Three years ago, Oklahoma politicians got a harsh wake-up call when the Milken Institute’s State Technology and Science Index ranked the Sooner State number 45 with respect to innovation.
At the governor’s direction, the Department of Science and Innovation framed an ambitious five-year strategic plan outlining “a number of recommendations to alter Oklahoma’s innovation trajectory and catapult us to the forefront of the innovation revolution.”
The strategic plan calls for allocating the state’s limited resources to three targeted industries deemed to “have the greatest probability of generating maximum return” while leveraging the state’s existing strengths: biotech and life sciences, aerospace and autonomous systems, and energy diversification.
In the two years since the plan was implemented, an assembly of venture capital funds, state funding programs, accelerators/incubators and public/private investment partnerships have emerged to increase local entrepreneurs’ access to capital and other forms of support that they need to build innovative companies.
There is now $300 million to $400 million, or “10 times more venture capital in circulation in Oklahoma and the immediate region than there was even just three years ago,” Cortado Ventures founder and managing partner Nathaniel Harding told Venture Capital Journal. Cortado recently closed on three-quarters of its $80 million target for its second seed fund, which will back 25 to 30 start-ups.
Oklahoma has made progress in attracting VC activity over the past decade, but it still has a long way to go to become a major destination for investors. The number of firms actively investing in the state grew from just three in 2012 to 12 last year, according to the National Venture Capital Association yearbook. To put that into perspective, more than 1,700 VCs invested in California, the most popular state destination, and just a single firm invested in both Hawaii and Mississippi, the least popular destinations.
Based on the dollar amount invested last year, Oklahoma ranked 38th out of 50 states plus Puerto Rico, with $225.1 million invested in 28 companies, according to the NVCA. California was at the top of the list with $104 billion invested in nearly 5,000 companies and South Dakota was at the bottom, with just $6.2 million invested in two companies last year.
One concern some investors express about Oklahoma and the surrounding region is the lack of quality dealflow. Reported data undercounts the level of activity because “local founders and ecosystem partners do not like to brag on themselves and will often fly under the radar unnoticed,” said Jennifer McGrail, executive director of the Oklahoma Center for the Advancement of Science and Technology. OCAST and its venture partners are working to better report and tell the stories of local VC achievements, in part by bringing in well-regarded accelerators to help showcase talent, she said.
Greater access to capital and other promising signs of a shift in the state economy made Cortado and others in Oklahoma City’s VC community decide now was the right time to highlight what was happening for those who don’t have boots on the ground. On May 10, the city hosted the first Mid-Continent VC Summit, which drew more than 230 people from 33 cities, 14 states and four countries.
The summit was a logical next step after 300 people, including the governor and state treasurer, turned out in February for the grand opening of The Verge OKC, an entrepreneurship hub that occupies 16,000 square feet on the second floor of the Bricktown Arts Center building. It is home to several organizations at the core of Oklahoma’s burgeoning VC community. Among them are Cortado; Gener8tor, a nationally known accelerator; Techlahoma, a professional network of IT workers and enthusiasts; the OK Coders Bootcamp; and a biotech start-up program affiliated with the University of Oklahoma. The space also features a communal workspace and room for programming events that provide access to financial education, mentorships and introductions to investors.
“We have a lot of siloed entities and a lot of siloed resources, so we really wanted to [provide a] flag waving in the sky to tell entrepreneurs, ‘This is where you can get started,’” said strategic development and operations director Kristin Garcia.
Harding sees The Verge as a place where founders can have not only “serendipitous encounters with each other” but also opportunities to work together. “You can imagine people going to the coding boot camp on one side of the floor, and across the hall you have the founders who are building a business with Gener8tor,” Harding said. “Then they’re going to get funded by people like [Cortado] in the other direction down the hall, and then they’re going to hire the people that graduated from the coding boot camp. So it’s an amazing multi-stakeholder collaboration.”
