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Investors hope to raise $50M for Vt. growth companies

Friday, July 14, 2017   (0 Comments)
Posted by: Jeff Couture

Dustin Glasscoe, owner of Vermont Farm Table, was working in his retail store on College Street in Burlington on a Friday afternoon about a year ago when a tall, lean man stopped in to ask, "How's business?"

Glasscoe said business was great. Vermont Farm Table makes custom furniture in solid wood, mostly for commercial customers, but also for individuals.

The man asked, "What's your biggest problem?"

"Finding funding," Glasscoe quickly replied. "Find me the capital to help grow our business."

"Tell me more about it," the man said.

Glasscoe needed money to expand. Vermont Farm Table's business had exploded over the past couple of years, as companies like Google and Verizon began buying furniture to outfit their offices around the country.

"They do like nice furniture," Glasscoe said.

The Bristol furniture maker grew by 75 percent last year; Glasscoe expects to match that growth this year.

Glasscoe didn't know it at the time, but he was talking on that Friday afternoon a year ago to Frank Koster, chief executive officer of Vermont Works. Koster and his partner, Robert Zulkoski, chairman of Vermont Works, intend to raise a fund of $50 million to invest in the growth of Vermont companies by about this time next year.

Glasscoe gave Koster a 10-minute overview of Vermont Farm Table. On the following Monday, Koster and Zulkoski drove to Bristol to see Glasscoe's 10,000-square-foot wood shop, where the tables and other furniture are made.

"That's how we kicked it off," Glasscoe said.

Koster and Zulkoski were interested in Glasscoe's personal development as well as his business development.

"They asked questions about our wellness goals and our work/life balance," Glasscoe remembered. "That struck a chord."

Over the next several months, Glasscoe and the Vermont Works partners worked out the terms of an investment. Vermont Works ended up providing 20 percent of the capital Glasscoe was trying to raise to expand his business.

Glasscoe raised the balance, mostly from out-of-state investors, by the beginning of this year. He's currently searching for a space to triple the size of his current workshop to around 30,000 square feet.

The gap

Vermont Farm Table represents exactly the scenario Vermont Works was created to address — growth stage companies looking for capital. Zulkoski points out that in a respected index compiled by the Kansas City-based Kauffman Foundation, Vermont ranked 5th in the nation in the number of start-ups per capita, and 49th in scale-ups.

"That is the story," Zulkoski said.

And it is that gap, between 5th and 49th, that Vermont Works wants to help to bridge -- $50 million would be a start.

The partners saw a state with a declining population and an aging population. Demographics are not working in Vermont's favor. 

"We saw this gap and thought if we could raise a fund for growth stage equity capital we could solve for those issues," Koster said. 

Glasscoe provides real-world confirmation of Koster's and Zulkoski's assessment.

"It's a consistent theme that regardless of what industry, my peer network is having an incredibly difficult time ... finding mid-range capital," Glasscoe said.

Vermont Works fills a "critical zone" in which the banks are not willing to step in and something more than angel investors are needed, Glasscoe said.

'Our dogs are brothers'

Robert Zulkoski, 56,  is from Connecticut, but established a residence in Charlotte in 1994. He was headed to Singapore for GE Capital to run its real estate and investment business in Asia. After three years, Zulkoski left GE Capital in 1996 to start his first personal entrepreneurial endeavor, which involved building a chain of 44 properties offering extended-stay housing — a "mashup" of an apartment building and a hotel.

Zulkoski went on to establish a series of other investment companies in Asia, living in Vermont an average of about 5 months of the year, before moving back to Vermont permanently in 2012.

Frank Koster, 59, moved to Vermont in 2009 to become chief investment officer for Dwight Asset Management — now Goldman Sachs Asset Management — on Burlington's Bank Street.

Koster had previously worked for Wells Fargo Asset Management in Milwaukee, managing pools of assets for a number of different institutions. Koster bought a house in Charlotte, next door to Zulkoski.

"We're next door neighbors," Koster said. "We do think that's amazing. So many things aligned us to do this. That's one of them. Our dogs are brothers."

Vermont Works' origin story can be traced to the fire pit at Koster's home, where Koster and Zulkoski would often sit and talk after skiing or hiking together. In February 2016, they were having a conversation about Vermont. Zulkoski had just returned from yet another trip overseas, working on a social impact investment platform he's involved in.

Social impact investing is often summed up as "Doing well by doing good." Both Koster and Zulkoski had made the social impact of their investments a priority — a good fit for Vermont where many companies boast about their triple bottom lines of people, planet and profit, with profit coming last. 

"I was whining to Frank about how my back hurt," Zulkoski remembered. "At that time I didn't know I had a partially herniated disk. Frank looked at me and said, 'Why are you doing this?'"

Zulkoski misunderstood the question, thinking his friend was questioning the value of social impact investing.

"I gave him a long riff about about social impact," Zulkoski remembered. "He said, 'No, I get that. Why are you doing it so far away? Why don't you do something here in Vermont?'"

The answer was Vermont Works.

"We went from there," Zulkoski said. "There is an opportunity to address some of the social challenges here in the state we love, with the skill sets and networks we have built up over 30-plus year careers."

Outside money

The partners began by making their own investments in four Vermont companies, including Vermont Farm Table. Zulkoski declined to say how much Vermont Works has invested but put it in the millions.

The next step is to raise $7.5 million from investors within the state, before they go to out-of-state investors. They hope to close on the in-state fund by mid-fall.

"It's very simple," Zulkoski said. "If we're sitting down with the Calvert Foundation in Chicago, for example, asking them to invest in Vermont, they're going to ask one question, 'How much have you raised in Vermont?' And if it's not a good answer, it's not a good outcome."

"The meeting's over!" Koster said.

Koster and Zulkoski plan to raise 85 to 90 percent of the $50 million fund from out of state, once they've closed on the 15 percent from in-state investors. Next week, the partners will attend a conference in Nantucket,Mass., sponsored twice a year by Big Path Capital. Zulkoski describes Big Path as "one of the premier gatekeepers for the social impact investment community."

Vermont Works is one of five funds to be showcased at the conference, chosen from a pool of more than 50 funds.

Koster and Zulkoski are focused on raising capital out of state because they see it as the only hope to inject the kind of money into the Vermont economy the state needs to turn around its long, slow decline.

"There has been insufficient funds raised to invest in Vermont from non-Vermonters," Zulkoski said. "The sad truth is if you bring 100 investors into a room from out of state and say, 'Write down your 50 best investment ideas,' I'd be surprised if one of them put, 'Invest in Vermont.'"

Zulkoski said the number 1 reason companies leave Vermont is because there is not an "empathetic, consistent pool of capital." Vermont is a small state with limited wealth.

"To have any chance of building a sustainable ecosystem, you have to raise money out of state," he said.

Source: The Burlington Free Press


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