Obtaining funding in today's economy remains difficult, but a small group of companies has hit a jackpot: They've linked up with VC funds founded by mega-entrepreneurs like Ben Cohen of Ben & Jerry's fame--men and women who can provide young businesses with a double dose of capital and management expertise.
Cohen is hardly the only entrepreneurial superstar to start a vanity venture fund. Howard Schultz, founder of Starbucks, is a major investor in Maveron, a fund focusing on retail companies that show breakout potential. And Frank Biondi, the chief executive who helped turn Home Box Office into an international powerhouse, has co-founded Waterview Partners, a fund focused on media and communications companies.
Many of these entrepreneurs are looking for businesses that have the same qualities that made their own companies successful. "We search for entrepreneurs who already have a segment of their market staked out and are interacting closely with core customers," says Chuck Lacy, president of Cohen's The Barred Rock Fund.
Paul Schervish, a sociology professor at Boston College who has studied a range of investor funds, agrees that the big names aren't looking for businesses that are just throwing around ideas: "Successful entrepreneurs inherently understand small business. To them, the most important thing is that a young organization has identified a clear demand in the market and already is on the ground meeting that demand rather than just drawing up future plans."
Because leading entrepreneurs remember founding a company, they also may be easier to work with than traditional venture funds. "Ben and Chuck are more willing to provide expertise from the sidelines but leave control in the hands of people running the business," says Bill Dunn, vice president of Sun & Earth, a 14-person Pennsylvania natural soap company part-owned by The Barred Rock. "They know small companies' management has to be able to make quick decisions."
What's more, while many VCs are pulling back, mega-entrepreneurs' funds remain loaded. Maveron raised $340 million the last time it went back to its investors. "Having a prominent figure helps us attract capital," says Pierre Ferrari, president of the Hot Fudge Social Venture Capital Fund, another of Cohen's enterprises. Ferrari suggests that small businesses looking for entrepreneurial heavyweights to back them should contact VC groups like the Social Venture Network, which can help companies find funds that might match their needs. Ferrari also suggests entrepreneurs attend as many local VC road shows as possible and not shortchange themselves when asking for cash:
"[Ask for] enough cash to ensure you won't always be walking a liquidity tightrope."
- The Barred Rock Fund
324 Brownstrace, Jericho, VT 05465, (802) 899-2776
- Boston College
(617) 552-4070, www.bc.edu/swri
- Hot Fudge Social Venture Capital Fund
810 Clifton Heights Ln., Atlanta, GA 30329, email@example.com
- Sun & Earth
(800) 298-7861, www.sunandearth.com