One of the most challenging parts of building a company is figuring out which investors can add the most value to it. Not all venture capitalists are created equal; some are sharper and better wired into specific industries than others are. Unfortunately, says Bondurant T. French, a partner at Brinson Partners, in Chicago, it isn't easy for outsiders to figure out who the most knowledgeable people are. "As with anything," says French, whose firm helps institutions select venture funds to invest in, "you need to ask around."
The best sources of information will often be people in your industry -- other CEOs, suppliers, and customers. And while you're looking, don't overlook the niche funds, which concentrate their investments in specific areas. A fund that specializes in your industry could be the best investor you could find.
Here's a sampling of specialty funds:
Defense Technology Conversion Fund, Washington, D.C., 202-862-5479. This fund is raising money from U.S., European, and Japanese sources to invest in defense-oriented manufacturing companies seeking to make the transition to a commercial market. It will focus initially on operating businesses in Mid-Atlantic states needing $1 million to $2 million, says Donald Goldstein, a founding partner.
Cherrytree Ventures, Bloomington, Minn., 612-893-9012. Founded in 1981, Cherrytree began focusing on education more recently, notes vice-president John Bergstrom, in response to growing interest in corporate training and to wider educational options. So far, it has invested in, among other things, a producer of training videos and a textbook publisher. Investments generally range from $1 million to $2 million, and the firm will consider both early and later-stage deals.
The Food Fund, Minneapolis, 612-943-1715. Started in 1990, the Food Fund has done eight deals to date, ranging from a $180,000 start-up investment in a pasta-snack-food business to a $2-million buyout of a baking-equipment company formerly owned by Pillsbury. Partner John Trucano says the fund will consider investments in food processors, distributors, equipment manufacturers -- anything but restaurants. All but 3 of the fund's 18 limited partners have been in the food industry.
Phillips-Smith Specialty Retail Group, Dallas, 214-387-0725. Founded in 1986 by two former executives of Pearle Vision, it has been an investor in superstores as well as specialty retail concepts. The fund will also get involved in restaurants and quasi-retail businesses (like auto-tune-up centers). It will consider any stage requiring at least $1 million, says partner Cece Smith, but it prefers to invest in $3-million to $4-million chunks.
Socially Responsible Businesses
Calvert Social Venture Partners, Bethesda, Md., 301-718-4272. Operating since 1988, this fund looks for sound investments with opportunities to provide social value. It has put money into environmental-services deals, for-profit human-services providers, and educational ventures, according to partner John May. Calvert will consider early-round investments as small as $50,000. -- Researched by Michael P. Cronin