(gentle music) - Sacramento has been trying to shed its reputation as solely a government town for decades.

Enter the Growth Factory, a $14 million homegrown accelerator and venture fund betting that the region can launch and keep the next wave of high-growth companies.

We're joined by serial entrepreneur Mark Haney along with early Growth Factory investor James Shelby, to explore how this backyard-driven model is rewriting the rule book on capital, coaching, and community.

Mark, you're a serial entrepreneur.

You have scaled, raised, and cashed out time and time again.

Why take on creating a model to help scale and bring other young companies to whatever it is, is their vision of the future?

- Well, there's definitely a lot of reasons why we started the Growth Factory.

I can tell you this story, but first of all, I wanna say I'm really honored to be on the show.

I had you on my show about 10 years ago and kept figuring that you would call me and say, "Hey, you wanna come on your show?"

And you never did, so today- - Well, we had to wait until we built the whole studio for you.

- Oh, okay, this is beautiful and I'm honored to be here, especially with James.

So appreciate being on the show.

But we've done, we did it for a lot of reasons.

I started my show to share stories of entrepreneurship and winning in Sacramento just to highlight what was going on in Sacramento and hopefully inspire the next, the up and comers, that led to angel investing.

And then that led to the start of the Growth Factory.

And so one of the things about the Growth Factory that's different is we are building something called the Backyard Advantage, the most connected community in the world for local entrepreneurs.

And it's based around this culture of love, helping one another.

And I, what happened from all the angel investing I was doing in the show is discovering that people love Sacramento.

I'm interviewing Sacramento people and we're all trying to figure out how to help.

So that's really what the Growth Factory is about.

We have 100 plus investors, all care about Sacramento.

We have partnerships with many of the corporations around town.

They all care about Sacramento.

We have mentors that all care about Sacramento.

So we're all coming in as a team and helping the local startups because as entrepreneurs succeed, we all succeed.

They're just good for driving economic growth and jobs.

- James, you're a business guy and you have a career, particularly in finance.

Getting into VC investing and sort of seed capital for budding entrepreneurs, how did you get attracted and pulled into all this?

- Yeah, it still goes with my finance background.

You know, looking at, writing investments for businesses and companies.

And so, you know, I work for larger businesses here in the region, for Intel and for Solidigm.

And there's something really fun about helping small businesses grow and looking at the impact and change it have for the region.

And so that's really interested me, was using more of my finance background to help some of these small businesses grow.

That's what got me interested in wanting to invest and be an entrepreneur.

- And that's interesting, Mark, because more than just providing capital, you really are building and providing community.

You've done your show now for how many years?

- For about 10 years, since 2015.

- For about 10 years.

What are the commonalities that entrepreneurs face that where it is, that the Growth Factory is the solution that they've been missing out on?

- Well, generally entrepreneurs, I call 'em the heroes of the American economy.

They take risk, they make sacrifice, they create opportunity, and they figure out a way to change the world.

And so they're really a very important part of the economy.

They drive 70% of the jobs out there as these small and medium sized businesses.

So they're hugely important.

And the community aspect I think can be really important, especially for an early stage entrepreneurs because nobody builds a truly great company alone.

And so many times you need people as a sounding board or to help make connections.

And so really the Growth Factory comes in, and we help engineer wins.

Between our portfolio founders, our investors, and the other people in the backyard, we know a lot of doors to get opened for early stage companies who are looking to find talent, who are looking for customers, who are looking for more investment.

We're helping these founders to get traction in their business, grow a little bit so they can attract these people and the doors can start swinging open for them.

- James, your career is in finance, but it's particularly been centered in tech.

When you look at the region, now not just as a professional in the tech industry, but now as an investor, what's the good news that most people don't realize about Sacramento as a place to center a business and to grow a business?

- Yeah, I think there is a couple things that are really advantageous to Sacramento.

One is our location.

So really close to the Bay Area.

So you can still, if you had a, particularly a tech business, you could still be really close to some of the really big players in the tech industry out of Sacramento.

I think the cost of living, you compare this to the Bay Area, is much more advantageous here.

And I think the thing that people really miss out on is our schools, particularly- - Really?

- And UC Davis is one of the top public schools in the country.

