Glengary - a different kind of venture capital - Brainpower with Innovation Networks

Submitted by Norm Roulet on Sun, 01/09/2005 - 20:15.

In the 01/09/05 Plain Dealer business section is an article about Glengary,
they pitch as "A Different Kind of Venture Capital". Glengary seems to embrace many concepts in the Open Source Economic Development framework, especially leveraging Brainpower and Innovation Networks. From the article: "Its
model consists of circles of partners who help "client companies" grow.
Glengary generally invests a small amount of money in
each of its companies, then its partners invest their time, talent and
Some interesting aspects are their "executive on loan"
concept, their slate of preferred service providers, and their
affiliation with Baldwin-Wallace Business School (and some strong
investor partners). There seem to be concepts to embrace here, and
synergies to explore. Read on, consider the synergies, and let's Ideate on this model!

A different kind of venture capital

Virtual firm nurtures start-ups with time, talent and services
Sunday, January 09,
2005 - Mary Vanac - Plain Dealer Reporter

Doing leveraged buyouts for a private equity firm in Cleveland was exciting to Steve Haynes.

But his thrill at pulling off these high-finance deals to buy
established companies with debt was tempered by the realization that
most young firms couldn't afford to borrow the money they needed to

He also noticed that many entrepreneurs were poor business
managers. They spent their investment money unwisely. They didn't know
how to sell their product. Or they didn't know how to analyze growth

As a result, their businesses seemed to fail or move out of town --
neither of which was good for Greater Cleveland or for investors.

So in late 1999, Haynes left the former Key Equity Capital to
develop a different kind of investment company. He named it Glengary,
for the Shaker Heights road on which he lived.

During the next two years, the Glengary model was incubated by
local executives, educators, business professionals and entrepreneurs.
Glengary took root in January 2002 when steel company veteran Tom
Tyrrell joined as a managing partner.

It's too early to tell whether the firm's "venture catalyst" model
will bear fruit. The usual venture capital firm invests a lot of money
and may put a person on the company's board, but usually doesn't get
directly involved in management.

But Haynes, Tyrrell and their partners believe that watering young
companies with proven executives and advisers, business service
providers and educators, as well as venture capital, will make the
firms grow big and strong.

"Steve and Tom focus on companies where the capital need is not yet
very great, and a big impact can be made with time and talent to
stimulate them," said Loyal Wilson, managing director for Primus
Venture Partners Inc. in Mayfield Heights. Primus is the region's
largest venture capital firm, managing $620 million in private company


Executives on loan

The much smaller Glengary is a virtual firm, run out of an office
at Baldwin-Wallace College in Berea, the founders' homes and a
Cleveland post office box.

Its model consists of circles of partners who help "client
companies" grow. Glengary generally invests a small amount of money in
each of its companies, then its partners invest their time, talent and

Glengary's six operating partners are mostly Cleveland-area
executives who have started businesses or run units of large
corporations as if they were entrepreneurs. They are experienced
executives on loan to the client companies, becoming their chief or
sales executives, sometimes continuing to operate their own businesses.

The client companies pay a monthly management fee ranging from
$10,000 to $15,000 for the executives, Haynes said. The fee is split
among the executives and Glengary.

The executives and Glengary also share part of the growing equity
in all of the client companies. And the executives and firm can invest
more money in the companies, buying equity that could be worth much
more in the future.

The investors get their money back when a client company is sold to
the public, a company or another investment firm. So far, only one
Glengary client company has been sold, for an undisclosed return -
SupplierInsight LLC, a Cleveland software company.

Glengary still owns shares in SupplierInsight's buyer, Procuri Inc.
in Atlanta, Haynes said. Tyrrell, who was Glengary's first operating
partner, was interim chief executive for the software maker from
January 2002 through May 2003.

Tyrrell cut his teeth at Bethlehem Steel in Pennsylvania and came
to Cuyahoga Heights in 1986 to resurrect American Steel & Wire,
which had been closed by U.S. Steel. He was so successful there that
Inc. magazine gave him its Northeast Ohio Entrepreneur of the Year
award in 1988.

Tyrrell sold that business to Birmingham Steel Corp. in 1994, going
to Birmingham as vice chairman. But he came back in 1998 as chief
executive of Republic Technologies International in Fairlawn. "I really
fell in love with the community," said the Munson Township resident.

In all, he has been responsible for five start-ups, restarts or
consolidations of metals companies, ranging in value from $250 million
to $1.5 billion. He also was part of a group that tried to buy the
failed LTV Corp. out of bankruptcy court in 2002.


Advisory circle

Haynes, an investment banker with the former McDonald & Co.
and accountant before running the private equity firm, and Tyrrell also
built an advisory circle for their client companies. The advisers are
mostly former or retired executives or entrepreneurs. Advisory partners
are not paid, but they can invest in Glengary's companies for a future
equity payout.

"An advisory partner serves more as a consultant," said Bob Lauer,
who retired from the Cleveland office of management and technology
consultant Andersen Consulting, now called Accenture, in 2000. Lauer
connected with Glengary more than a year ago.

