IVCA Q & A: Open Prairie Ventures Managing Partner Jim Schultz
CHICAGO, IL, June 15: In addition to being a founder and managing partner at Open Prairie Ventures, Jim Schultz is also a 20-year veteran of early stage investing.
He sat down for an interview with the IVCA to cover a range of topics including the restrictions of small business investment licensing, the importance of the right educational background and Open Prairie’s roots as a Midwest company.
IVCA: In 2006, you and three others made a deal in essence to buy out the license of Open Prairie as a small business investment company (SBIC). How important was that move?
Jim Schultz: While the SBA Participating Security Program was most helpful in launching Open Prairie Ventures in 1999, it became apparent to the Open Prairie Ventures team that we had a limited partner in our fund with significant issues. Hence, we elected to proactively approach the SBA with an offer to return their capital along with a portion of their accrued “profit participation”.
This turned out to be a true win-win outcome that resulted in both parties achieving a successful exit. The SBA got a 2006 return of capital and the partners in Open Prairie got a 2007 IPO liquidity event.
IVCA: As an early stage venture capital firm investing in technology companies, what criteria do you use to evaluate management teams in potential portfolio companies?
JS: In selecting technology companies in which to invest, Open Prairie Ventures considers the team dynamics and reviews the prior history together.
Newly organized management teams have to present a strong case on their ability to collaborate in a new venture to warrant our investment. At the same time, a group who has been together in the trenches provides for a more compelling consideration for investment.
A significant portion of our due diligence process is dedicated to in-depth discussions with management in an effort to observe the cohesive nature of the team as well as their capacity to guide the company through future stages of growth.
Through our interactions with management, we look for attributes such as integrity, honesty and a sense of vision and ability to execute. We also look for self-confidence and a willingness to take risks, the ability to adapt to situations and solve problems and their efficient and effective use of resources.
IVCA: You have been an active investor in a diverse portfolio of companies. Which type of technology industry category do you see having the greatest growth potential in the next five years? Why?
JS: Open Prairie Ventures believes the greatest opportunities exist in the agriculture technology field with particular emphasis in the input side of the segment.
Current projections and experts contend that the food supply will need to double over the next 30 years to feed the ever-increasing demands from the global population. It’s expected that this production of food will be completed with a 70 percent increase in technology and will be accomplished on 1/32nd of the land mass (as compared to 1/20th of the land mass today).
The input side of the business is most compelling as we contemplate how to drive better outputs.
In other words, we are interested in improving crop yields. We are agnostic as to how the crop is eventually used in the supply chain. Being a Midwest-based early stage venture fund, Open Prairie Ventures is perfectly positioned to build a solid portfolio of investment that focuses on this powerful global dynamic.
IVCA: Given the problematic economic circumstances in the last two quarters, what signs of optimism do you see in the VC marketplace?
JS: In the past few weeks, we have seen a handful of IPOs sponsored by venture funds achieve some noteworthy results.
Further, we are seeing signs of life on the M&A side with a few inbound inquiries that may prove to be promising. In short, however, patience for 2009 will be the hallmark attitude that will be necessary to achieve the long-term returns that investors aspire to once again achieve.
IVCA: Your educational background includes a law degree and an M.B.A. What elements of that background have been most advantageous in the type of venture capital work that you do?
JS: The graduate degrees provide for a nice framing opportunity. However, the true elements of a successful education are not necessarily from the academic experiences.
Both degrees from law school and business school have provided immeasurable benefits in my career. At the same time, I am convinced that the businesses I started and operated have made me more agile and provided great perspective toward successful venture capital investing.
Walking in the shoes of the entrepreneur and having empathy for their issues provides an engaging and dynamic attribute that’s much more useful in driving successful relationships and investment outcomes.
IVCA: In your experience, what business models have been most efficient in the development of technology industries? Is there a specific example you can cite?
JS: Technologies that are developed in conjunction with accelerator funds or angel funds seem to provide the most fertile ground for investment consideration for Open Prairie Ventures. When we started our fund in 1999, there were virtually no such entities in existence in our region.
Over the past five years, we have seen an explosion of angel groups and accelerator funds develop that now provide the initial seed capital to launch an idea and to mitigate early risks that are present with start-up companies.
IVCA: Open Prairie’s portfolio includes medical, scientific and IT companies. Is there a common thread through these different types of companies that made them attractive to your capital fund?
JS: The common thread between our strategic investment focus on agriculture technologies and medical devices is “convergence”. We are seeing cross-development opportunities that provide for broader channel expansion as we consider technologies that may be used for human, animal and crop purposes.
A perfect example of this is our investment in Champaign, Ill.-based iCyt Mission Technologies, which has developed a flow-cytometry application for human cell sorting that also has an animal husbandry application.
The ability to find multiple applications from a technology with a laser-focus development strategy is a perspective that provides for a broader market reach and potentially reduces some of the risk of early stage investing.
IVCA: How does membership in the IVCA expand your reach in the venture capital community?
JS: The ability to collaborate with other early stage members through networking opportunities is an important consideration for our involvement with IVCA.
IVCA: With offices in Illinois and Kansas City, Open Prairie is firmly entrenched in the Midwest. What advantages do these locations have for your business?
JS: The Open Prairie Ventures strategy encompasses an active role with the entrepreneur. Hence, we aspire to invest in companies within a 250-mile radius of our offices. With office in Illinois and Kansas City, we expand our reach and have opportunity to explore investments that tie to our eco-center strategies of focusing on medical devices and agriculture technologies that are prolific in this region.
Top of Page