Cortado’s counterpart in Tulsa is Atento Capital, which spun out of the George Kaiser Family Foundation three years ago. In April, Atento launched a $20 million pre-seed fund and an $80 million core fund that will be part venture fund and part fund-of-funds to invest in other VCs, with GKFF as the sole limited partner. Both funds will invest in underrepresented founders and communities.
Atento’s spin-out from GKFF in January 2020 proved auspicious. Two months later, the covid lockdown began and “all of a sudden people didn’t care where they were based,” said firm founder and general partner Michael Basch. By August of 2020, Atento had helped three companies relocate to Tulsa from other parts of the US.
Other VC firms that have recently launched in Oklahoma include Boyd Street Ventures and Prima Ventures, both of which are affiliated with Oklahoma University.
Cortado and Atento are leading players in Oklahoma’s venture industry but hardly the only ones. OCAST, which was established in 1987 to diversify the state economy, has been building partnerships and programs to address four deficiencies that the strategic plan cited as impediments to innovation: education and human capital; research and development spending; integrated support systems; and access to start-up capital and financing.
As custodian of nearly $82 million in State Small Business Credit Initiative (SSBCI) funding from the US Treasury, OCAST is awarding $47 million of that to four separate funds through the VC investment program. The remainder will go to a business lending program for distribution through community development financial institutions.
“For both of those programs, those dollars have to be met and matched by brand new private dollars” from strategic partners, OCAST’s McGrail told VCJ. “So that’s actually a $164 million investment into businesses in Oklahoma.”
The four funds, selected through a request-for-proposal process, are the Oklahoma Life Science Fund (the only sector-specific fund); Forty-Six Venture Capital in Tulsa; Boyd Street Ventures in Norman; and Cortado, which will run two separate programs – one in parallel to its open fund and a sidecar program in partnership with the Oklahoma Farm Bureau to invest in the state’s rural areas. All have multiple investments in their pipelines waiting for the money to hit their bank accounts, McGrail said.
OCAST is addressing workforce constraints with policy tools, including paid internship programs for university students majoring in science, technology, engineering and mathematics (STEM) programs in a bid to reduce the historic brain drain caused by STEM graduates moving elsewhere for good jobs. By training on actual projects with timelines and deliverables, interns “get to know the company culture and people, [and more than] 98 percent of students that go through that program get offered a job in the state, many straight from the company they worked with,” said McGrail.
State funding is also underwriting the cost of attracting well-known accelerators such as TechStars and Gener8tor to the state to launch local programs.
Oklahoma recently awarded $5 million apiece to three accelerators to identify and foster local entrepreneurs: Gener8tor in Oklahoma City, TechStars in Tulsa and the Oklahoma Farm Bureau, an agriculture business accelerator in Oklahoma City.
Gener8tor brought gBeta to Oklahoma City in the fall of 2021. The pre-accelerator program runs seven weeks and familiarizes founders with the product-market fit model. The inaugural cohort of its investment accelerator program is now in week nine of a 14-week program. Operational funding from program partner OCAST has enabled Gener8tor to incorporate a focus on economic development and job creation into its curriculum, said Anita Ly, who leads Gener8tor’s OKC investment accelerator.
In accepting entrepreneurs for the first cohort, Ly opted to “elevate companies that already existed in Oklahoma City” and have been recruiting local talent, which ended up being seven of the eight founders selected. The eighth relocated from Mobile, Alabama and “has already fallen in love with Oklahoma City and has talked about a permanent relocation,” Ly said.
Accelerators are also proliferating in Tulsa. Opening in June 2021, Build in Tulsa is an umbrella organization that contracts with accelerators such as Act House and TechStars to run programs that cater primarily to women-, Black- and Latino-led start-ups.
Build in Tulsa’s own accelerator program, Women Entrepreneurs Build (WE Build), launched earlier this month and centers on Black women founders. “We’re taking a holistic approach to accelerating not only the company but the founder,” said Ashli Sims, managing director of Build in Tulsa.
