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A New Investment Fund Seeks to Spur Vermont's Startups

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From left: Tom Moody, Cherian Philip, Allison Maino, Jim Crook and John Antonucci - DARIA BISHOP
  • Daria Bishop
  • From left: Tom Moody, Cherian Philip, Allison Maino, Jim Crook and John Antonucci

Private equity investor Jim Crook and four associates have launched an investment fund aimed at injecting $12.5 million into promising startup businesses in Vermont.

Announced this week, the Dudley Fund will focus on early and mid-stage Vermont companies that need an initial infusion of about $50,000 to $150,000 in order to grow. The goal is to find and fund entrepreneurs who have demonstrated that they can create jobs and inject money into the state's economy.

"This is for companies that are going to create a significant economic impact, that will create jobs here, pay taxes here, support other local businesses here and generate wealth," Crook said. "That is our most important objective."

In return for their investment, backers will get a small share in the company — as long as it succeeds. If it goes out of business, their money goes with it.

Crook spent 25 years as an executive at IDX Systems, the South Burlington company that was sold to GE Healthcare in 2006 for $1.2 billion. Since then, he has operated a private equity firm called JH Capital that has invested in several Vermont businesses, including DealerPolicy Insurance of Williston, Greensea Systems in Richmond and Beta Technologies, the fast-growing electric aviation company based at Burlington International Airport.

Crook's founding partners in the Dudley Fund — a separate undertaking — include his daughter, Allison Maino, who runs operations for JH Capital; executive director John Antonucci, the former director of LaunchVT; financial consultant Cherian Philip, with whom Crook worked as an investor at Aspenti Health, a Burlington health care company that was sold last May; and Tom Moody, a director at Downs Rachlin Martin and a longtime Crook associate.

In preparation for the Dudley Fund's debut, the founders last year raised $250,000 from each of about 50 partners, all but two of them in Vermont. Another 25 people who aren't investors will serve as mentors or advisers for the companies that Dudley is investing in.

The group named the fund after Dudley Davis, who died in 2004 after six decades at Merchants Bank. He was also a big financial supporter of the University of Vermont, and its student center is named after him. Davis was a courageous and visionary local lender, Antonucci said.

"Some of our most successful companies — IDX, Rhino Foods, Gardener's Supply and Twincraft Skincare — got their start thanks to Dudley," Antonucci said of Davis. Michele Asch, a VP at the Winooski-based Twincraft, is on the Dudley Fund's seven-person investment committee, which will make investment decisions.

It's riskier to invest in a fledgling company than in an established one. In meeting with other funders and business leaders in the Burlington area last year, the Dudley group learned that this was the kind of funding the area needed most.

"In Vermont, there were some early stage companies where people that had good ideas couldn't get them off the ground because they couldn't get their first $100,000 of capital to get the ball moving in the right direction," Crook said. The Dudley Fund will follow up with more money if the company succeeds, he said.

About 70 percent of the fund's money will go to early stage companies, Antonucci said, and the rest to more established businesses. Board roles will rotate through the 75 people who are involved in the fund, he said. To start, Crook and Moody make up the board.

Interest in private equity has risen worldwide in recent years, as people with money to invest have looked beyond the stock market and real estate. PitchBook, which tracks investment deals, said U.S. companies backed by venture capital raised $329.6 billion last year, nearly twice as much as the $166.6 billion raised in 2020, itself a record amount.

Chittenden County's venture capital scene has also become busier in the last decade, with the development of entities such as the Vermont Center for Emerging Technologies and an uptick in private investment deals involving people who cashed out in big sales like that of Dealer.com in 2013.

A relatively recent entrant to Vermont's investment market is Hula, a Burlington company that in the last three years has converted the former Blodgett Oven factory into a vast lakeside coworking space and started a venture capital fund. The Fund at Hula was an early investor in Beta Technologies, which last year raised $368 million.

Not only is the number of Vermont deals increasing, so is the amount of money at play, said Cairn Cross, who cofounded Fresh Tracks Capital in Shelburne, a firm that has invested in 55 companies over the past 20 years. Cross, who is working on his annual report on Vermont investment, said in-state companies landed 31 venture capital deals worth a collective $100 million between 2010 and 2020. He said the Beta deal, and other smaller ones, have contributed to the fivefold year-over-year increase in local investment dollars. The final accounting of 2021 deals is expected next month.

"This isn't just a flash in the pan," Cross said last week. "Obviously, I'm a cheerleader for Vermont. The number of investments is going to continue to go up every year, I'm confident. The total dollar amount might not be quite as big, but the average dollar amount will go up."

A global trend over the past decade has been mission-based or impact investing, where funds seek projects that contribute to environmental improvements or social benefit. The Dudley Fund examined that path but decided to focus first on making money for its investors, Crook said.

"This is a personal view: The only way any of those other really important things can get solved is by creating jobs," Crook said. "The only way that there's an ability to fund the green anything, you name it, to address the thorny social issues, is to have a healthy economy, and Vermont has lagged in that for a long time."

The Dudley Fund's founders expect to collaborate closely with others who are doing similar work in Vermont. Janice St. Onge, the president of the Flexible Capital Fund in Montpelier, said Vermont companies often need to raise money from more than one source.

"It's a good thing the Dudley Fund is coming into play," St. Onge said, noting that the Flexible Capital Fund doesn't invest more than $400,000 in any one company. "If they are raising a million, we need to collaborate with other investors to help them."

Crook and the other founders worked with Cross, Hula founder Russ Scully and Hula CEO Rob Lair last year as they explored what kind of investment capital was most needed. The founders also talked to people such as Travis Fitzgerald, the CEO of DealerPolicy, which received both money and advice from Crook as it started up in 2016.

Fitzgerald said the cash and the business advice were critical in the company's first years.

"If it wasn't for Jim and the chance he took on us early, we wouldn't be here, and 300-plus people wouldn't have jobs," he said.

Economic growth, especially in the tech sector, has long been a goal of the city, the state and local Burlington business groups. Now that it's starting to happen, there's a dearth of affordable housing. Workers and reasonably priced childcare are in short supply, too.

While Crook said he's confident that creating more jobs will take care of the region's other problems, Scully and Lair are taking a more active approach. Scully hopes to build at least 300 units of housing in the city's South End, and Lair said Hula has worked with childcare groups to come up with solutions.

"We're completely wasting our time if we don't help to solve the housing and childcare problem," Lair said.

"It's a fine line between being a backwater where nothing happens — where you can't get an interesting, challenging tech job — and being overbuilt San Francisco," he added.

Most of the business growth in Vermont is happening in the northwestern part of the state. But investors are looking all over Vermont for opportunities. Lair said he works with a group of angel investors in Woodstock and with former state senator Matt Dunne, who invests in rural startups through his Center on Rural Innovation in the Springfield area. In 2020, Crook invested in For the Biome, a wellness company in Dummerston.

Crook acknowledged that Chittenden County both produces and attracts the lion's share of Vermont's economic energy. It's the state's most populous county and is by far the fastest growing. It's also home to most of the large tech companies that spin off ideas and entrepreneurs the way IDX has, such as IBM, Agilent Technologies, Dealer.com and now Beta. But there are startups in the rest of Vermont, too, and Crook is determined to spread the wealth, though he knows it won't be easy.

"We have investors from outside of Chittenden County, so we have an ear to the ground with regard to what is going on," he said.

The original print version of this article was headlined "Raising the Stakes"