Can venture capitalists do well by doing good? We may soon find out. At least three groups are trying to form venture capital funds to invest in "socially responsible" companies. Most ambitious is The Beacon Fund, which is seeking $25 million to invest in such human-service fields as home hospice care and day care. A smaller, independent fund is planned by people associated with the Calvert Group mutual fund organization. Good intentions aside, sponsors argue that the new funds can prosper by investing in companies poorly served by the venture capital community. First, however, they must sell that idea to investors.
The U.S. Economic Development Administration and a Chicago business incubator are experimenting with an innovative form of start-up financing: a revolving loan fund based on purchase orders. June Lavelle, founder of the Fulton-Carroll Center for Industry, noticed that too many of her incubator clients lacked the working capital to fill their first orders. So she formed the new fund, which will allow local companies to use their purchase orders to borrow up to $10,000 for three months. If successful, the experiment could have influence beyond Chicago, since it is 75% federally funded.
Smaller companies are starting to reduce telecommunications costs by banding together. Some trade groups have negotiated volume discounts for members. And last January, 17 small to midsize companies and a consulting firm formed Cleveland-based Midwest Communications Exchange; by November the purchasing group reported 65 members and promised average long-distance savings of 15% and up. Meanwhile, San Francisco-based Centex Telemanagement Inc. has made a fast-growing business out of pooling its 3,800 small-business clients' phone volume for better rates; it then uses the savings to lower its consulting fees.
An alternative approach to venture capital may streamline the process by which some companies get equity financing. Usually, venture capitalists raise money before they choose equity investments. But last year Merrill Lynch Capital Markets and a venture capital firm, Julian, Cole & Stein, tried reversing the process by packaging five small companies as a "portfolio" for institutional investors. The result: $29 million raised in less than four months. "The process was much more efficient than talking to individual venture capitalists," reports Robert Pepper, CEO of participating company Level One Communications Inc.
More firms are emerging that "rent out" temporary executives, particularly to growing businesses. The theory? That such companies often need top management talent but don't have time for an executive search or have only a short-term need. Still, James Northrup of Interim Management Corp. admits it's tougher to find those companies than to sign up appropriate executives (readily available because of big-company restructurings). One firm, Princeton Entrepreneurial Resources Inc., stresses flexibility: with start-ups, it sometimes takes equity as payment.
A new program may help private industry work with both government and academia. The Menlo Park, Calif.-based Joint Enterprise for Aerospace Research & Technology Transfer program allows NASA, a business, and a university to form a three-way research venture, with the university conducting the work and the others sharing its cost. A California company, Finnigan Corp., recently became the first to sign up. Joint Enterprise CEO Syed Shariq hopes the program will serve as a model for other federal agencies.
-- Martha E. Mangelsdorf
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