Greg Johnson isn’t from Iowa, but the seasoned venture capital fund manager says he is optimistic about finding good investment prospects within the state.

Johnson, a founder and managing director of St. Louis-based Prolog Ventures LLC, is working as an investment partner with the Iowa Fund of Funds, a statewide venture capital development program. Prolog, which specializes in early-stage life-sciences companies, was chosen in June as the first of up to 15 funds expected to be selected by the program.

Authorized by the Legislature in 2002, the Iowa Fund of Funds’ goal is to build a portfolio of venture funds seeking deals with companies ranging from start-ups to mature businesses that are nearing the buyout stage, and to build a mechanism for venture funds to consider Iowa companies as investments.

“We would have looked at deals in Iowa anyway, because there are life-sciences deals here anyway and it’s within our general mission and geography,” said Johnson, who was in Des Moines last week to attend the Iowa Venture Capital & Entrepreneurial Conference. “But with this program, we’ll take a much more proactive approach than we would have just on our own.”

Founded in 2001, Prolog has about $100 million in assets under management. Its first venture fund has 12 companies and Prolog is now seeking additional investments to add to its second fund, which is now invested in two companies.

Prolog recently raised $66 million, primarily in equity funds from private investors, which it has available to invest in companies. Its funding sources also include a $10 million line of credit from West Des Moines-based West Bank, which was selected by the Iowa Capital Investment Corp., the organization overseeing the Fund of Funds. Additionally, Wells Fargo Bank Iowa has committed to make $5 million in loans available to the program.

Cimarron Capital Partners, an Oklahoma City-based firm managing the Iowa Fund of Funds, plans to work closely with Prolog and each of the funds chosen for the Fund of Funds’ portfolio, said Stephen Ringlee, Cimmaron Capital’s managing director.

“One of our principal focuses is to find management teams that have that patient focus,” Ringlee said. “We look long and hard at a venture team before we invest in them. It took about seven months of patient analysis and checking before we were ready to invest in Prolog.’

Similarly, West Bank and Wells Fargo were carefully chosen through a competitive bid process, with the goal of securing the lowest-cost funds possible, Ringlee said, and Cimarron Capital is continuing to analyze other potential credit sources.

“Until we have investment opportunities, our need for capital will really be staged against the needs for investments,” he said. The initial $15 million in credit from the two banks will “probably service the next two or three investments that we make.”

In addition to the additional venture capital that Prolog brings with its private investors, Ringlee said his experience has been that each dollar invested in a company will typically bring in another $2 to $3 from co-investors, which will further leverage Iowa’s investment.

When Iowa Capital Investment Corp. set out to launch the Fund of Funds, it initially planned to raise $150 million in venture capital from investors. However, the fund manager first hired to solicit the funds, Davenport-based Great River Capital LLC, was unable to raise sufficient capital from investors and resigned in June 2004.

The ICIC subsequently adapted its plan to provide Iowa’s stake on an as-needed basis through bank loans, with the expectation that the equity capital will flow from both the venture capital funds that join the Fund of Funds as well as from investors as they invest on a company-by-company basis, Ringlee said.

Working with Prolog to screen prospective Iowa companies to invest in will be Des Moines-based Emerging Growth Group, a business incubator headed by Gregg Barcus.

“Gregg Barcus will be our representative, our point person in Iowa,” Johnson said. “His job really will be to locate companies we should look at in depth, to do some initial screening of them, and just generally accelerate our effort here more than we could do working from out of state. He really has a perfect background for this based on his wide contacts and history.”

Additionally, Prolog’s “eyes and ears” in Iowa will include Steve Carter, director of the Iowa State University Research Park, as well as Dr. Mike Kienzle, director of economic and business development with University of Iowa Healthcare, and David Hensley, director of the John Pappajohn Entrepreneurial Center at the University of Iowa.

Johnson said he’s hopeful at least one or two of the 12 to 15 companies that his fund invests in will be Iowa-based, though maximizing the fund’s rate of return is the primary goal.

Iowa presents good prospects because it has “two powerhouse universities,” as well as “very sophisticated and established networks of angel investors,” which Prolog hopes to work with as investment partners, Johnson said. “In that regard, actually, you’re certainly ahead of the St. Louis area. These (networks) have been on the ground for several years and people are experienced in doing these investments, and that really is the (essence) of what we look at.”

The size of Prolog’s investments will likely range from $1 million to $2 million for initial financing rounds. “Over time and with various rounds of financing, that may grow to $3 million to $4 million,” he said

Ringlee said Cimarron Capital is actively considering six to eight additional funds to add to the Fund of Funds’ portfolio, and expects to announce further commitments within the next 60 days.

“We will be rolling out over a four- to five-year period a full portfolio of venture funds for Iowa of 10 to 15 funds,” he said. They will be diversified by industry, stage of investment and timing of the investments.

“The essence of this program is a very careful and deliberate strategy to bring the best venture funds into the state of Iowa in a well-paced manner, so that we maximize the funds deployed and minimize our market risks.”