Sac State is a great school as well.

So there's a lot of talent that comes from this region.

So we've been seeing at the macro level, a lot of tech companies are starting to have second centers here in this region.

So it's starting to bubble as another small tech hub.

- You didn't mention Los Rios, but we recently had Brian King, who is the chancellor for Los Rios, on the show.

And he had shared, he said one of their big focuses was being a pipeline for those emerging companies, and that that partnership, you talk about the education, and it would seem that Sacramento does have between our UC, our State, our community college system, including Sierra College, because don't ever wanna leave them out there in your backyard.

- Yes.

- We do have some great educational assets.

Is the world hearing about that?

And the reason I'm asking you, Mark, is because maybe 15 years ago, or 14, or 15 years ago, Jack Crawford, another person involved in the VC field here locally, came on this show, sat at this table.

He says, "You know, the thing that we've gotta get to is where it is that every time somebody invests into one of our companies, they don't say, hey, as a price for getting this early stage venture capital, you gotta move within, you know, five miles of Sandhill Road up in San Jose."

Is that still there?

Is it changing?

- That's changed quite a bit.

Now, I think, I think COVID helped with that at some level because people have found a way to do business not face to face.

And so they, I think, the people in Sandhill Road decided that they want to invest wherever the right founders are.

And also, one of the things I think that kind of gets underappreciated is the support system that a founder has in their own backyard, whether it be their family, their close friends, the people maybe they went to college with.

Those people are there in the backyard, which are really valuable.

If you pick up and leave to go somewhere else, you lose some of that support system.

And I think people are appreciating that.

One of the portfolio companies, the Growth Factory got invested into by a16z, and they've, you know, just three or four years ago, they had no employees.

Now they've got 40, 50 employees.

- Oh wow.

- Drawing money from what I call other people's money, OPM, from other places into Sacramento.

So these investments are coming into Sacramento.

So the Growth Factory writes a really small check in the very early stages, where they have maybe more of an idea, or a prototype, or very little revenue.

And then we help grow the company enough to attract that outside capital into Sacramento.

And that only helps Sacramento.

- How did you become an investor in the first place, Jamie?

You know, give us kind of like your intro or entree into this world.

- Yes.

I've always wanted to be an investor.

It started when the Urban League had an event years ago when we first were getting ready to have golden- - And we should mention your dad was the legendary James Shelby the elder- - Yes.

- Who was the head of the Urban League for eons.

- Yes, he has.

Over 20 years.

- Over 20 years.

- So he brought in one of his colleagues from Denver who became the mayor of Denver, Michael Hancock.

And when he was in town, he was just discussing about how the economic, everything changed the economics in Denver once they build their arena downtown.

And he was suggesting to everyone there, "Hey, this is gonna be a similar big economic engine coming to the region."

Try to find, you know, businesses that are going there.

And so the first one that I connected to was Fizz.

And so I met Raymond and we- - Tell me a little bit about Fizz.

- Yeah, so Fizz is a champagne bar, it's right across from the Golden 1 arena.

It's been open since 20, roughly 2018.

And that was my first investment, and- - Full disclosure, everybody, I didn't know he was gonna bring it up, but I was an investor in that project as well, so yeah.

- And the thing that happened was once you invested in one business, more opportunities started coming to me.

And so as we were celebrating our opening of Fizz, then another investor locally, Brandon Robinson introduced me to his, he was opening up Tipsy Putt.

And so that's when I met Mark and some other investors in region.

- What is Tipsy Putt?

- So Tipsy Putt is a pub that shares a wall with the Kings and has indoor putting, but also other games.

It's a great local meeting area.

And so then once that opportunity came, more opportunities come.

So if you ask me what advice would I'd give people, is find that first investment because all my opportunities spun off of this one smaller investment and they just get, you know, bigger and bigger over time.

But you start to meet more people.

And so that's how I got into, met Mark and then when the opportunity came, heard about what he was doing with the Backyard Advantage and with the Growth Factory, I wanted to be a part of that.

- Talk to us more about this Backyard Advantage and what it means to the founders that you work with.

- Well, one of the things I think if we were talking about Sacramento specifically, and you may have heard this before, is that in some ways we're kinda like a Midwestern town where we're not a gigantic city.

