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From In Business Magazine September/October 2001, Page 10 Finding The Money SEEKING to enrich not just their bottom lines, but their communities as well, Community Development Venture Capital (CDVC) funds are equity investors operating much as private equity funds do. They give entrepreneurs money in return for a stake in their businesses. But unlike private market venture capitalists, these venture capital funds have what Jacob Singer, senior portfolio manager of the Silicon Valley (California) Venture Capital Fund, calls a “double bottom line.” With investment portfolios of over $350 million, they seek to enrich not just their investors, but their communities. They are investors with a mission. Environmental businesses are discovering that these “mission-driven” equity investors make compatible bedfellows. The investor has cash to invest, but needs a business with a social benefit. The environmental business, predicated upon stewardship of scarce resources, complements the CDVC’s mission. Furthermore, the business gains the savvy of the equity investor, who can function as a fiscal/marketing/organizational advisor. Here is a tale of three such unions. Boston Community Capital, a four-year-old CDVC fund, has invested in 13 companies. Among them are ZipCar, Selectech, and Castion — all young companies, all desperate for cash, and all promising environmental benefits. ZipCar Before the business plan and the search for investors, management consultant Robin Chase knew that Zipcar would work. In congested cities, with scarce parking, owning a car can be not just a financial, but a logistical, nightmare. As for public transportation, the schedules and hub routes rarely permit trips to the suburbs. And riders can’t cart heavy packages on a bus. Zipcar proposed a solution. Zipcar would lease and maintain a fleet of cars, parked throughout Boston. A client would buy a membership entitling him to rent a car, by the hour. The member-user would log on, enter a pin number, pick the date/time/ place of his rental, and then have access to the car in that place, at that time, arranging to return it at a set time. A special card would serve as the lock and ignition key. European cities have similar rental car operations. Why not Boston, where the city’s clogged roads (as well as polluted air) didn’t need more cars? Indeed, if Zipcar could discourage Bostonians from buying cars, it would prove an environmental boon. Robin, though, needed capital. At an Investors’ Circle meeting, she plugged Zipcar. That forum led her to Boston Community Capital, which invested $250,000 — and structured the financial undergirdings of the business. As the lead investor, they coordinated the 13 other investors and created the stockholder agreements. Zipcar was incorporated in January 2000. Today it has 54 cars (Beetles, Golfs, Passats), with more than 1,100 members (annual fee: $75). It has rented some parking spaces, but has also received donated spaces, from Harvard, MIT, the Massachusetts General Hospital, Fitzinn Parking, and the cities of Somerville, Cambridge and Brookline. When a person signs up for membership, Zipcar checks driving records; Zipcar does not accept drivers with blemished records. Rental fees range from $4.50 to $7.50 an hour (depending on location) and $.40/mile. This fall Zipcar will be expanding to Washington, DC, and New York City — congested cities with lots of potential members. CASTion CASTion (Controlled Atmosphere Separation Technology) is a water purification/recovery business, born in an inventor’s garage in the late 1980s. It offers manufacturers a total recovery technology: the system is designed to purify hazardous wastewater, return it for reuse, and capture residual contaminant chemicals (which can then be reused or discarded). A manufacturer that electroplates chrome on bicycle handles, or on school desks and chairs, could use CASTion to purify hazardous wastewater, while capturing for reuse the valuable nickel and chrome plating residues. CASTion, moreover, does not discharge anything into the air. The prototype worked — enough to gain evaluation, and legitimacy, from the Massachusetts Department of Environmental Management’s STEP program — but not enough to attract a market. With no field installations, the embryonic company could not lure investors. Indeed, a mission-driven venture capital fund turned the company down in the mid-1990s. In 1998, John Gannon, the new president and CEO, set about building a business. He drafted a business plan and raised $1.5 million from the investment subsidiary of the Green Mountain Power Company. In February 2001, Boston Community Capital came on board, as a coinvestor behind the Massachusetts Technology Development Corporation, bringing another $1.1 million. Today CASTion, based in Westfield, Massachusetts, has 32 installations. Its revenue has grown from nil to $1.5 million in three years. The marketing brochure promises clients a payback within two years; the CEO proudly notes that the payback to Columbia Bicycle Company for its $750,000 installation came in 15 to 18 months. (Clients can also lease CASTion.) The benefits to the environment are obvious. Water purification systems struggle with discharge from manufacturing plants. The chemical from the Columbia Bicycle was chrome 6 — the bete noire of Erin Brokovich’s campaign. CASTion has also created jobs in a depressed region. The company employs 11; the more clients for CASTion, the better off western Massachusetts. With support from Boston Community Capital and the Massachusetts Technology Development Corporation, CASTion plans to raise another $3 million. Because a range of manufacturers — from school desks to automobile wheels to, most recently, consumer beverages — discharge water that can be captured for reuse, CASTion expects to continue expanding — gaining more clients, creating more jobs. SelecTech Operating from an old mill in Taunton, Massachusetts, the three founders of SelecTech have focused on recycling discarded plastics into such products as planters, landscape timber, traffic stops and floor tiles. Tom Ricciardelli, president, needed money to turn the products into a business. In 1994, he developed a business plan; by 1996, SelecTech raised an initial round of capital. In 1999, two community development venture capital funds — Boston Community Capital and Sustainable Jobs Fund (based in Durham, North Carolina) invested in SelecTech along with Fleet Community Banking’s fund. Of the six board seats, four are filled by investors. Today, with reliable products, SelecTech is a successful business, employing 30. Not surprisingly, Ricciardelli wants to expand. But he is looking to the private venture capital market for the needed $5 to10 million. In the case of SelecTech, the “mission driven” equity investment did what it was designed to do: give money to a fledgling business that with capital could “grow” and be profitable enough to eventually attract private-market venture capital. For all three businesses, Boston Community Capital came at a propitious time — giving them money that they most likely would not have gotten from conventional lenders, or from the private venture capital market. Contact Information: Community Development Venture Capital Association: www.cdvca.org; and Boston Community Capital: www.bostoncommunitycapital.org. Zipcar: www.zipcar.com; Castion: www.castion.com; SelecTech: www.selectechinc.com.
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