Venturing into Worcester
VC brings its model from Maine to Mass.
By Laura Schreier
Venture capitalists generally look to cash in big on the hottest new technology companies with major metropolitan addresses, pouring money into the Next Big Thing in New York or San Francisco.
But CEI Community Ventures in Maine was created specifically to go where the other venture capitalists usually don't - depressed areas with a higher poverty level.
Originally part of a federal program, CEI Community Ventures has invested in nine northern New England businesses, and now its president is looking to launch a private-capital-only fund in southern New England, including parts of Worcester.
The plan is to create a new venture group and raise $50 million in private funds from banks, insurance companies or other typical venture capital sources. The group will then find promising local businesses and put time and money into making the companies thrive.
"It's the same material [as before], just slightly customized to the region," said CEI Community Ventures president Michael Gurau.
In seeking out distressed areas, the company is focusing on a wide geographical swath, including areas around Worcester and Springfield. Businesses located outside those areas aren't necessarily off-limits, though - the new fund could work with companies willing to relocate to distressed zones, a strategy that worked with companies under CEI Community Ventures, Gurau said.
Gurau has approached the Worcester Business Development Corp. about possible investment in the city.
WBDC president David Forsberg said he met with Gurau for about an hour recently, and the meeting was productive and promising.
"Worcester fits the demographic that they work in, and I think they're very interested in Worcester," Forsberg said. "They've got a track record and it's a good one, from incubator start-ups to pretty huge success stories."
Forsberg said the South Worcester Industrial Park would be an ideal candidate for CEI investment in Worcester. He said CEI was also interested in investments downtown.
Doing well by doing good
Mark Heesen, president of the National Venture Capital Association, said CEI Community Ventures isn't the only federal venture group moving to go private. The federal programs that funded such groups helped a lot of them get off the ground and eventually go completely private. Now that federal funds aren't there anymore, many of the same people, like Gurau, are going for all-private funds with their next projects.
"There is certainly evidence out there that investing in these off-the-beaten path companies and geographies can be socially gratifying as well as economically advantageous," he said.
Using a combination of private capital and federal funds, CEI Community Ventures bought into various companies around Maine, New Hampshire and Vermont, combining private and public money to grow businesses in depressed areas. "Depressed" in this case means that the area's makeup meets specific criteria, including whether more than 20 percent of the area falls below the poverty line.
Gurau said the company assumed an interest in food businesses, clothing lines, skincare products - not typical venture-capital magnets.
"It's not about the next Microsoft, it's about the next Tom's of Maine or Stoneyfield Yogurt," he said. "If we can make money and do it, it's a win for everybody."
CEI Community Ventures and other outfits like it have been following the same basic model for years. Like many venture capital groups, it finds a promising private business and invests money into it, with a representative taking a seat on the business' board of directors. Eventually, after repositioning and realignment, the company is sold or goes public, ideally generating a healthy return on the original investment.
Performance measures
With federal funding available, venture capitalists like CEI Community Ventures were willing to pump money into businesses from depressed areas. But Gurau said it's not a charity cause; those businesses have to be able to turn out strong returns.
Garau points to success stories including that of The Rustic Crust Co. in Pittsfield, N.H.
In 2004, The Rustic Crust was called Ever Better Eating, an organic pizza crust company that employed 11 or 12 people, said president Brad Sterl.
With the help of CEI's funds, Sterl's company re-branded itself, got new packaging, hired a vice president of marketing, and revamped its strategy. It now employs more than 30 people and business is growing, Sterl said.
Sterl noted some companies have to give up a great deal of control to their investors, but he was able to maintain most day-to-day operations.
This article was written by Laura Schreier of Hartford Business Journal. Matthew L. Brown of the Worcester Business Journal also contributed to this story.
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