We're like a bigger city that really everybody kind of knows each other, and that's what the Backyard is.

Obviously, we talked about having the backyard party at my house where you get the leaders of Sacramento all get together, roll up their sleeves and help each other.

And I don't know whether you find that in the really big cities.

So in a way, there's an advantage in being a smaller player with a lot of potential.

We still have a lot of the attributes that are really helpful in building out a business.

So the Backyard really, I just saw that as like untapped potential.

So, you know, I always, maybe being a smaller guy trying to play sports and things like that, I always needed an advantage.

So kept thinking about this term keiretsu, which I had a family of security companies, and the presidents of all the companies, we all loved each other.

And that love was a real advantage for growing this group of companies pretty significantly.

I thought, well, what if we could do that same thing with just local companies where we get all the founders to love each other, the investors to all love each other?

And that love more of a verb, is like showing love to one another, and started sharing that message and people said, "Okay, yeah, I wanna help."

And now we have significant players that are, really leaders of Sacramento are all part of this advantage and they really care about it.

And it's a way to own a piece of Sacramento really.

I mean the Sacramento, there's not any really a Sacramento stock market.

We could invest into a couple of public companies, but how do you invest into the startups?

Well, you can do it through an entity like the Growth Factory.

- Tell us about, give us the tale of the tape, what's gone well, give us a couple success stories, and what hasn't gone so well.

- Yeah, I think we've learned a lot for sure.

We are, our fund is in the, I think, 95th percentile, 90th percentile in terms of performance.

And a lot of that is based upon, you know, these companies going up in value and raising more money.

We have had one exit, we've been doing it a little over three years.

We just, we had a great story where a guy named Derek Chase, he built a solar farm robot company.

In other words, he come to me with an idea.

We were the first check in, and I knew him 'cause he was on my show that first year and had built a solar servicing company.

And he said, "I've got this idea for a robot that goes around and checks on solar farms so that people don't have to drive hundreds of miles out there to write the report on the solar, how the solars are doing.

And what if we just had a robot out there that kept track of everything?

So we had real time information, had fed back the headquarters, so we knew when to send a maintenance truck out there to fix it.

We knew that, you know, everything was working."

Well, Derek, he takes that idea, our check, and then eventually, as he grew, more checks coming in and he built a significant company.

It just sold for six to 10 times, you know, what he started it for.

So he really had a great exit and that really creates, besides creating the jobs, which is huge, that success breeds success, because Derek, after selling his other company, he invested in the Growth Factory.

He's also one of our limited partners in the Growth Factory.

And then we took some money and invested into his new company.

And it kind of, what goes around comes around.

Now you have millionaires getting created out of these startups that, and the money stays here in Sacramento, which is a great economic driver.

And that wealth creation is, it's just great for everybody because when an entrepreneur succeeds, he typically is very generous.

We talked about like Denios and some of these kind of people to get really successful and they put a lot more money back into the community, sponsoring things.

It's really good for society.

So that's one of our success stories.

We have another company called Streamline who has a software product for municipalities, and they've now got like 50 employees and have grown from- - Wow.

- Nothing to 50 employees.

So they're happening all over.

I talked about Azra Games, the one that Mark Otero, he built a company and sold it to EA Sports.

And so when he decided he wanted to build this gaming company out of here, we said, "Sure."

We back the founder.

You know, a lot of people will back the idea.

That's a big piece of it, but we wanna back people that we believe will succeed.

And so when we back Mark Otero, he's just a player in the gaming space, if you will, and he's built a heck of a company so far.

- You know, it's interesting when Mark says, "We back the founder," a lot of people think in venture capital that it's always about solely the idea.

But it does seem that success breeds success.

And much like you tell your story about how one investment led to others and being invited to participate in other things, that when someone establishes a reputation and a track record, it makes it easier for a guy like you to want to be involved.

Is that true?

- Oh, absolutely.

That, you know, when I first got connected to the Growth Factor, it was because the person that I trusted, Brandon Robinson, said, "Hey, you need to come to this event."

And usually you don't get a call.

when you get a call that says you should be here, for the people you really respect, you show up.

And so that's exactly how it worked.

