The venture capital industry is going through a ton of disruptions lately. One of the better explanations I’ve heard recently of what is going on comes from Duncan Davidson, a managing partner at Bullpen Capital who gave a great talk on the subject at TechCrunch Tokyo last week. I interviewed him backstage on video, where he summarized his views.

Just as there are now legions of “lean startups” which require less capital to build a product, Davidson argues that a “lean finance model” is also needed. “We are in the era of cheap. The whole concept is keep the company as lean as possible until the company validates its market, then you shovel the money in.”

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A group of local investors has started Spokane-based Inland Techstart Fund LLC, a new venture-capital fund that’s expected to invest $600,000 in young companies during the next two to three years.

Scott Broder, Inland Techstart’s chairman, says the company has started looking for investment opportunities and is focusing on what he refers to as seed-stage investments in startups in the software, Internet, energy, and health-care fields.

Seed-stage startups, Broder says, typically are companies that don’t have a steady revenue stream yet and that are working with business a model that’s in flux. Most venture-capital firms are established to look for investments in companies that are farther along, he says.

“Why?” he asks rhetorically. “They don’t want to help run the companies and do the heavy lifting as much as they have to on seed-stage deals.”

As for Inland Techstart and the companies it will target, he adds, “It’s a different model. They certainly are more difficult, and more energy is required.”
At the same time, he says, they require less capital typically, and the potential for returns is greater.

Broder says he envisions the company making investments of $50,000 to $100,000 in up to eight companies over the next few years. In addition to direct investment, he foresees helping each company raise a total of $250,000 to $500,000.

The plan is to invest in Inland Northwest companies, but Broder says Inland Techstart will look at companies elsewhere in the Northwest if good opportunities arise.

Inland Techstart has identified its first potential investment and is performing due-diligence research. Broder says the company expects to make its first investment before the end of this year.

The shareholders in Inland Techstart are 20 investors from the Spokane and Coeur d’Alene areas. Avista Corp., of Spokane, is the only corporation to be a shareholder; the rest are individuals.

Avista spokeswoman Jessie Wuerst says the company’s involvement in the Techstart fund is part of its ongoing effort to participate in activities that will spur economic development throughout its service area.

“This particular fund is one that’s of interest because of its goal to grow technology companies,” Wuerst says. “Technology often is integral to what happens in a utility.”

Inland Techstart’s five-person board of directors consists of entrepreneurs and investors in the fund. Together, those five investors have a 60 percent stake in Inland Techstart.

Broder is one of those five investors. He moved to Coeur d’Alene late last year after leading and organizing the sale of Clifton, N.J.-based CanAm Internet to Boxwood Partners late last year. Prior to that, he served as CEO at Opalis Software Inc., an information-technology software automator that Microsoft Corp. bought in 2009 for a reported $60 million.

“My background is starting small and making them big and successful,” he asserts.

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