*NEWS: Capitalizing on Capital Gains to Help Grow Tech Startups. OC4 Venture Studio Creates Traditional and Non-Traditional Funds…..
How do you channel the vast amount of real estate wealth in OC into tech startups?
You come up with a novel, disruptive way to do it, in a cool, edgy place.
That’s just one of the innovative things that OC4 Venture Studio is doing — in an opportunity zone in Costa Mesa.
An opportunity zone is an area that’s been designated by the Tax Cuts and Jobs Act of 2017 and allows for certain investments in lower-income areas to receive tax advantages.
The founder of the venture studio, Carey Ransom — along with advisor Kyle Kamrooz, a co-founder of Cloudvirga — chose Costa Mesa specifically, to create a vehicle in which capital gains can be invested in an opportunity zone fund.
This particular fund enables those who receive capital gains – profits from the sale of a capital asset like real estate, stocks or bonds – to defer paying taxes on that profit, and instead invest it in the fund.
“We want to attract historically non-participating capital,” Ransom said.
The venture studio also has a traditional VC fund.
The goal is to ultimately seed each fund with $10 million – so $20 million in total.
The venture studio’s overarching mission is to foster entrepreneurial talent, grow startups and create jobs here in OC.
OC Startups Now visited the studio on Friday to talk to Ransom, who serves as president, Kamrooz and Michelle Drucker, who runs the studio as chief of staff.
Ransom has been involved in OC’s innovation ecosystem in a multiplicity of ways and does a podcast, Accelerate OC, which can now be accessed via OC Startups Now’s website.
Ransom is part of the CEO Leadership Alliance of OC, which includes the CEOs of some of the largest companies here. They are seeking ways to “help shape a positive future for OC residents.”
He’s also on the board of OCTANe, which is also very seriously committed to increasing the number of tech jobs in OC, and has been doing so for a considerable amount of time.
OCTANe recently announced its own plans for an incubator to complement its longstanding accelerator, known as LaunchPad, which serves the tech and life sciences sectors.
Ransom said that “dozens of companies are being created here each year, as opposed to hundreds” that could be.
He and Kamrooz, a co-founder of Cloudvirga — thought about core challenges they’ve experienced and that others have experienced. (Cloudvirga is a successful tech startup in OC that’s digitizing the mortgage process. See recent article on this company here.)
Ransom said that “OC has not dramatically changed its approach to early-stage company formation.”
“We have not seen an uptick in the number of companies formed or amount of money raised,” he said. “We’ve seen an increase of energy but not output.”
The Opportunity Zone Fund
“There’s a lot of real estate wealth here in OC,” Ransom said. And that’s precisely what the opportunity zone fund targets. This historically “non-participating capital” which does not typically invest in tech. With a few exceptions, like Grant van Cleve, the chairman of Tech Coast Angels OC, who came from a real estate family and has invested in tech. He’s currently the CEO of Buy It Installed.
The opportunity zone in Costa Mesa is one of several in OC. The opportunity zone fund is one of only a handful in the entire country, Ransom said.
The VC Fund
There’s also a more traditional venture fund, OC4 Venture Fund 1.
This venture fund has already made three investments. One is in Cheese, a mobile consumer bank app for international students. The fund invested approximately $100,000 in Cheese. Co-investors included Amplify.LA, Idea Lab in Pasadena and Mucker Capital in Santa Monica. Erik Rannala, a co-founder and managing partner at Mucker Capital, lives in OC.
Future investments will be in the $250,000 to $750,000 range.
How the Venture Studio Itself Works
There are four components to the studio and they all start with the letter “C.” Hence the number 4 in the title of OC4 Venture Studio.
– collisions (with the “right” talent)
Ransom is the head coach. He and his advisors “curate” other coaches, trying to find those mentors that are best suited to each startup they’re working with.
What do they look for in these coaches?
Those that are familiar with AI, UI (user interface), along with those who have their pulse on the OC tech scene.
In addition to capital, the studio wants to provide everything new companies need, like accounting, HR and legal services on the foundational side and data science, engineers and marketing on the strategic side.
“We have the full scope of services,” Ransom said. “We want to create a higher likelihood that companies will succeed.”
Conversely, he also wants to allow entrepreneurs to fail in a “safe” space that encourages new pursuits.
“A lot of OC entrepreneurs hang on with dear life to their companies for longer than they should,” Ransom said. “When you’re part of a community, it’s more acceptable (to fail), because now you have a place to go back to.”
Besides the opportunity zone in Costa Mesa, the city also is more “edgy” and “cool” than other places in OC, Ransom said. The venture studio is on Placentia Avenue – and has the potential to transform this area into a tech mecca.
Ransom said he may eventually expand into other opportunity zones in the county.
“The goal is to sprout ingenuity in entrepreneurship,” Ransom said. “And to help software companies grow and become more profitable. And, make meaningful products.”
“Money is not the catalyst” for the venture studio, Ransom said. “Enhancing people’s lives is.”
And that’s critical to Ransom because he has three kids and “I want to contribute to making my kids want to stay in OC,” he said.
That being said, the expensive cost of living here in OC, along with the concentration of low-paying retail and resort jobs, typically drive young college grads interested in tech to more urban areas, like Austin, Seattle and Boston.
Another goal of the studio is to motivate tech companies to move to OC, along the lines of what EnvisionYourOC is trying to do. This effort, by the CEO Leadership Alliance of OC, was created to showcase the opportunities available in OC for career, enterprise and lifestyle.
Ransom said he’s “bullish” on OC and has already had some discussions with entrepreneurs who’ve expressed initial interest in moving their companies to OC.