ConAgra Committed to a Two Million Dollar “Charitable Contribution” to Venture Capital Fund

In what has been described as a “charitable contribution” from ConAgra to Capitol Corridor Ventures (CCV), the Vanguard has learned that the company, that has been working to entitle the Cannery project to put a mixed-use housing and commercial development on the site of the former tomato plant, has a $2 million deal with David Morris, the head of CCV as well as TechDavis, whereby ConAgra will make the contribution upon completion of the entitlement process.

The Vanguard, in response to an anonymous tip, conducted a nearly six-week investigation into allegations that, while vague, seem to point toward some sort of beneath-the-table deal.  This week for the first time, ConAgra consultant George Phillips and CCV’s David Morris acknowledged on the record this agreement, but downplayed the bulk of the criticism.

In a statement late Tuesday from David Morris, he explained, “Capitol Corridor Ventures (formally known as Capitol Corridor Fund) will receive a $2 million charitable contribution from the Cannery for the sole purpose of establishing a non-profit venture capital fund to launch new tech startups in the City of Davis.”

“It is paid out when the project is moving forward,” said George Phillips, a consultant working on the application process for ConAgra.  “The project moves forward when its approved by the city, there aren’t legal challenges, we’re not subjected to a referendum and we have all of our permitting in place so that the project actually has a chance to proceed.”

The earliest that would take place, assuming no referendum or lawsuit, would be the first quarter of 2014.

This “charitable contribution” was negotiated in early 2010 right after the failure of Lewis Planned Communities to move the previous application forward.  Mr. Morris notes, “It is an initiative between two private parties attempting to increase the rate of tech startup launches in Davis.”

One of the critical questions is what ConAgra received in exchange for the contribution.  According to George Phillips, the contribution was made with “the understanding that Dave (Morris) would establish his non-profit.  The non-profit’s mission would be directing those funds towards start-up companies in Davis.”

“I was aware of concerns made by Michael Bisch approximately a month ago,” the city’s Chief Innovation Officer Rob White said in an interview with the Vanguard late on Tuesday.  “Those concerns being that there was an amount of money that would be obtained by Capitol Corridor Ventures for essentially work (by David Morris) on behalf of moving the Cannery Project forward.”

Rob White said once he was made aware of this concern he asked questions of both David Morris and George Phillips.

“Both let me know that approximately two to two-and-a-half years ago… that Dave Morris had approached the ConAgra land owner and had said in return for me [Dave Morris] helping to shepherd the project forward… would ConAgra be willing to support the entrepreneurial community by creating a donation that they would donate over to Capitol Corridor Ventures for use in funding small startups,” Mr. White explained.

George Phillips explained that while the agreement between ConAgra and David Morris “is acknowledged in the agreement with New Homes” –  a company that has been brought in to design and build the housing development – “that the commitment exists, but beyond that, no,” there is no formal agreement between the parties.

Further complicating this matter is that, during the process of moving forward, ConAgra has advanced Mr. Morris small amounts of money.  “He has been advanced some monies,” George Phillips told the Vanguard. However, he indicated that he did not know the amount of the money that was advanced.

What was ConAgra expecting to get in return for this contribution?  According to Mr. Phillips, “I don’t think they were expecting to get anything.”

Instead, they saw it as a potential PR move to counter complaints that the housing development proposal was converting land that had been zoned to be a business park and putting housing there.

While some have made the claims that Dave Morris was specifically brought in to move the process forward, significantly working with city staff and the council, Mr. Phillips argued that it was more that this was a good thing to do.

He said that, at that period, it was a good idea to get the project moving again, “but, expediting sure didn’t work out.”  He added, “I don’t think there was that expectation.”

However, if this was meant to be a PR move, why would the issue not come out until this point in time?  “I guess we probably should have,” George Phillips admitted on Tuesday.  “There was a decision that we weren’t going to thump our chest about it or hold it out there as some kind of leverage with the city.  So we just didn’t do it.”

However, various leaders and entities within the community have been looking for ConAgra to fund things such as a second below-grade crossing to enhance bicycle and pedestrian connectivity from the site to the rest of the city.

Mayor Joe Krovoza told the Vanguard, “The city had made significant concessions to Con Agra in order to facilitate the Cannery project — most notably a weakening of our affordable housing requirements.  Conversely, our Council has identified traffic mitigation measures and community needs related to the project that we believe Con Agra should support prior to approval.”

“I can only hope that Con Agra designating $2M for a project not prioritized by the Council does not complicate the City’s ability to come to terms with the developer,” the mayor added.

For George Phillips, he believes that this has become an issue because “there are people now who want that money.”  He said that the issue of connectivity will be worked through with the city through the development agreement discussions that are ongoing.

The concept, David Morris explained to the Vanguard in the phone interview on Tuesday night, followed his idea for using capital from real estate to fund a venture capital fund.

“I thought what if we could finance a venture capital fund that was capitalized not from money from limited partners but money from real estate development,” he explained.

In his statement he explained, “The non-profit structure of the fund means that (unlike a for-profit fund) there are no shareholders, limited partners, or carried interest.  As a consequence, all capital gains from companies in the non-profit’s portfolio will be recycled back into the fund to launch additional tech startups.  If the CCV business model succeeds, the fund will become a sustainable engine for local startup capital.”

