Investor group, KVG, raising ambitions with largest fund yet
Managing partners John Paul "JP" Lake and David Higdon of Kern Venture Group
A local investment group is mounting its most ambitious campaign yet, attempting to raise more than twice as much capital as it has in its five-year history, partly by opening to investors outside Kern while also lowering its barrier to entry as a way of attracting more money from within the county.
Kern Venture Group's third fund, expected to total as much as $20 million, would be novel in at least two other respects: Startups selected to receive money would get more of it, and some would be expected to establish some kind of local presence benefiting the county's economy.
Work has begun on the new fund at a time of reassessment within KVG. Most of the group's prior investments have done relatively well, compared with other angel investor groups, even as some local recipients have not lived up to expectations.
At the same time, there's a feeling outside startups that have agreed to hire locally may point the way to a new model for success.
"We think ... that's a repeatable strategy," said one of KVG's managing partners, JP Lake.
The idea of raising $20 million to spread across no more than about 25 different startups, which would only receive money as they hit certain milestones, represents an audacious goal for a group that launched its first, $2.1 million fund in 2019. The second fund three years later was three times larger, but at $6.5 million, still far more modest than the separate partnership beginning to take shape now. Not all the money in the second round has yet been invested.
Some of the same "anchor" partners are contributing money again this time, Lake said. But there's hope the net will be cast more widely — and that smaller fish will take part.
In the past, KVG accepted investments no smaller than $250,000. This time, participants can get in for as little as $50,000, payable over three years.
The first fund invested in 23 startups, some of them with local roots, according to KVG's website, kernventuregroup.com. The second was divided among 15 companies. Lake said plans call for directing the third fund to 20 to 25 startups.
Two of the group's second-fund startups have committed to setting up shop locally, if not actually moving headquarters to Kern then at least expanding their operations into the county. Both have done so thanks to KVG's local connections in business and government.
One is M8 Systems Inc., a smart-ag, fluid flow management company offering automated, cloud-controlled irrigation systems that turn off and on different kinds of valves while monitoring pressure and flow. Customers get cellphone alerts pinpointing every leak.
Besides receiving introductions within the local farming industry, M8's ties to KVG helped it apply for and receive from the city of Bakersfield up to $99,999 toward M8 relocation and development assistance. In exchange, the company has moved its assembly and testing operations, shipping and receiving, assembly and quality checks to Bakersfield.
The other KVG-supported startup planning to set up shop locally is Cambridge, U.K.-based BIOS Health, whose real-time, AI-assisted neural data monitoring platform has won a partnership with the National Institutes of Health.
BIOS plans to hire local employees and bring in personnel from elsewhere. The company has talked about making Bakersfield a hub for clinical trials that would require it to bring on and train additional workers.
Lake said KVG would like to see four to six of the third-fund startups set up operations in Kern.
One of KVG's bigger investors, participating in both earlier rounds and planning to contribute substantially to the third, has been Comprehensive Blood & Cancer Center and its owner, Dr. Ravi Patel. The company's chief investment officer, Neeraj Rama, said CBCC has been "very happy with the success" experienced by the angel investor group.
Remarkably, Rama said, at least 85% of KVG's investments "are still up and running and functioning very well," which puts the investment group in the very highest echelons of success for investment funds. He said peer success rates are more like 10%, which he attributed to a reckless, "spray and pray" strategy that contrasts with KVG's approach of taking time to screen, support and help manage the startups it invests in.
"We participate in a lot of funds," Rama said. "They (KVG) are ... far more authentic. They deliver on their promises more than anyone I've seen."
He voiced support, as well, for KVG's plan to attract more business operations to Kern in combination with its investment activities. He sees the involvement of people including himself — Rama helped connect the investment group with BIOS — as having potential to benefit the local economy.
"Kern Venture Group is that fuel to trying to make that happen," he said.
Author: John Cox
