Venturing Along Byways and Poway
When he played keyboards for the hard-rocking group Baton Rouge, David Cremin and his big-haired bandmates reached the charts with the song “Walks Like a Woman.â€
That was in 1989. “I lived a dream,†Cremin said, recalling three tours and an MTV appearance before the band fired him over a clash in direction.
Now 44, Cremin is a Santa Barbara-based venture capitalist helping a far-flung mix of Californians pursue dreams of their own, but he sounds as stoked as a budding rocker.
Describing OnTech Delaware Inc., a Poway, Calif., company he backed that makes self-heating food containers, Cremin said: “If the consumer votes yes, it’s going to make the microwave obsolete. This is a shift in how people eat and drink, and I love that.â€
Cremin and his Sacramento-based partner, Scott Lenet, have bought stakes in seven emerging companies through their $25-million DFJ Frontier Fund. The 2-year-old fund is far removed from Silicon Valley’s Sand Hill Road -- center of the venture capital universe and home of Frontier’s better-known affiliate, Draper Fisher Jurvetson -- but Cremin and Lenet believe that gives them an edge.
Cremin, who traverses California in his red Mini Cooper or aboard Southwest Airlines, says scouring the state’s “underserved†areas away from Silicon Valley helps Frontier find creative entrepreneurs with promising technologies.
“There are parts of the Central Coast and the Central Valley where you’ve got a fabulous education base and a fabulous workforce, but there is less access to capital,†Cremin said. “That’s our unique opportunity.â€
The strategy remains to be proved because DFJ Frontier is still an infant in the venture capital industry, in which returns are usually measured over a 10-year horizon.
Looking for Big Payoffs
A Stanford University engineering graduate, Cremin launched a digital music company called Vis-a-Vis Entertainment in the 1990s after getting dumped by Baton Rouge. He became a venture investor in 1998 after selling the assets of Vis-a-Vis Entertainment to BMG Music Publishing.
Venture capitalists buy stakes in various young companies, knowing that most will probably fail but that some can provide big payoffs if they eventually go public through an initial stock offering or if they get acquired by a larger rival.
Silicon Valley still dominates the industry. In the third quarter, companies there lured $1.5 billion in capital, or 73% of the California total and 33% of the U.S. total, according to the MoneyTree survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Assn.
DFJ Frontier’s portfolio includes Digitalpath Networks, a Chico, Calif., firm specializing in wireless Internet access; CrystalVoice Communications of Santa Barbara, which is developing voice over Internet technology; and Lipomics Technologies Inc. of Sacramento, which is focusing on personalized medicine.
The fund also is backing ProLacta BioScience Inc., a Pomona company creating hospital nutritional products; Santa Cruz Networks Inc. of Santa Cruz, which is developing desktop video telephony; and Intematix Inc., a material sciences firm based in Moraga, east of San Francisco.
DFJ Frontier, which gets about 1,000 pitches a year, meets with 200 companies and ends up funding five or so, allotting $300,000 to $500,000 per investment.
It’s a three-way partnership among Cremin, Lenet and Draper Fisher Jurvetson. The partners raised the original $25 million in capital commitments from wealthy individuals and institutions, including the California Public Employees’ Retirement System, in 2003.
The connection between Cremin and Draper Fisher Jurvetson goes back to when that firm’s founder and managing director, Tim Draper, helped launch Vis-a-Vis Entertainment.
Coming to Store Shelves
Although San Diego County has attracted a flood of venture capital in recent years, most of the interest has been in the region’s biotech industry. The county’s Poway area is not thought of as a tech hub, nor is food packaging the type of business that excites most venture capitalists.
“Most traditional VCs like to invest in far-off technologies like nanotech,†said Jonathan Weisz, chief executive of OnTech, the developer of self-heating technology. “This is different. This is a product that will be on retail shelves.â€
Several venture firms rejected OnTech out of hand this year when it was raising $5 million to gear up production, Weisz said, but Cremin and Lenet not only were eager to visit the company but also introduced it to Global Retail Partners, the Los Angeles- and London-based venture firm that ended up leading the round.
OnTech, whose cans use an inner canister filled with calcium oxide to heat beverages upon activation, is ready to introduce the product commercially, Weisz said. WP Beverage Partners has ordered the cans for a new lineup of Wolfgang Puck coffee drinks to be sold in Kroger Co. stores starting in January. OnTech will become profitable in the first quarter, Weisz said.
Whether Cremin, Lenet and their DFJ Frontier Fund limited partners profit in the long haul remains to be seen. Still, Cremin called his business more reliable than rock ‘n’ roll.
“No one else can make self-heating food packaging that really works,†he said. “But a lot of people can write songs and record them, and how can you tell who’s going to sell?â€
