Thinking Bigger

Thinking Bigger

Champaign company gathers investors for 2nd venture-capital fund to add firms focused on the future

CHAMPAIGN — A Champaign company has launched its second venture-capital fund, with hopes that it will grow to at least five times larger than its first fund.

Already, the Serra Capital II fund has gotten more than $7 million in commitments, said Tim Hoerr, president and CEO of Serra Ventures.

When fundraising concludes next September, the fund is projected to have $25 million to $30 million in venture capital, Hoerr said.

That would dwarf the $5 million Serra Capital I fund launched in 2011.

Hoerr said the new fund — like the existing one — will provide capital to companies in three broad fields:

— Information technology and software.

— Devices and instrumentation.

— Materials science and agriculture technology.

The first fund has provided capital for 24 companies — many of them local firms — at an average of $200,000 per company, Hoerr said.

The new fund is expected to make an average investment of $500,000 to $600,000 per company, he said.

Serra Capital I has worked primarily with seed-stage companies. Serra Capital II is expected to invest not only in that kind of company, but also in businesses more advanced in their life cycle.

Money raised in the first closing for the second fund came from 39 accredited individual investors, Hoerr said. Three or four more investors are expected to contribute to the second closing later this month.

"All but maybe three or four are from East Central Illinois," Hoerr said. "We're really pleased with the support from the local community."

As fundraising continues, Serra will shift its efforts from individual investors to family offices, funds and some institutional investors, he said.

Both funds are expected to have a 10-year lifetime, with an aim of returning to investors five times the money they invested, Hoerr said.

Generally, the smallest investment in Serra Capital II is $100,000, although one exception has been made, allowing a $75,000 investment, he added.

Of the 24 companies in Serra Capital I's portfolio, Hoerr said the five farthest along the commercialization path include:

— Chicago-based, which has developed a video evaluation platform for advertisers. Clearstream has $6 million in revenues, is profitable and is projecting revenues of $14 million to $15 million for 2014, Hoerr said.

— Innara Health, a Shawnee, Kan.-based medical device company that has placed several dozen neonatal instrument systems in 2013 and is primed for growth in 2014, according to Hoerr.

— ANDalyze Inc., which offers products for testing water contamination using catalytic DNA technologies. The company, with offices in Champaign and Boston, has assigned a worldwide distribution agreement to Hach Co., a major water analysis company. Hoerr said ANDalyze will have a "significant ramp-up" in revenue in 2014. "Hach is a game-changer for them," he said.

— Sabia Inc., a San Diego-based company that makes materials analyzer equipment. Sabia is in the $7 million revenue range and has experienced more than 20 percent revenue growth each of the last two years, Hoerr said.

— Personify, a Chicago-based company with a product that enhances videoconferencing, has had progress on several large commercial accounts, Hoerr said. Personify also has offices in Champaign.

Of the 24 companies in the first fund's portfolio, 20 were "pre-revenue" when Serra Capital invested in them.

Today, "only five are still pre-revenue," Hoerr said. Of the others:

— Nine are generating revenue but have negative cash flow.

— Five are generating revenue and are break-even.

— Three are generating revenue and have positive cash flow.

— One company, Caterva, has made a formal exit, having been merged into Infochimps, which was sold to Computer Sciences Corp. in 2013.

— The remaining company, Striped Sail Ltd., shut down in 2013.

Now that the initial round of funding for Serra Capital II has closed, its principals are reviewing potential investments and making commitments.

Hoerr said commitments have already been made to Champaign-based Spinlight Studio, which has already launched several educational apps for children, and PayStand, a Silicon Valley-based venture that has developed an electronic payments portal.

Other prospective companies under evaluation by Serra Capital II for possible investment include three local firms:

— Champaign-based Eden Park Illumination, a lighting company that makes use of microplasma technology.

—StudyCloud, which developed a social learning platform that enables students and teachers to collaborate on coursework.

— Inprentus, which aims to make ultrahigh-precision diffraction gratings, used for spectral analysis of ultraviolet and X-ray radiation.

Hoerr noted a report in The Atlantic Cities earlier this year that ranked Champaign-Urbana among the top 10 metro areas in the nation for venture capital per 100,000 people.

"It's a point of pride that between IllinoisVentures (an investment firm affiliated with the University of Illinois) and Serra Ventures, we're the driving force behind those numbers," Hoerr said.

"The majority of companies (in our portfolio) are based in Champaign or have a tie to the University of Illinois, and that will continue to be our emphasis going forward," he said. "We enjoy playing a catalytic role in local economic development."

Who's who at Serra Ventures

Tim Hoerr: President and CEO of Serra Ventures; principal in Serra Capital II; former CEO of iCyt Mission Technology and before that, a consulting partner with McGladrey

Dennis Beard: Vice president of Serra Ventures; principal in Serra Capital II; former CEO of Home Recovery Group of Companies; CPA with experience as a controller and chief financial officer

Rob Schultz: Joined Serra Ventures as vice president and Serra Capital II as a principal in December. Previously managing director of IllinoisVentures and a partner of the Illinois Emerging Technologies Fund

C. David Hodge: Became a principal for Serra Capital II in October, in addition to his full-time job as president and CEO of Champaign-based Litania Sports Group

Alyssa Kolb: Marketing and communications director

Eric Wilson: Consultant/research analyst

Sections (2):News, Business
Topics (1):Entrepreneurs

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