Cattle-raising territory is big in raising venture capital, too

Everything feels new inside Newell Starks' office downtown. The suite has just been remodeled and is sparsely decorated with rented gray and chrome furniture. Somehow, even Mr. Starks looks new, in his crisp blue suit and white shirt, complete with shiny cuff links and black shoes with not a single scuff mark on them.

The feeling is appropriate. Mr. Starks works for Citicorp Venture Capital Ltd., a New York-based investment group that just moved in here last Thanksgiving. His mission is to scout out promising young electronics firms with investment potential. The object is to provide them with management experience and money, then reap the rewards when the firm turns into a major, profitable company.

In the past year, a significant number of venture firms have set up branches in Dallas. The new money flowing into the area is bringing entrepreneurs out of the woodwork. ''It's embarrassing sometimes,'' Mr. Starks says. ''I probably haven't read a quarter of what's up here,'' he says, referring to a 10-inch stack of business proposals on his desk.

Compared with the venture maturity of Silicon Valley and Boston's Route 128, Dallas is still sucking its thumb. But the business here is quickly growing. ''The pool of capital (in the Dallas-Fort Worth metroplex) is still not enormous , but it is probably 10 times what it was two years ago,'' comments James O'Donnell, who runs InterFirst Venture Corporation, one of the more established venture outfits here. It is estimated that about $555 million was attracted to the area in 1983.

What's the attraction?

Money flows to where the deals are, and deals occur in areas that encourage small business. Start-ups blossom around Dallas/Fort Worth for a number of reasons: The weather is good; the city's central location in the state is ideal for distribution; it has two airports; there is no state income tax; the government is pro-business. (One Texan commented that you can tell the Dallas mayor is a businessman, and not a politician, because he isn't a household name.)

But the most important thing is the strong base of electronics companies and universities in Texas. Corporations like Texas Instruments and numerous aerospace powerhouses are breeding grounds for entrepreneurs. Locally, Dallas relies on schools like Southern Methodist University for engineers and research. Farther afield, it can look to the University of Texas at Austin and Texas A&M.

Dallas, and the Southwest in general, has simply been overlooked by the major venture capitalists in the Northeast and on the West Coast. ''There is a lot of talent here,'' says Jon Bayless, ''but it's underdeveloped.'' Dr. Bayless is a partner in Sevin Rosen Management Company, the Dallas firm that made the initial investments in Compaq Computer and Lotus Software - both extremely successful companies in the microcomputer business.

For the last decade, the venture-capital focus has been on high-tech companies in Silicon Valley and Boston's Route 128. But good deals are getting harder to come by in these areas. Real estate prices are skyrocketing, and it's difficult to hold on to employees. ''There are now spinoffs off spinoffs,'' says Dr. Bayless, which makes it a challenge to keep the original management team intact. In Texas, on the other hand, people don't job hop nearly so much, Bayless notes.

''Route 128 and Silicon Valley don't need us,'' comments Dan Blanchard, who heads the new Dallas office of Golder, Thoma & Cressey, a Chicago venture-capital firm. Dallas though, ''we figure, is the No. 1 headquarters city for service companies.''

Golder has diversified investments in Dallas, including a health-service company, a paging company, and a firm that sells auto insurance in supermarkets. Part of the reason for opening the new branch was to be closer to some of the start-ups that Golder had already negotiated from Chicago. Its new office is right next door to one.

Because the venture-capital business is relatively new in Dallas, competition for deals is not stiff, the investors here say. In fact, L.J. Sevin, the founder of Sevin Rosen Management, has been encouraging other firms to establish themselves here. Venture capitalists frequently give one another tips on new business possibilities. Also, venture firms rarely fund businesses alone but rely on investment help from other venture capitalists.

The biggest problem faced by these firms is not competition for deals but competition for employees. The venture business has always relied on seasoned people to be the key players in making deals. But because the industry as a whole is growing so rapidly, there are not enough highly experienced employees to go around.

When Golder set up office, it recruited Mr. Blanchard away from InterFirst. Blanchard, a 29-year-old with an MBA, had been working at InterFirst only a year. Venture firms are also trying to fill the employee gap with people who have experience in company operations. Newell Starks, also fairly young, has an operations background at Texas Instruments.

For the region, the implication of all this new money is more jobs. Dr. Bayless predicts a whole subeconomy of suppliers will develop to serve the new manufacturers. But like a number of other venture capitalists here, he cautions people not to think of this sprawling region as the next Silicon Valley.