 1/2 years ago. Smith and Marc H. Gamsin, a SunAmerica executive, were managing a $2.5-billion “alternative investment” portfolio for SunAmerica when they decided to earmark some of that money for venture investments.
That resulted in a first-round funding stake in 1997 in Idealab Capital Partners, the venture arm of the Pasadena incubator, and other investments, including in Draper Fisher Jurvetson, a Bay Area venture firm; Palomar Ventures, a Santa Monica venture firm; and in Los Angeles, ECompanies and Zone Ventures.
“You look at L.A. and you’ve got some of the greatest minds in the world, with Caltech, UCLA; then you’ve got aerospace; and we’re the entertainment capital of the world,” said Gamsin, senior vice president with SunAmerica. “All that’s been missing here is the capital. We thought, ‘Let’s seed some of these funds and create a sort of mini-Silicon Valley.’ ”
SunAmerica Ventures has also made about $50 million in direct investments into entrepreneurial companies, funding about 20 firms, 25% of which are in Southern California. More Southland investments will be made next year, Smith said.
SunAmerica Ventures sees about 50 business plans a week, he said. Unlike some funds, which target particular industry sectors, SunAmerica invests in all types of tech firms, from Internet to hardware to software. Also unusual, the fund makes both early- and late-stage investments, Smith said.
While the fund has not advertised widely, SunAmerica’s venture efforts are well-known in town.
“They are very plugged in,” said Harry McMahon, a managing director of investment banking at Merrill Lynch & Co. in Los Angeles.
“A lot of big companies don’t structure their venture groups to be successful. You have to be nimble,” said Brad Jones, managing director with Redpoint Ventures and a principal with Brentwood Venture Capital in Santa Monica. “Sun-America has structured it so it’s not a problem. They have been very successful in moving fast.”
For instance, this year, the Bay Area venture capital firm Sierra Ventures called to tell Smith about a new software company.
“I’m on the plane the next day to meet with the company, the CEO, and the next day we make the decision,” Smith said. The result was a $4-million investment in Evolve Software, a San Francisco business-to-business software firm.
“We can move fast. We can move within hours if we have to,” Smith said. “And we have.”
Companies SunAmerica has invested in so far include:
* A $1.5-million seed investment to MValue.com Inc., a Culver City firm started by Harvard MBA grad Jay Haynes. The company’s Web site allows consumers to exchange personal data for product discounts.
* A $3-million investment in Creative Planet, a North Hollywood Internet firm that helps independent contractors in the entertainment industry network find jobs.
* A $2-million investment in TriVida, a Culver City-based firm whose technology incorporates information from several Web sites to get a picture of customers’ overall interests. It stores shoppers’ preferences on a central server that its customers--e-commerce firms--can access on the Internet.
* A $5-million investment in PropertyFirst.com.
So far, SunAmerica Ventures has cashed out of very few of its investments. But in one indication of the kind of returns available today, the fund’s $2-million investment in Bay Area-based Maverick Networks turned into $27.5 million in less than a year when the company was sold to Broadcom.
Broad said SunAmerica’s move into venture capital is just smart business. “We’re a public company, and we like to make money and be competitive. We also would like to have knowledge of what’s going on, especially in the Internet-type companies that might affect our business,” he said.
Debora Vrana covers investment banking and the securities industry for The Times. She can be reached by e-mail at debora.vrana@latimes.com or by mail at Business Section, Los Angeles Times, Times Mirror Square, LA, CA 90053.
