Oracle of Oregon

In a state known more for its Pinot Noir than its breadth of venture capital, Portland’s David Chen is taking a gamble that Oregon has enough of both to go around.

A former managing partner at the Portland office of OVP Venture Partners, Chen trimmed his role at the firm in April 2007 to focus his attention on Oregon’s sustainable business sector. From his new helm as head of Equilibrium Capital Group, Chen is attempting to take advantage of what he calls “a unique moment in time” to capitalize on Oregon’s genuine concern for the environment and its depth of entrepreneurship.

Chair of Oregon Gov. Kulongoski’s (D) Oregon Innovation Council and the Oregon Nanoscience and Microtechnologies Institute (ONAMI), Chen also serves on the advisory board of the Oregon Investment Fund and the board of the Federal Reserve Bank of San Francisco’s Portland branch. Portland business owners go to Chen for advice on ways to capitalize on their sustainable edge. (Disclosure: Celilo Group Media president Nik Blosser is one such business owner.)

And, when he’s not leading a meeting or facilitating a deal, Chen spends his time studying the fine arts of farming and wine-making at his winery in Oregon’s Willamette Valley.

Sustainable Industries caught up with Chen in Portland on an Indian summer day in October to ask him why he’s betting Oregon will become the nation’s leader in the sustainable business arena, to discover his firm’s strategy for helping sustainable companies break into the national and international marketplace, and to get his review of the 2007 venture capital industry.

SI: What have you been doing to stay busy since leaving OVP Venture Partners?

Chen: I have a myriad of jobs. I chair the Oregon Innovation Council. I chair ONAMI (Oregon Nanoscience and Microtechnologies Institute). I still maintain a part-time position at OVP. And I am in the process of building a new firm—Equilibrium Capital—which is purely focused on investing in the sustainability area.

SI: When you say the “sustainability area,” what are you specifically referring to? The cleantech sector?

Chen: Cleantech is part of it. When we look around [Oregon], we think there are actually far more equally interesting opportunities in the areas of consumer lifestyle, green building, carbon management, waste and recycling. About 90 percent of what cleantech is investing in right now is classic, early-stage investment around energy, biofuels and solar. We think there is a tremendous amount of opportunity beyond that.

SI: How many people have currently joined Equilibrium Capital?

Chen: We are not disclosing that. We are still very much in the formation process. We are recruiting people. The most exciting thing that we’re finding is that these people are investing professionals, but they also have a deep sense of duty to this field.

Equilibrium Capital is about building an investment firm focused on the growth and expansion phase in the sustainability area. We are trying to invest in companies that balance sustainability, profitability and growth. We are looking to make long-term investments in companies that can be strong leaders—not only as growth companies, but also as vocal members of this whole sustainability marketplace. We see various opportunities here in the Northwest and, more specifically, in Oregon.

SI: When you are considering whether or not to invest in a company, what do you look for in a proposal or a business plan?

Chen: We’re looking for companies that have an integrated sense for how sustainable practices have given them a competitive advantage. They have to have learned—and demonstrate that they are executing—how they are actually using such practices to create a cost advantage or benefits for their customers.

We are looking for companies that have revenue and companies that have integrated a real understanding for how to create more value through better products. We’re looking for companies that have significant growth opportunities. And we’re looking for entrepreneurs that have a desire to build upon their success to actually create something of national or international stature.

SI: In what ways is Oregon creating opportunities for venture capitalists?

Chen: The sustainability area is no different than any other venture category. It’s all about the people, the entrepreneurs and the supporting environment. In the sustainability area, I think Oregon has a built-in support mechanism, a genuineness about supporting sustainable practices and supporting businesses that deliver on sustainability. We are more discriminative buyers.

To me, that’s the Oregon opportunity right now around the whole issue of sustainability. We truly have a unique moment in time. The world around us is going through a huge set of global shifts—climate change, constrained resources, new consumers, and demographics have shifted.

And here we are in Oregon, where we have something that money can’t buy: We have a population that seems to be genuinely, for the long-term, predisposed to this. We have companies that have been practicing this ethos as a competitive advantage for many years. There is a supportive environment. There is an expertise that has been accumulated over years across many of these sectors. As the world is recognizing some of the things we’ve done here, now is the time to continue to drive our leadership in these areas— especially because the world is listening. Let’s take full advantage of what we have to push ahead.

If there is one hope that I have, it’s that Oregon takes that on. There are many communities that are grabbing for sustainability, but there is only one downtown Portland with this intersection of transportation, living, LEED [Leadership in Energy and Environmental Design] buildings, focus on energy efficiency. There is only one Oregon where you have both rural and urban communities coming together around issues of sustainability.

What I love about the area of sustainability is that it’s encompassing. It allows the ag community and the natural resources communities to join the conversation in a really meaningful way. It does something that high-tech could never do, which is really gratifying.

SI: What do you see as the most promising technologies yet to hit the commercial market?

Chen: Equilibrium Capital is going to be focused on things that aren’t out there on the bleeding edge. The area of early-stage, technology-oriented cleantech investing is incredibly ripe for opportunity—but it’s incredibly well-served at this point. There’s got to be about 30 to 40 venture funds that are doing a great job serving that area—people like Nancy Floyd at Nth Power, Technology Partners, Foundation Capital and here locally, the Sustainability Investment Fund, are very clearly targeting early-stage technologies. And they are doing a great job.

We’re trying to target later-stage and expansion companies, which we think are less well-served— and, in some cases, much more boring. But we also think it’s an area that is ripe for growth. A lot of these companies have been successful and are looking to structure their companies for growth, for acquisition, to be the acquirer and not to be acquired. We think that’s tremendously exciting.

SI: Looking back on 2007, how would you summarize the year for the venture capital industry?

Chen: From a venture standpoint, if you look at the amount of cleantech investing in Q2, and I would guess in Q4, there were extremely high rates of growth in the amount that has been poured into cleantech. In fact, several of the traditional venture investment categories have been dropping. The acceleration in the overall venture investing pool has been driven by cleantech and second-generation Internet investments.

In Oregon, it was a monumental year from a legislative standpoint with the passing of several important bills [see “A renewable energy standard for Oregon,” sustainableindustries.com, June 2007]. I think at the beginning of the legislative session, you would have been hard-pressed to forecast what happened. In 2008, Oregon needs to tackle carbon trading if it wants to be a leader in carbon regulation. If we give it the appropriate forethought, we could lead the nation.