Avalon’s Kinsella Says San Diego, Like Any Robust Startup Ecosystem, Needs Local VCs

Xconomy San Diego — 

My favorite journalistic description of Avalon Ventures founder Kevin Kinsella came from former San Diego Union-Tribune reporter Penni Crabtree, who wrote in 2005: “He has an exacting intelligence, a steely competitiveness, and a passion for big ideas. On the flip side, those who know him say Kinsella tends to lose interest when the grunt work begins, sometimes makes an indifferent team player and can hold a grudge when crossed or imposed upon.

” ‘Guilty,’ said Kinsella, after taking a minute to consider the list of virtues and foibles.”

That description only does partial justice, though, to Kinsella’s broader Renaissance-like interests, which includes his passion for theater—he was a principal backer for the Broadway musical Jersey Boys and related productions—collecting art, and growing cabernet grapes in Healdsburg, CA.

Kinsella tells me he also has acquired what’s known as “The Copley Library,” the office building in La Jolla that previously housed the corporate headquarters of the Copley Press, the former longtime publisher of the San Diego Union-Tribune (and other newspapers) and the former home of the Copley family’s private collection of artwork and historic documents. (Sotheby’s is currently offering the Copley collection at auction.) Kinsella says he is now overseeing some modest improvements and remodeling, and plans to move Avalon into the building this summer.

At a time when many of San Diego’s homegrown venture capital firms seem more like a setting sun, Kinsella and the firm he founded 27 years ago have been ascendant. As we have recently reported, Avalon’s investment in San Francisco-based Zynga ranks among the firm’s best investments, and Avalon is now raising its ninth venture fund, with a targeted range between $150 million and $200 million.

Kinsella specializes in funding early stage life sciences companies formed to develop promising innovations that he has often identified himself, and as Avalon’s founding partner, he’s had a direct or indirect role in funding more than 75 startups. He was the founding chairman of Aurora Biosciences, which was started in 1995 and was acquired by Cambridge, MA-based Vertex Pharmaceuticals in 2001 for $592 million. He also invested in Illumina (NASDAQ: ILMN), Onyx Pharmaceuticals (NASDAQ: ONXX), Sequana Therapeutics (now part of Celera Genomics), and Pharmacopeia, (acquired by Ligand Pharmaceuticals). Among his latest deals are investments in Avelas, which Luke recently profiled, AnaptysBio, Amira, InCode, and Sirion.

Yet Kinsella’s star wasn’t always shining so brightly. His first fund was just $400,000, raised in 1983 from two friends, and he basically labored alone for years in the vineyards of life sciences venture capital as he slowly gained credibility and recognition. For many of the past 25 years, in fact, the two biggest players in San Diego’s life sciences venture community were Enterprise Partners Venture Capital and Forward Ventures. Yet neither firm has raised a new fund in years, and both have significantly curtailed their operations—along with several other homegrown VCs.

So how does Kinsella view the situation?

“I think it’s inarguable fact that there are a number of venture funds that are just not continuing in town, although I don’t want to necessarily say who they are,” Kinsella says, in deference to the sensitivities of his fellow San Diego VCs. “There’s a certain diminution of investable capital through various fronts here.”

But is it important to San Diego’s startup community to have homegrown VCs?

“I think it is, because a proper ecosystem that is fertile for startup companies requires local venture capital. I frankly can’t think of an example of a robust, startup-friendly ecosystem anywhere else in the country, let alone the world, where they don’t have a significant contingent of local venture funds.”

Kinsella says the evaporation of local venture capital, however, has not been a significant issue for Avalon Ventures. “From our standpoint, we are pretty autarchic at the early stages, meaning we don’t really feel the need for validation from our confreres in the venture business for us to stick our toe in the water. We’re more than happy to invest and we like to be very capital-efficient, so I would just as soon peel off a few hundred thousand, a half a million, whatever, serially in furtherance of an opportunity rather than participate in some hyped up, $30 million series A deal where we’re tranched…We haven’t participated in one of those type of deals in probably four or five years, and we’re very happy with the way we are proceeding.”

Although the lack of local venture capital hasn’t had much impact on Avalon itself, Kinsella says it would help San Diego’s innovation economy if there were more local capital in the region. With more local venture capital, Kinsella says, “even if we don’t invest in something, somebody else will. Hopefully it will be successful. It will increase the branding recognition of San Diego County as a hotspot for entrepreneurs in whatever field.”

More venture investments create more startups, which also helps to create a broader and deeper community of entrepreneurs, Kinsella says. “It creates a pool of skilled individuals who have been trained to certain levels of competence with other peoples’ money. Then there’s a big mulching that takes place…Many people tend to stay with a startup for three to five years, then they ring the cash register and go and look for something else.”

In other words, it’s a great entrepreneurial circle of life. But it’s a cycle that needs venture capital—local venture capital—to remember the players and innovations, and to keep the great wheels turning.

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One response to “Avalon’s Kinsella Says San Diego, Like Any Robust Startup Ecosystem, Needs Local VCs”

  1. Good article. Confirms what we all know. Lots of good mechanics and car parts (metaphorically speaking), but no gas for the tank.

    Avalon appears to have started in bootstrap mode almost 3 decades ago with $400,000. Is this the model for seeding new local funds? I’d be interested in understanding if most of Avalon’s deals were local or if a large portion of the capital was invested outside of the San Diego area.

    Also, I hear of friction related to encroachment from outside capital coming into the San Diego market to fund our local entrepreneurs. I don’t think the friction is from external funds, but that the startups leave the San Diego area as a condition of funding (often heading to the Bay Area). Is this a real problem? If so, what can we do to become attractive as a local venue to fund businesses that don’t have to move?

    Also, is angel / venture capital as local as it used to be? …or are seed stage deals becoming more independent of geography? …or have they been that way, but not very noticeable? I know many wealthy San Diegans that apply their wealth across the country and globe, even as we often hear that “venture is local”.

    Anyway, great article, and I’m glad to see Avalon back in the market for yet another fund, even if some of the former perennial powers are dissipating.