“We’re trying to redefine wraparound services” to encompass access to financial literacy training, legal support, marketing and accounting, as well as bi-weekly mental health counseling, to address issues such as imposter syndrome, which surfaced in a focus group, Sims added.
Another critical piece of the innovation puzzle has been Oklahoma State University’s Research Foundation, which leverages the university’s research assets through technology transfer, public-private partnerships, venture capital, accelerator and incubator strategies and philanthropic efforts to monetize research produced at OSU.
Beneath the Research Foundation sit a handful of institutes that are developing technologies for the local industries identified in the strategic plan as most likely to generate large returns on investment.
The university programs are designed to develop a workforce to support these technology areas, particularly around engineering and healthcare, said Elizabeth Pollard, who recently became president of OSU’s Research Foundation and helped develop Oklahoma’s strategic plan as the state’s Secretary of Science and Innovation. OSU’s institutes are a key part of an effort to further diversify the state economy, she noted.
“A decade ago, we were seen as an oil and gas state only and today we’ve diversified across all these different technology areas,” said Pollard. Diversifying energy production to include solar, wind and clean hydrogen, which OSU’s Hamm Institute focuses on, and drone technology, which is the forte of the Oklahoma Aerospace Institute for Research and Education (OAIRE), “are nicely aligned with where we know the future of innovation is going,” she said.
Over the past decade, the Office of Technology and Commercialization has secured more than 80 patents on inventions by OSU faculty and staff, created 22 companies by commercializing technology developed at OSU and signed more than 100 licensing agreements for university technology.
Mounting demand for corporate partnerships is also buoying Oklahoma VCs. Energy Innovation Capital created EIC Rose Rock, a $50 million VC fund launched in Tulsa last year that will lead seed and Series A rounds for early-stage energy tech start-ups. The fund already has $30 million in commitments from corporations such as Devon Energy, ONEOK and Williams, as well as GKFF, which will be supplemented by national and regional investors, said McGrail. Headquartered in San Francisco, EIC has had a long-term partnership with Tulsa Innovation Labs, GKFF’s tech-focused development arm and the Fortune 500 energy leaders listed above, EIC Rose Rock managing director David Clouse wrote in an email.
Corporations are relying more on innovation by start-ups as “a great way to outsource research and development” as their internal R&D budgets continue to shrink, said Harding at Cortado. “More and more established companies and incumbents are looking to early-stage companies to be the pilots [to develop] new technologies that will keep established companies competitive.”
Harding describes what’s happening as “digital technology meets analog industry” and cites the digitization of real assets in the region’s legacy industries of advanced manufacturing, logistics, mobility and energy as the key to unlocking those sectors to adopt new technologies like AI.
Limited partners from outside the mid-continent region are also taking note. “We see larger capacity and significant appetite from out-of-state and even out-of-country investors [some of whom are] physically coming to this part of the country to find who’s creating alpha at this intersection,” Harding notes.
Out-of-state LPs in Cortado’s latest fund include James Rogers, co-founder and CEO of Apeel Sciences in Goleta, California, whose plant-based fruit and vegetable coatings extend the shelf life of produce. Cortado also has commitments from one foundation and some family offices and high-net-worth individuals from outside of Oklahoma, whose names Harding wouldn’t disclose.
Basch at Atento said he’s convinced there is as much talent in Tulsa as in San Francisco, just less opportunity to develop it. One thing that cities in Oklahoma have that Basch believes is missing in coastal hubs that draw 75 percent of venture funding is a sense of community cohesion.
“I’ve lived in Los Angeles, New York, London and Tel Aviv,” he said. “The Tulsa community really is caring and engaged and helpful and inviting you over to dinner and making sure you’re meeting people. Those things are not part of the cultural backbone of New York or San Francisco. It’s a more rounded lifestyle to help build a company.”
This is the second in an occasional series about new and growing venture markets outside of Silicon Valley. Read our feature about Columbus, Ohio here.