Though only 41, J. Christopher Lewis is already a veteran venture capitalist, having put in 16 years in the business, first with Riordan, Freeman & Spogli (now disbanded), and then with Riordan, Lewis & Haden, in downtown Los Angeles.
Lewis, formerly a world-ranked tennis player, is known for his intuition in making deals in particular in picking managements as much as companies. And once he gets to know management sometimes over a period of years he will then move quickly to invest, if asked.
Lewis says his favorite deal so far is his backing of Carson-based Store of Knowledge Inc. The company makes educational games and products.
A native Angeleno who at long last is learning to surf, Lewis is also trustee of a blind trust he manages and administrates on behalf of Mayor Richard Riordan, himself a legendary investor and venture capitalist.
Q: Among business owners who want to expand, there is sometimes trepidation about venture capitalists. Why so?
A: People need to ask, “Why do we need venture capitalists?” We exist because there is really no other source of funds, unless you have family or friends, and that’s not enough, given the amount of money it takes to start up a company. Banks won’t lend you money. Maybe you have heard the term, “vulture capitalists.” (Because of the large equity stakes many venture capitalists demand.) But think about the risks venture capitalist take. They are huge. And we give very beneficial advice to young companies, help arrange contacts.
Q: In some circles, there is talk about “too much money chasing too few deals.” What’s your take on this?
A: I don’t think that is true. If that were the case, the returns in venture capital would be much lower. As long as the returns are healthy, and the dollars are being placed in well-founded ideas and businesses, I don’t think you can say there is too much money chasing too few deals.
Q: What is the difference between our venture capital community and the Silicon Valley community?
A: Up there, it is a lot more collegial. It is not as spread out. At just one address, 3000 Sand Hill Road in Menlo Park, there are probably more venture capital firms than in all of Los Angeles.
Q: Do venture capitalists socialize with each other a lot more up there? I hear stories about people in Silicon Valley walking into a bar and making deal, or hatching a plan on the tennis court.
A: I don’t think (socializing) exists here. When I meet other venture capitalists, it is over the phone, or when we are co-investing on a deal. There really isn’t a place (in Los Angeles) where venture capitalists meet. We are all so spread out.
Q: What about LAVA (Los Angeles Venture Association)?
A: LAVA helps, it gets venture firms together. They are making an effort to get people together, to show companies to venture capitalists.
Q: Is there someone in Los Angeles recognized as the premier venture capitalist?
A: Not really. There are many successful venture capitalists. Anyone in business for more than 15 years is probably doing something right. But you can’t really say somebody is No. 1.
Q: What kind of equity stake do you like to take (in a deal)?
A: It can be a majority or a minority. The people are more important. We prefer a majority. We also prefer to be the sole institutional owner.
Q: How do you decide what to buy?
A: Well, of course, growth opportunities, but also management, people. Then, there has to be an easily identifiable market for the good or service. It’s easy to fall in love with technology. I think that happened with lasers for years, people backed lasers, but the actual commercial applications were years in the making. We tend to stay in products or services sold to businesses. You can understand why a business will buy a product or service: it will save money, or gain sales. There is a financial reason. But consumer preferences are tricky.
Q: Why aren’t there more venture capital firms in Los Angeles you are smiling. Are you glad they are not here?
A: That’s the reason I’m here. I’m glad the rest of them aren’t.
Q: But why aren’t they?
A: There’s no question that if you think about venture capital, you think about high-tech, and then you think about the Silicon Valley they have the infrastructure, an entrepreneurial community. These entrepreneurial companies breed each other once you work at one such company, you want to start your own. Also, (Silicon Valley) had Hewlett Packard, and Fairchild Semiconductor, and what some call “mother companies,” that spawn lots of littler start-ups.
In Southern California we do not have that concentration of companies, and not quite the culture. We had aerospace and Hollywood, and those aren’t venture capital industries. We haven’t had the mother companies.
Q: Is there an industry we could spawn, with venture capital?
A: I think it is happening with multimedia. All this software, the games, the CDs. At the end of the day, it is content. And with Hollywood, we are the content providers. Also, we have now both USC and UCLA with entrepreneur programs, and I think over time that is going to create industries here. But there are firms in San Francisco and back East that are also (providing content).
Q: What could L.A.-area cities and the county do to promote venture capital becoming more active here?
A: No. 1 is lower tax rates. If you look at history, there is an inverse comparison between investment and tax rates. But you want to incent people to take risks. You might have development grants, or subsidies for hiring workers.
Q: With house prices now so high in Northern California, will that play to our advantage?
A: Yes. In the past, that has been a negative. It’s been hard to attract talent here, young engineers, programmers. But it is much more affordable now.
Q: What do you do in a typical day?
A: A lot of it is unproductive. I look at deals I don’t want to do.
Q: Do you talk to the companies in your portfolio every day, monthly? How often?
A: If a company is doing great, it might be once a month. If things aren’t working out, it might be twice a day. We might help bring in financial advisers, or marketing help. If they are doing well, we stay out of the picture. Fortunately, now they are doing well.