- The thing that is also interesting though is in terms of building out this ecosystem, one of the charges on Sacramento is, is that efforts like the Growth Factory are happening, but they tend to be islands, and that because we have such an overwhelming government, and I would also say nonprofit focus within this region, that we're not providing as a region enough infrastructure support.

Now, there are things like we've got the Carlsen Center for Entrepreneurship that Cameron Law runs out at Sac State.

We have my alma mater, the Sacramento Entrepreneurship Academy, which was, just for the record, the first entrepreneurship program in the Sacramento region, 1984, okay?

- Wow.

- Before people could pronounce the word, okay?

But that we as a region need to do more.

And I'd be curious, Mark, on your thoughts on what more should this region be doing to support efforts like Growth Factory?

- Well, thank you.

I appreciate you asking that.

And I think it's a brick by brick kind of scenario.

So we stand on the shoulders of the people who launched the SEA program and, you know, Dale Carlsen with the, I really like the culture that is being created.

Instead of these islands not being attached to one another, there's a culture that has been developed and I give people like Dale and what we're doing at the Growth Factory, Dale Carlsen and the Carlsen Center at Sac State, Cameron Law- - Who was the former CEO of Sleep Train?

- Yes, and I'm on the advisory board there at Carlsen Center.

And one of the things about Carlsen Center is they're not saying this is just for Sac State, this is for the entire region.

And Aggie Square going up.

That's not just for UC Davis, that's gonna be enormously helpful for the entire region when it comes to health and life sciences, the Growth Factory.

You mentioned Jack Crawford, I'm an investor into Impact Venture Capital.

Moneta Ventures, I'm an investor into Moneta.

And there's a lot of cross-pollination that happens, I'd say, at the leadership level of these organizations.

And it just takes a little bit of time to get it glued together and tied together.

But I think GSEC being right at the heart of all of this, driving economic growth for the entire region, I think when Barry Broome came in and helped launch GSEC, you saw what happened with all the municipalities and the corporations around town.

And they're working together for the entire region.

So that we don't have these disparate entities trying to just build on their own as islands.

- Okay, so all of that is exciting and works for me.

But I guess, James, where I'd like to come to is you are involved in Sacramento and serving on a number of nonprofit boards, boards that are, you know, facing the community.

And sometimes it seems like we live in two Sacramento regions.

So I hear about all this connectivity that Mark is speaking about, but on the other hand, on the more sort of like traditional Sacramento side that is historically government focused and nonprofit focused, I don't feel like there is a lot of cross-pollination that way.

Am I wrong about that?

- Yeah, clearly not enough.

Your other conversation, we talked about the impact of having all the founders and the entrepreneurs here.

One of the things we struggle with, particularly on nonprofits is that we can't do the same thing that San Francisco can do.

We need to raise big, you know, money for the arts or to improve things in our city.

It's harder to do that because we don't have companies here.

So that's one of the things I think we lack here because we're so dependent on government.

Which is why we need to have these investors.

We need to have more of these companies here so that when we wanna raise things, we want to have these, you mentioned Denio's and these other big investments.

We have people who are able to do that.

- The other common thing that's sad is that California, generally, and Sacramento, more specifically, this region has created an environment that is so business unfriendly that it chokes out the ability to start businesses and to essentially leverage the innovation within this community.

And whether it's the patents that UC Davis is generating to leveraging the work of places like the Carlsen Center at Sac State, that we just are so unfriendly that it's not a good environment.

But it seems like success is coming anyway.

So is that, you're a private sector guy, is that notion that we are so business unfriendly that business can't survive and thrive here, is that wrong?

- I think that's a stereotype that doesn't really fit across the board.

Clearly there are some things that are harder to do business in California, but there's still a lot of businesses growing.

You know, the business I'm in, you know, we're a larger tech company, and we are doing very successful here in Sacramento, headquartered out of Rancho Cordova.

And Mark can tell you all the founders we have in the Growth Factory, and I've been impressed to see all the different, the diversity of businesses I've seen and the diversity of leaders we've seen come out of the Growth Factory's been something that's I've really been impressed with.

- Yeah, and I do, I think there are forward leaning cities within the region that are maybe more forward leaning in terms of business friendliness than others.

The city of Elk Grove, for example, very forward-leaning.

