Elaine Linker, 57, didn't launch her cosmetics company, Doctor's Dermatologic Formula, with the vision of bringing on venture investors. But the company's rapid growth left her little choice. She has now had four rounds of venture funding from four different funds--and each invested in her company for very different reasons.
In 1999, when Linker first went looking for capital, few VCs were interested. Based in New York City at the time, Doctor's Dermatologic Formula wasn't as attractive to VCs as the many dotcom companies dominating the headlines in those days.
But one fund, the New York Community Investment Company, liked the fact that DDF was a small, woman-owned business and wrote Linker a check for $500,000.
A few years later, DDF again needed capital to increase manufacturing capacity in its new Yonkers location. This time, two other East Coast venture firms--Easton Capital Investment Group in New York City and SJF Ventures in Philadelphia put a total of $1.6 million into the company in two rounds.
The two funds made their investments for different reasons. The prospect of creating quality jobs while reaping a good financial return motivated SJF Ventures, says managing director Dan Hoversten. "We were excited to see the business grow after they moved to Yonkers. They were doing so well that they added a second shift at that manufacturing facility." Like PCV, part of SJF Ventures' mission is to create economic opportunities in financially disadvantaged communities.
Easton Capital Investment Group, on the other hand, was attracted by the growing skin-care segment, says Linker. Easton primarily invests in health-care companies, and skin care is a growing piece of that market.
Of course, both funds liked the financial opportunity. "The trend in the doctor-endorsed, high-end skin-care market was key. The market itself was relatively small, but growing rapidly," says Hoversten. The products also sell at premium prices, he adds. "There are very high margins in this prestige market. From a financial standpoint, that attracted us."
Linker's fourth and most recent round of capital is perhaps the most revealing of her success. With revenue nearing $20 million, the company had outgrown both the New York Community Investment Company and SJF Ventures. To maintain her record of 40 percent annual growth, Linker needed a new, larger VC team. She set her sights on North Castle Partners, a private equity firm investing in the healthy-living and aging segments of the health-care market.
Linker knew her market and was quick to point out the opportunities for profit. "Our niche, the clinical skin-care market, is a very small piece of the overall skin-care market," Linker explains. "But the opportunity to grow is enormous."
That was exactly what North Castle needed to hear. North Castle and Easton Capital Investment Group made a large (but undisclosed) investment in DDF, even purchasing the shares previously held by the New York Community Investment Company and SJF Ventures.
"That's when I knew we'd hit the big time," says Linker, who is not planning on looking for any additional venture capital. "It's all about continued growth now, so we can eventually sell the company."
Where to Turn
You don't need to be high-tech to raise big bucks from venture funds. To find the right VC for you, start by identifying all the things that make your company a unique investment. Are you a woman or a minority? Does your business create entry-level or low-skilled jobs? Are you pioneering new socially or environmentally responsible business practices? If you can answer yes to any of these questions, reach out to the nontraditional venture firms in your area.
Funds that support women, minorities and job growth are often called community development funds. Nearly 80 such firms are listed on the Community Development Venture Capital Alliance website at www.cdvca.org. And be sure to contact your state's community development office for other funds in your area.
If your business has a strong environmental ethic, be sure to also check out Investors' Circle, where member firms give priority to companies that measure success based on the "triple bottom line" of environmental, social and financial benefit.
David Worrell is an investment banker and author of the e-book Finding Funding.