Mr. Morris added, “The CCV/Cannery initiative is the prototype of an innovative private sector solution to the problem of inadequate seed-stage venture financing in this region.  CCV’s mission is to play a synergistic role with ongoing efforts to create a world-class innovation ecosystem anchored by UC Davis.”

The big question became who knew about this donation of money to the Capital Corridor Venture Capital Fund and when did they know it.  George Phillips acknowledged that, from ConAgra’s end, the idea was not publicized.

However, David Morris said he has spoken to well over 50 individuals, many of them leaders in various sectors of the community, since 2010.

“In 2010, I started socializing this business model,” Mr. Morris told the Vanguard.  “I have a PowerPoint presentation and I went to talk to anybody and everybody who I could get to sit down and talk to me.”

“The CCV business plan and it’s proof-of-concept Cannery initiative has been discussed in detail with a large number of individuals over the last three and a half years, including a wide array of elected officials, city managers, senior city staff, tech executives and other business leaders, civic group leaders, academic administrators, faculty, attorneys, venture capitalists, community activists, etc.,” David Morris told the Vanguard.

Major Joe Krovoza told the Vanguard, “I heard probably a year ago that ConAgra had given Dave Morris $100,000 for a project related to his Capitol Corridor.”

He said ten days ago is when he first heard that this was in the $2 million range and that a few days ago he had heard that George Phillips was confirming “the rumor.”  “That was much more concerning to me,” he said.

However, while Mayor Krovoza was concerned about the amount of money, Councilmember Rochelle Swanson told the Vanguard, “I don’t think there is anything nefarious behind it.”

“We have developers that add money to causes all the time,” she said.

The city’s Chief Innovation Officer Rob White, on Tuesday, agreed.

“I wasn’t really aware of that arrangement prior to (September),” he added.  “I knew that there was a relationship between Capitol Corridor Ventures specifically Dave Morris and working on behalf of the Cannery Project.”

“Now that I know about the relationship, I don’t personally have any problems with it,” Mr. White stated.  “I think a donation from an entity to a non-profit organization that is trying to help small startups in the Davis community – that’s a space that isn’t well-funded, there isn’t a lot of investment there.  Quite frankly we need as much small startup company venture funds as we can possibly sink our teeth into in the Davis area.”

“I think it’s disappointing that it’s coming over in this manner,” he said.  “I don’t know why an accusation or a concern raised by an individual is the catalyst for what otherwise should be a good news story.”

Rob White said that he had asked Dave Morris a number of times why this has not been more broadly shared and “I think he made a bad choice.  He bought into some of the negativity that can sometimes be in Davis and believed that he would be criticized for what should otherwise be seen as a big success metric of having a large corporation that has roots in Davis make a donation to create a venture fund.”

“That’s a huge success,” he stated.  He argued had it been another commercial entity or a wealthy individual in the region, no one would have any questions.  “It’s just the fact that it’s tied to this very controversial project that makes it, I guess, controversial.”

“Taken in context in another community,” Mr. White argued, “no one would think twice about this conversation.”

“I think Dave made the mistake – and I think it’s a pretty common mistake in Davis – of not being vocal about his efforts,” he added, stating that he was likely worried about the same criticism that is happening now.

For some, that criticism is coming from unexpected quarters – for instance, from Michael Bisch, a commercial real estate broker who, for a time, was the president of the Davis ChamberPac.

Dave Morris told the Vanguard that Mr. Bisch was briefed on this endeavor back before the 2012 election.  Mr. Morris wants to know, “Why is this an issue now?  At the 11^th hour of the Cannery Project and after some creative ideas about how to solve the Mace 391 dilemma we put on the table.”

Here he was referring to the proposal that would take the conservation acreage at Mace 391 and develop a business park, while taking the Shiner Property and putting it into its own conservation easement.

“Why is this a problem now since he’s known since the last election?” Mr. Morris added.

Michael Bisch, at several points during the Vanguard’s investigation, declined to speak about this issue on the record.

Davis Chamber Executive Director Kemble Pope reiterated the Chamber’s support for both the Cannery Project as well as Mace 391, contained in previously released letters.  However, he stated that could not comment any further without authorization from his board.

Davis City Manager Steve Pinkerton also declined to comment.

Still, there are questions that remain.  Why did the Cannery consultants not come forward about this arrangement at an earlier time?  Why was the agreement never formalized?  And most of all, why Dave Morris?

For George Phillips the answer was, “Why not?”  “He is a guy who is just on a mission” to create capital opportunities for startups in the Davis Community and the region.  Mr. Phillips added,  “He is passionate about this.  He has impressed us with his commitment about getting this whole idea of his off the ground.”

However, for skeptics if not critics like Joe Krovoza, this is not the way to go about creating funding for projects that have been unapproved by the city council.

He told the Vanguard, “If Con Agra wishes to support the development of new businesses for Davis, then there are a series of existing city and university programs being advanced by our chief innovation officer, Rob White — the most notable being our DavisRoots project with UC Davis.”

Mr. Phillips also made it clear that there was never any connection between Mace 391 and their charitable contribution.

“There is no connection,” he stated.

—David M. Greenwald reporting

A clarification has been added to a quote by Rob White regarding Dave Morris.

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