City Pride also pitched itself to other supermarkets, and by April 1992 was expecting an agreement with Riverside/ BiLo, a chain of 90 stores. Major chains Foodland and Shop 'n Save also have expressed interest.
* * *
The Financing
At the apartment curtis had taken in the downtown Hyatt Hotel, an interim board met weekly to talk about progress in finding financing and customers. From the windows board members could see all the local banks. They joked about using BB guns to get the bankers moving faster.
"This is the crab gumbo method of financing," says the SVA's Croft. "It takes a ton of ingredients, but you need the big pieces most of all." Because the company would be partially owned by employees through an employee stock ownership plan -- 10% in year one, 30% by 1996 -- a state ESOP fund had lent City Pride $100,000 in 1989 to write a business plan, while city and county programs kicked in $10,000 each. But by the fall of 1990 the project was essentially broke again and had been rejected by all the banks.
In November 1990 Curtis called on Ned Randall, the executive vice-president for retail banking at the Pittsburgh National Bank and one of the most well-connected people in the city. "It was 4:30, it was cold, the streets were covered with ice, and I asked if he'd take a look at the business plan," remembers Curtis. "He asked me to leave it, and I walked out extremely discouraged." That night, though, Randall called Curtis at home. "The project made sense to me," says Randall, who also headed up the Pittsburgh Partnership for Neighborhood Development at the time. "It was going to save some jobs and bring something good to the city."
With arm-twisting by a number of people, including Mayor Masloff, four banks came together at the end of December to pledge loans and a line of credit if City Pride came up with $2.1 million in equity. ("Did we threaten blackmail?" says Masloff slyly. "Of course we call on that frequently.") Supported by $35,000 in loans from several Catholic orders in late 1990, the project struggled along in early 1991, constantly on the verge of running out of money as the banks and venture-capital firms that were sniffing around did exhaustive due diligence. "I quit mentally many times," concedes Curtis. In May 1991 the project was "founded" yet again with a $200,000 round of equity financing from the company's managers and two venture-capital firms; those actively working on City Pride had grown to include outside financiers, the bakers' union, and various government and community agencies.
The project ticked along that summer: the factory, which was being built to spec, began to take shape (City Pride will rent the space, which is located in an enterprise zone), and all the players gathered for a picnic at the site in late June. The major financing package finally jelled in September 1991, when an opportunity arose to buy the perfect used equipment before it went to auction -- if City Pride acted quickly. "Without that kind of critical deadline, it might have been very hard to persuade everybody to act," says Derek Minno, general partner at Point Venture Partners, which has invested a little more than $1 million for a 45% share in the company. The closing -- when the four banks locked in on their $2.8-million loan -- was a two-day marathon involving 25 people.
In all, City Pride has raised about $8.5 million: $3.2 million in equity, $5 million in debt, and the balance in grants. The equity sources included Curtis, his friends, and some of the employees for about $1 million, and several venture-capital groups. The gas company lent money to build the freezer and also took an equity position. The Lawrenceville Development Authority became part owner through a half-million-dollar grant for job training from the federal Department of Health and Human Services. Almost $400,000 in loans came from local and national religious groups drawn to the project's goal of putting unemployed people to work, and the city pledged a $360,000 grant for training. The state kicked in $1.1 million in low-interest loans, and the county government and city Urban Redevelopment Authority both added loans of $200,000. Several foundations, along with the bakery union, guaranteed the promises of the charitable organizations. Says Luc Beaubien of Zero Stage Capital, another investor, "This is the most complicated capital structure I've run across."
About $1.6 million went to buy two used ovens and other equipment, which were hauled from San Jose, Calif., to Pittsburgh in 55 trucks; another $2 million was spent to refurbish them. In December 1991 City Pride began staffing up, taking the cost-cutting -- and unusual -- step of having bakers come in and work under contractors to put together the guts of the bakery operation. Lawyers cost another $380,000.
The project is again operating without a safety net: managers expected that by the time the plant started producing, the company would have spent all its money and drawn out its line of credit to the $600,000 limit. As of June the company was looking for another $500,000 in equity, which Curtis calls "not crucial, but nice for an extra cash cushion." He's hoping City Pride will be an exception to the start-up rule and run at break-even from the word go.
* * *
The Operations
Hundreds of people lined up for seven blocks when City Pride announced its job openings. The letters kept coming: by last April the company had received more than 3,500 applications for its 120 positions. City Pride will pay an hourly rate $3 to $4 less than Nabisco up the road -- through their union, the bakers have agreed to work for pay 28% below the regional wage scale in return for a piece of the ownership -- but will offer classes in reading and nutrition, in addition to the basic union benefits. There are plans for an on-site day-care center.
