Companies hope Duluth can sprout fast-growing firms

Posted on Sat, Feb. 09, 2002  
Companies hope Duluth can sprout fast-growing firms
Area is not too remote, venture capitalist says


A Twin Cities venture capitalist for technology companies said Friday that Duluth is not too far out of the way for his firm, but companies seeking his help need to have a solid plan for fast growth.

Some technology companies say getting money for their ventures in remote Duluth, where financiers are more comfortable with traditional companies, has been a stumbling block to making the technology sector grow.

"We're looking for good investments, no matter where they are,'' said Mac Lewis, managing partner for Sherpa Partners. Lewis talked to Northland Technology Consortium members at its monthly meeting.

Venture capital firms look for small companies with solid plans that can grow fast. They often take an active role in the company, such as putting a partner on the board of directors.

Because of that, it can be hard to compete with companies located near a venture capital firm.

"They have so much going on down there, that I don't know if anyone has invested in Northeast Minnesota,'' said Andrew Lucero, director of emerging technologies at Minnesota Power. "We need more venture capital in Duluth.''

The Technology Consortium encourages and helps technology companies and people involved in technology work. It has a membership of about 60 companies.

It brought Lewis in so members could hear an outside perspective on venture capital and, possibly, to learn how to tap that market.

"Some Duluth company is going to be a home run,'' said John Foucault of Points North Consulting. "We just don't know who it will be.''

Lewis said his company, which has started one venture capital fund and plans to start a second soon, requires companies to meet several criteria:

The product must target a large, growing and new market.

Its product must be clearly different from what is available now.

The company has to be able to prove its targeted customers will buy the product.

The company's managers need to be outstanding -- and enthusiastic about the idea.

"If it's not exciting enough of an idea for people to get together in a garage and work on it for months, maybe it's not a fundable idea,'' Lewis said.

The company's managers have to be committed to growing and to making investors' value grow.

Because venture capitalists target new companies testing new ideas, many investments fail. Because many fail, returns need to be high to make up for the losses.

How high? Lewis said venture capitalist want to see potential for a 35 percent rate of return.

"Remember, we're investing other people's money here,'' he said.

The managers of venture capital funds solicit large chunks of money from wealthy investors. They use that money to invest in start-up companies and, when the company goes public or is sold, the returns are distributed back to the original investors.