Venture Capital Discovers The Mass Market

The new frontier for venture capital is low technology, and Michael Berolzheimer's Early Stages Co. is leading the way.

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Walking through La Guardia Airport that afternoon in December of 1981, Mark Weissman struggled to be optimistic. For months he had been trying to find someone to back a company he had founded two years before, Eljenn International Corp. in Newton, Mass., a suburb of Boston. It was a good company, a growing company, but Weissman desperately needed cash to keep it that way. Neither he nor the man he had dragged along with him to the meeting -- Geoff Gordon, Eljenn's vice-president for sales and marketing -- had been drawing paychecks lately.

The meeting, hastily scheduled a few days before, was with a venture capitalist by the name of Michael G. Berolzheimer. Weissman knew practically nothing about the man. He knew only that, of all the potential backers he had contacted so far, Berolzheimer was one of the few who had agreed to spend much time with him. Indeed, that was his sole ground for optimism as he hurried to the appointment.

Weissman remembers thinking how ironic the meeting was likely to be. There he was, a graduate of Massachusetts Institute of Technology, with a patented product that he and Gordon had until recently marketed out of a small apartment; and there was Berolzheimer, not only a venture capitalist, but a venture capitalist from California, no less. The plan was that Berolzheimer would pick up Weissman and Gordon at La Guardia, and they would talk for an hour or so -- whatever it took to navigate the traffic out to Kennedy International Airport, where Berolzheimer was to catch a plane to California.

The irony in all this was Eljenn's main product. It should have been a computer peripheral, a new gene-splicing method, a fiber-optical miracle -- something dazzling, glamorous, etherally technological. It was not. Eljenn's principal asset, the only thing Weissman had to pique the interest of the Californian, besides his own and Gordon's experience and determination, was a shampoo.

Astonishingly, over the din of the rushhour traffic, the meeting went well. Berolzheimer was keenly interested in Weissman and Gordon, in Eljenn, and in the shampoo. Just as astonishing, he seemed incredibly knowledgeable about retail consumer products. He wanted to know, as venture capitalists usually do, how much of their own time and money Gordon and Weissman had invested in Eljenn. They told him about how Weissman, a former science book editor, had convinced friends and relatives to invest some $30,000 to get the shampoo business off the ground. Gordon was one of the friends, and later he had put his mouth where his money was, leaving a well-paying job in a medical technology company to beef up Eljenn's marketing effort. Weissman himself had put in $30,000 of his own by mortgaging his only real asset, a house on Massachusetts's Martha's Vineyard.

But Berolzheimer quickly zeroed in on the product itself: How were they going to market a shampoo in the face of competition from such behemoths of the health and beauty industry as Procter & Gamble Co. and Johnson & Johnson? They told him that, too. The shampoo, called UltraSwim, wasn't just any old shampoo. It was a new formula, patented, already selling briskly ($500,000 a year at the last accounting) in the United States and Canada. It was designed for swimmers, said Weissman and Gordon; the formula got the chlorine out of their hair -- chlorine that turns blonde hair green, curly hair frizzy, and makes hair of any sort as dry as the Sahara.

Yes but, said Berolzheimer. What was the size of the market? Twenty million Americans swim, year 'round, in chlorinated swimming pools, they told him. With that kind of market, they said, they had only to reach a mere fraction of their potential customers to become a $30-million company in three to five years. And they had other ideas besides, other personal-care products for the swimming market.

There wasn't time to say much more. Berolzheimer caught his plane. Weissman and Gordon went back to Boston. A few weeks later, however, they were in San Diego, at the Beauty and Barber Supply Institute trade show, where they ran into one of Berolzheimer's partners, Bill Lanphear. Berolzheimer had sent him down from San Francisco to see them. He had also asked his sister-in-law, a beautician, about the need for a product like UltraSwim. She reported that there really was a need for it. Lanphear, back from the trade show, reported that he had been greatly impressed by Weissman and Gordon.

So it came to pass that, at the end of February 1982, a little more than two months after the airport meeting, Eljenn received an infusion of $650,000 in venture capital -- half from Berolzheimer's venture capital firm, Early Stages Co., and half from a venture partnership in Boston. In return for this support, Eljenn gave up less than half its equity. And UltraSwim survived.

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