They're actually writing checks into early stage startups, - Really?

- Out of the city of Elk Grove.

The city of Rocklin, very forward-leaning.

The city of Roseville, forward-leaning, Rancho Cordova is forward-leaning in many ways.

So there are pockets where they're really attractive for small business and for, you know, early stage growth companies as well.

So I think it depends on where you go.

But I think maybe as a region we could have an image that looks one way and then really reality says there are pockets where it's a perfect place to grow a business.

And then the other thing I would say is people are, you know, we got California and then you have Sacramento.

People are, we're beginning to lose some of our population in California.

I think that that's pretty well known, but Sacramento is not losing population.

Our region is actually growing a little bit where Los Angeles is losing people, San Francisco is losing people, some of these other big cities, they're migrating outside of California.

But Sacramento and our region is still growing.

So we're unique.

We're doing something right.

- So, oh go ahead.

- Okay, just add one thing to that.

I think one of the things Sacramento has that other regions don't have, you touched on it earlier, was that connectedness.

I think you could almost talk to any business leader here in the region.

Almost no one's untouchable.

And there's always, we're about two degrees of separation around here and everyone wants to work together.

I think that's unique.

We're still, we're still not too large and too big where you can't get connected to the right person to help you and move forward.

- That is true.

That is true.

'Cause, you know, if I don't know somebody, I can call him and call you, you know?

- Between the three of us, we know everybody.

- We'll we'll figure it out.

Right?

So I gotta ask you this, very quickly walk us through, I'm a founder.

I've got a great business model, great idea, whatever.

I walk into the Growth Factory.

What's my process?

- Yeah, I think the first thing we wanna do is meet with you and get to know you and understand what you're working on and how can we help.

That's kind of our mantra.

What are you working on?

How can we help?

And that's really where it begins, is communicating.

So we want to get to know you and find out what you're working on and see if it's a fit for us.

And just like the cross, just like I mentioned earlier, is the connectivity.

If I am not in the perfect position to help you, I probably know somebody that is.

And so I wanna make an introduction.

So I might connect you to the Carlsen Center, to Startup Sac, to Aggie Square, to Ag Start, to the Sac Angels, to somebody else.

But I want to help engineer a win, even if you're not part of my portfolio.

So that's where it starts for me, is how do I help now.

In terms of what we look for in making an investment, writing a check, we want companies that we believe in that they're gonna grow.

So our idea is to write a check at the very early stages and then help them build a company that attracts more venture capital.

And so that means they're gonna be able to make some sales, right?

So we see companies where we don't think we can add a lot of value and we might refer them, but if we feel like it's a good fit for us, we believe in the founder and believe in the opportunity, we'll help engineer wins right now as we write the check.

- That's great.

Have you ever had a situation where a company that wasn't a fit, wasn't ready, went away into the ecosystem and actually came back yet?

- Yeah, I think that's happened multiple times.

We, for sure that has happened.

We've also helped high school students, so we have, we run pitch competitions for high school students.

We have a nonprofit component of the Growth Factory and then we have a for-profit component.

Our nonprofit side works with college and high school students to drive entrepreneurship and innovation throughout the high schools and throughout the, like Sierra College and so on.

And so we'll have companies that do that pitch in there and never get the time of day.

One of the companies that pitched in our high school program, they did really well.

And ultimately these high school kids got, we funded them, and they're, and I think they're worth like 10 times what we invested originally.

- That's amazing.

So last thing, if somebody wants to find out more about the Growth Factory, where do they go?

- Yeah, you can go to growthfactory.us or you can just, the best way to do this, just, I mean, I'm very, I wanna be very approachable.

Hit me up on social media @themarkhaney, send me an email mark@haneybiz.com.

Get ahold of me, I'll get you connected up with my team, or you can come down and visit me in Rocklin.

And let's see what you're working on, how we can help.

- Alright, entrepreneurs and founders, you heard it here.

Not just how to get access, but the success that happens downstream.

So thank you both for your time.

- Appreciate you.

- Thank you, Scott.

Appreciate it.

- And that's our show.

Thanks to our guests and thanks to you for watching Studio Sacramento.

I'm Scott Syphax, see you next time right here on KVIE.

(upbeat music)