Local Area Network

By opting to keep her high-tech start-up, Thermagon Inc., in Cleveland, founder Carol Latham was able to leverage her local ties to build a sophisticated network of investors and employees.

1 | 2 NEXT

The Inner City 100: Creative Strategies

Having chosen to build her business far from the high-tech community, Carol Latham proved she could master the one resource that mattered most: other people

Potential investors had no shortage of reasons for turning Carol Latham down. At 50, she had never run a business, never worked in manufacturing, and never sold a dollar's worth of product. And if those factors weren't off-putting enough--and they usually were--the location of her high-tech start-up sealed the deal: Thermagon Inc. (#6) was based in Cleveland.

"I'd talk to venture people in California, and they'd say, 'You're too far away. We'd at least like to watch over our investment,'" Latham says, recalling her two-year struggle to raise less than $1 million, which ended in 1992. But in a classic catch-22, local investors were skittish about backing Latham, because they didn't understand her invention, a filmy material, sold in sheets, that is used to keep microprocessors from overheating. It was hardly the kind of product that rolled out of local factories. Hers was an information-age innovation, but Cleveland, she notes, "is a nuts-and-bolts manufacturing town."

To raise money, it might very well have made sense for Latham to head for Silicon Valley. But "I felt I had the best shot at launching the company in Cleveland," she explains. "I had friends and I knew people. I could survive here."

Latham couldn't have anticipated Thermagon's growth rate--from 1993 to 1997, revenues exploded by 2,662%, with the company grossing $8 million last year. Still, her instinct about what would fuel its growth was right on target. Suburban office-park entrepreneurs may have access, if not physical proximity, to a support system for start-ups. But often urban pioneers like Latham end up piecing together their own ad hoc infrastructures, cultivating contacts to build as sophisticated a network as any already in place.

A trained chemist, Latham took a scientific approach to the task. Rather than popping in at every chamber-of-commerce function in hopes of bumping shoulders with someone who might be remotely interested, Latham worked hard to identify those she could trust, building her network one person at a time. Once she was rejected by formal lenders, Latham started pitching the business plan to friends, relatives, and neighbors. She came up with--and refused to stray from--three criteria for her ideal angels. First, she wanted investors who would not seek controlling equity. Second, she wanted professionals who could add value beyond their checkbooks. Third, she targeted people who knew her socially, because she figured they'd weigh her personal integrity in deciding to invest. "It was hard for me to do," Latham says. "It's really not my style to talk to my friends about investing in something that's 100% risk. The last thing you want to do is ruin a friendship."

In addition to soliciting money from friends, she also asked them for the names of other potential angels. She soon had five investors lined up, each contributing $10,000 to $30,000. None knew anything about technology. But her angels found another reason to invest: namely, Latham. "I brought in other investors because I had faith and trust in her integrity," says Del Ingram, a retired Cleveland entrepreneur who put in $30,000. "After three companies, I've found that that's what business is all about." Accountant Dick Lancaster, a sometimes tennis partner of Latham's, put in $10,000. "She was a friend, and she needed help," he says.

Until this year Lancaster also prepared all of Thermagon's financial reports and taxes. "I got her records up to snuff," he recalls. "I started doing quarterly reports as it grew, and then monthly." He didn't charge her until around 1993.

1 | 2 NEXT

Try a RISK-FREE Issue of Inc. Today!

Renew | Contact Us | Current Issue

Select Services