Oakland Venture Capital And Startup Scene Still A Work In Progress

Downtown Oakland is only about 40 miles from Sand Hill Road, but at times can seem much farther.

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Even though the Bay Area is known as a place for technology and innovation, its East Bay — and Oakland, in particular — seemingly is often left out of the conversation unless the company has ties to UC Berkeley.

However, those in the investing and tech ecosystem of the city think things are slowly changing as cultural, social and economic issues that have taken center stage in the last year could shine a spotlight on “the bright side of the Bay.”

The numbers

According to Crunchbase data, last year was not kind to Oakland startups on the funding front. Funding to startups and private companies in Oakland dropped to $584.7 million, slipping from $920.4 million the previous year and ending a streak of two consecutive years of increased funding.

“This time last year, there was just so much uncertainty,” said Emily Kirsch, founder and CEO at Powerhouse in Oakland, which helps startups partner with investors and corporations. “Investors just stopped writing checks.”

Kirsch — who also is founder and managing partner at seed investment firm Powerhouse Ventures — was not one of those who stopped writing checks, nor were many of her Oakland VC colleagues. Oakland venture capital firms signed on to 45 deals last year, on par with 43 and 48 the previous two years, respectively, according to Crunchbase numbers.

Despite the decrease in funding last year, the uptick in Oakland firms investing and a possibly changing social attitude toward diversity and equality issues may make investors start looking at Oakland when filling out their portfolios.

Investing in change

Oakland is undoubtedly one of the country’s most diverse cities. According to Data USA numbers, the city is 29 percent white non-Hispanic, 23 percent African American, 24 percent Hispanic and 15 percent Asian. Last year, U.S. News and World Report ranked it as the country’s second-most racially diverse city.

Powerhouse Ventures itself has a goal of making a quarter of its investments into companies founded by underrepresented minorities, Kirsch said.

“Diversity plays a huge role in Oakland,” she said. “Unfortunately, there’s just so far to go regarding underrepresented minorities.”

While Powerhouse has its own diversity investing mission, Kirsch fully credits another Oakland institution with pioneering the idea.

Kapor Center and Kapor Capital

Kapor Capital, founded by Mitchell Kapor and Freada Kapor Klein, is Oakland’s largest venture firm and serves as the investment arm of the Kapor Center for Social Impact, which attempts to “make the tech ecosystem and entrepreneurship more diverse, inclusive and impactful.”

Out of the firm’s current 102 investments, 60 have a founder who identifies as a woman and/or an underrepresented person of color, according to the firm. Of the firm’s first-time investments, 38 percent  have a founder who identifies as a woman, and 34 percent have a founder of a racially underrepresented background.

While the Kapors started investing from San Francisco, they moved to Oakland about a decade ago after “seeing the handwriting on the wall,” Mitchell Kapor said.

“The tech ecosystem was not attuned to what we are doing. The East Bay and Oakland were much more aligned with our thinking,” he said.

“A presence in Oakland would give us more access to those who had been excluded from the tech ecosystem,” said Freada Kapor Klein.

Social impact

Since 2011, Kapor Capital has invested exclusively in “impact” startups, “attempting to close the gaps of access, opportunity, and outcomes for low-income communities and communities of color in the US,” according to the firm’s website. Kapor looks to invest in diverse founders and/or businesses that can benefit low-income people and those underrepresented.

Those parameters have only allowed the firm to grow — as its investments between 2011 and 2017 delivered a 29 percent internal rate of return — ranking it in the top quartile of venture funds of comparable size.

The Kapors hope that may change some venture capitalists’ views on investing. Kapor Klein said investors inside and outside the Bay Area have contacted them about how to look for more diverse and socially impactful investment since the killing of George Floyd last year.

“There has been significantly more awareness about how poor of a job they’ve done,” Mitchell Kapor said. “Oakland, hopefully, will be the beneficiary.”

Some success

Although Oakland’s funding numbers are uneven, there have been startup success stories in “The Town.” Oakland-based card-issuing platform Marqeta filed confidentially last week with the SEC for an IPO, eyeing a valuation of possibly $10 billion, according to reports. Earlier this month, a 3-D printing company in the city, Mighty Buildings, raised a $40 million Series B.

Last summer, another Oakland company, Fivetran, surpassed the $1 billion valuation mark with a $100 million Series C.

In addition, Eko, Everlaw, LaunchDarkly, Dascena and Roofstock are all Oakland companies that have raised rounds of more than $50 million since the start of 2000.

“I think this is a renaissance” in Oakland, said Lili Gangas, chief technology community officer at the Kapor Center.

Gangas said fintech and edtech startups are popping up in Oakland, as are so-called micromanufacturers focused on building small, prototype vehicles.

Oakland’s less expensive real estate — at least compared to San Francisco — makes it an interesting spot for startups that may not be as software-focused and need space to build, said Joshua Posamentier, managing partner at Congruent Ventures.

“It’s a pretty good place for hard tech,” he said. “It has a lot of industrial spaces.”

A lot of potential, but …

Posamentier has lived in the East Bay area for decades and invested in a handful of Oakland companies. He said he has witnessed the tech ecosystem in Oakland and surrounding cities like Alameda and Berkeley grow as some entrepreneurs look for cheaper rents and real estate.

“We encourage companies in our portfolio to look at Oakland,“ he said.

However, Posamentier admits there are stigmas the city still fights against.

“Sadly, yes, the general perception is that Oakland is not a technology town,” he said. “No one thinks of Oakland as a high-tech hub.”

Many companies still clamor for the allure and aesthetic of San Francisco, Posamentier said. Concerns about safety and crime also play a role, he said, adiding the city could be more proactive in attracting tech companies.

Nevertheless, he agrees the city is a work in progress: “There is a ton of potential here.”

Illustration: Dom Guzman