FACE TIME – Charlie Goff on venture capital for the risk takers
Charlie Goff founded Forward Enterprises, Inc., a distributor of industrial piping products serving the paper industry, in 1978. He expanded the Appleton-based company to five locations in three states before selling in 1998; then was general manager for the regional division. He sat down with Insight Editor Margaret LeBrun to talk about NEW Capital Management, which he founded in 2006, and the impact of venture capital funds in the New North.
BACK IN 2005, ONE OF THE KEY initiatives of the New North was to identify capital sources in addition to traditional funding sources. There was a report done by David Ward and Dennis Winters (of NorthStar Economics) that identified we had no sources of venture capital in Northeast Wisconsin – we didn’t even have an angel group. And so a group of us got together and said “How do we make this happen?” I guess I was the one person in the room that indicated a willingness to take on that task as a full-time effort. I had spent a number of years dealing with finance and operations and I have experience in how to put together a capitalization plan and make it work.
When you look at the timeframe we were raising money – in 2005 – those were some pretty heady times. It had been awhile since the last crash and a lot of people were feeling the wealth affect, so were able to accrue to 80 partners. In order to be an investor, you have to be an accredited investor. That definition has changed over the years but it’s basically a net worth of $1 million or a salary of $300,000 a year.
In the first fund we made 11 investments, all from the state of Wisconsin, and we’re in year seven of that. It included three companies from Northeast Wisconsin: Frozen Codebase, Ro-Flo Compressors and Aurizon Ultrasonics.
It took us some time with the first fund to hook up with the right folks who had the ear of the investment community. We’re tapped into that now, and we think that at one time or another we’ll see most of the early-stage opportunities in the state.
We held the initial close for the second fund in January, with roughly $25 million in capitalization. Thus far we’ve made one investment toward our goal of 12 to 15 investments and we are pleased with the quality and quantity of the deal flow.
It’s important to note that in Fund One, I was the sole general partner, whereas with Fund Two we have four general partners: Robert DeBruin, David Gitter, Steve Predayna and me. (Now there is another venture capital group in our region called Angels on the Water.)
In our second fund, about half of our capital will be focused on early stage businesses with intellectual property, and the other half will be focused on growth stage business stemming from spinoffs from existing companies. We feel the mix of early- and growth-stage companies in our portfolio will offer an attractive risk/reward profile to our investors. We plan on closing the second fund to investors, with a final committed capital total of $30 million, by mid May.
There’s a difference between a good business and a good investment. Generally that means both the founders and the entrepreneurs and the investors have to be on the same page in terms of selling the business. A key word is scale. How can you scale the business? For example, service related organizations may be good businesses but they don’t scale very quickly because you need feet on the ground in all the markets in order to grow rapidly. A good investment business absolutely has to have a national or international market for their products.
Clearly venture funds are making a difference. When you look at how you foster an entrepreneurial culture from the investment side, the answer is in recycling wealth. You have to have the significant successes, the payouts.
There are people who want to put a percentage of their net worth into these kinds of investments. When they’re successful, they just seem to come back and try to do it again.