The Picayune Rancheria of the Chukchansi Indian tribe has begun buying businesses and investing in companies, creating a much-needed source of capital in the central San Joaquin Valley.
The people who manage the tribe's fund, Mighty Oak Capital, vow to keep many of its investments local -- and they may have to if they want to access special advantages like tax exemptions that are tied to its Coarsegold reservation.
The tribe is using 15% of its profits -- amounting to millions of dollars -- from Chukchansi Gold Resort-Casino to invest in local businesses. Mighty Oak was founded last summer, but made its first local investment last month when it bought an Oakhurst lumber company. It also has invested in apartment complexes across the nation, and it is about to finalize a deal to buy a Clovis commercial construction company.
Most venture capital and private equity investors are concentrated in major cities, including San Francisco and Los Angeles, said Tim Stearns, director of the Lyles Center for Innovation and Entrepreneurship at California State University, Fresno.
There are a few large, organized investors here, including Fresno-based Bulldog Capital Partners, but many companies must attract investors from outside the area.
And when they do, they're often pulled away to be closer to their investors. That's what happened with Plastic Jungle, a Web-based company founded in Clovis that lets customers buy, sell and trade gift cards. It moved its headquarters to Mountain View after receiving a $4.8 million investment from Silicon Valley venture capital firms.
Mighty Oak has an incentive to invest in local businesses: Companies owned by the fund will use the legal benefits associated with the tribe's sovereign immunity, including tax and regulation exemptions and the ability to jump to the head of the line for some federal contracting work set aside for minority-owned businesses.
"Indian tribes are not going to pick up and move elsewhere if they become successful," Stearns said. "They have a lot of vested interest in the Valley."
The advantages are tied to the tribe's status as a sovereign nation. The lumber company, for example, won't have to pay income or corporate taxes. That means it can cut prices, said Mighty Oak chief executive Case Lawrence.
Oakhurst's Yosemite Lumber Co., which Mighty Oak bought last month, will move its headquarters to the reservation. Yosemite Lumber will provide raw materials to Clovis-based Brelle West Construction, which Mighty Oak also is buying. The commercial construction company will change its name to Mighty Builders and also move its headquarters to the reservation.
Kevin Fanning, who started the company in 1987, will remain president.
Mighty Oak has construction contracts already lined up, including deals to build a chain drugstore in Ceres and a gas station on the reservation where customers won't pay taxes on gasoline.
Fanning jumped at the chance to make a deal with Mighty Oak, noting the slowdown in the economy has shrunk his payroll from 20 to two.
"We're going to have the ability to grow with their backing more than I would have been able to do myself," Fanning said.
American Indian tribes investing in business isn't a new concept.
The Lower Brule Sioux tribe of South Dakota bought Wall Street investment firm Westrock last September.
Ho-Chunk Inc., a company formed by Lance Morgan of the Winnebago tribe in Nebraska, has 18 subsidiaries ranging from a construction company to an advertising agency.
The Chukchansi tribe called on Morgan for help forming Mighty Oak. Morgan -- who Lawrence calls "the Warren Buffett of Indian country" -- is now a Mighty Oak board member. Morgan also is married to the granddaughter of mega-investor Buffett.
More than money
The benefits of Mighty Oak are more than just financial.
For the tribe, starting the fund is about economic development and the future of its people, said tribal council member Chance Alberta.
"Not everybody wants to work at a casino, and we know the casino might not be around forever, so we need to diversify," he said.
A healthy economy will allow money to be pumped back into tribal programs, he said. Any income from Mighty Oak will be reinvested into the fund during the first five years. After that, 20% of Mighty Oak's earnings will go back to the tribe to spend on programs like education, Alberta said.
And the tribe wants to play a role in keeping its surrounding communities economically healthy, he said. Lawrence agreed, saying there is a desire to be "a positive force" in the community.
Mighty Oak, though, is focused solely on business. The fund has a separate board of directors in an effort to remove tribal politics from business.
Four tribe members, including two tribal council members, are on the board, along with three local non-tribal business professionals. The tribal council appoints tribe members to the Mighty Oak board. Those people appoint the remaining board members.
Executives include a former Ruiz Foods chief financial officer; its CEO, Lawrence, has a background in venture capital. Lawrence is the founder of Clovis-based CargoBay and left his chief executive job at that business, which provides entrepreneurs with office space and other amenities for a monthly fee.
For now, Mighty Oak will focus on investing in existing businesses. Once it gets more cash flow, it will invest in startup businesses, Lawrence said.
Mighty Oak officials think their fund will address another problem facing the Valley's business world: the inability to retain its best and brightest.
The area has long struggled to lure back Valley-raised professionals who head to bigger cities for work. At least one company, data-protection software company Yosemite Technologies, moved its headquarters from Fresno to San Jose in 2005, citing San Jose's larger pool of technology employees. The fast-growing company had collected millions of dollars in venture capital money before moving.
Investing in local companies attracts other healthy businesses, which in turn attracts professionals to the area -- or keeps them here, said Steve Heinrichs, a partner in Bulldog Capital Partners.
Mighty Oak plans to use its board of directors' business connections to help attract professionals, Lawrence said.
Alberta said he hopes Mighty Oak will help businesses flourish and benefit both the tribe and nearby communities.
"When our community is strong, we're strong also," he said.