"I wanted to remain active in business," said Lauer, who has spent
a lot of time at one of Glengary's client companies, Tooling
University. "I didn't want to take on an operating role. But I enjoy
helping create something."

Lauer also joined Glengary to help Cleveland identify opportunities for economic growth and to keep young professionals.

Besides providing the operating partners and advisers, Glengary
offers a circle of service partners - professional firms that provide
business services, such as accounting and legal counsel. Cohen &
Co., for example, provides consulting and accounting services to
Glengary's client companies.

And Glengary partnered with Baldwin-Wallace. The firm holds its
twice-monthly partner meetings at the school. About 100 students have
participated in the meetings, which summarize progress made by each of
the client companies.

The meetings are supposed to teach the students about how
early-stage companies operate and can contribute to the economy, Haynes

At the moment, B-W students are benefiting from the partnership
more than the firm, said Peter Rea, chairman of the college's business
administration division. But he hopes the students will give back to
Glengary or the community in the future.

"Entrepreneurs who don't want to listen aren't who Glengary is
interested in investing in," Rea said. "We all need help, no matter how
bright or experienced we are."

Glengary's mission is not just about advice; it's about seed money.
Its founding partners, who each kicked in no more than $250,000,
include retired TRW Inc. CEO Joe Gorman, Forest City Enterprises
Chairman Al Ratner and retired McDonald & Co. CEO Bill Summers.


Client companies

One of Glengary's first investments was in Tooling University, a
spin-off from Jergens Inc. in Cleveland. Tooling U. provides Web-based
manufacturing and technical training for employees of manufacturers,
trade school students and individuals.

Jack Schron Jr., president of Jergens, a maker and distributor of
manufacturing fixtures and tools, was introduced to Glengary by his
company's law firm when Schron was looking for investors for Tooling U.

Glengary invested money and leased one of its operating partners,
Tom Barrett, to the online trainer. Barrett has become Tooling U.'s
vice president of sales and marketing. He also is CEO of Outselling
Ltd., a Cleveland sales consultant and services firm, and has started
and sold two fast-growing software companies on the West Coast.

Barrett is developing a sales and marketing growth strategy for
Tooling U. Managers hope the plan doubles or triples their revenues in
the next 18 months, he said.

That goal seems reachable when you consider Tooling U. is in more
than 70 trade schools, including Polaris Career Center in Middleburg
Heights, up from 15 schools a year ago, Schron said.

A major Midwest manufacturer that did Tooling U. pilots involving
200 workers bought training for 2,500 workers last year, Schron said.
The manufacturer found its employees were 7 percent more productive
after the training, he said.

SGS Tool Co. in Munroe Falls is getting ready to roll out Tooling
U. after a pilot of its own. SGS makes carbide rotary cutting tools.

It installed several computers in a learning center and will
install several more at its plants. The company's 350 employees will be
able to use the computers to learn basic shop skills and advanced
machining techniques through Tooling U.

"We want to invest the time and money that is necessary to develop
our associates so they can be competitive in the marketplace," said
Jackie Schulte, the tooling maker's human-resources director. "We want
to be a pioneer in this knowledge transfer."


When the money stopped

More recently, Glengary invested in MIMflow Technologies LLC in
Euclid. MIMflow's founder, Lance Johnson, had been making small and
complicated industrial parts.

Johnson realized that the method he used, called investment
casting, was migrating overseas - largely to China - where it could be
done more cheaply. So he sold his business in 2000 and looked for a new
manufacturing method.

He chose metal injection molding, a process that involves injecting
a slurry of powdered metals and binders into a mold, removing the
binders, and then sintering - bonding metal powder with high

"Like any start-up, funds got short," Johnson said. After
exhausting friends and family as a source of cash, he turned elsewhere,
including venture capital firms and government agencies. "I got turned
down by everybody."

A friend of a friend put him in touch with Glengary. "It was a good
fit," partly because several Glengary partners were involved in metals
businesses, he said.

Glengary invested money and Rick D'Angelo. D'Angelo, who now is
MIMflow's CEO, is a chemist who was trained in marketing, strategic
planning and business development by General Electric Corp.

He was looking to buy a business when he stumbled on Glengary about
a year ago. "As I talked with them, I realized not only would I be able
to participate in the kind of companies I love, but I wouldn't have to
take all the risk of investing in one company," he said.

MIMflow, which has eight employees and less than $1 million in
annual sales, is proving its materials and process by making parts for
jewelers and manufacturers, Johnson said.

He hopes the company grows into the leading producer of metal
injection molding feedstock for manufacturers worldwide. Making room
for a new chief executive was a small price to pay.

"After you've done a lot of deals, you recognize that developing a
business takes a team approach," he said. "It's more important to me
that the business is successful than who wears the biggest hat."

Success matters to Glengary, too, and the easiest way to measure
that will be its financial return on investment, Haynes said. Another
measure will be how much money more-conventional venture capitalists
invest in client companies.

But Haynes also will measure the number of local jobs created, the
tax base created for communities, the clients created for local
professional firms, and the value of new products to customers in the
region, nation and world.

"It's about creating jobs and creating value," he said. "That's really exciting."

To reach this Plain Dealer reporter:

mvanac [at] plaind [dot] com, 216-999-5302

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