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Hope that novel approach with SBA, investors will open new source of funding

NORTH BAY -- Serial entrepreneur and QuickBooks guru Ridgely Evers is zooming in on small business lending and he's out to fix it.

"The backbone of our local economy is made of small businesses, and that goes for the country as a whole, but small business is the least likely of all the sectors to be on the receiving end of bank loans," said Mr. Evers.

The main reason so many small businesses fail, and a big percentage do, is a lack of adequate funding, he said.

With his partners Silicon Valley veteran Alan Mutter and investment banker Christian Hobbs, Mr. Evers has been pondering a mechanism by which small companies could be made into attractive opportunities for qualified, high-end investors.

They've been working with the Small Business Administration and members of Congress to tweak the rules that keep private investors out of the loop of the SBA lending process.

"If it all falls into place, it'll be transformative. It has the potential to direct tens of billions of dollars into small business," he said.

The partners are putting together a pilot program in Northern California with the idea of taking it national if the concept proves itself.

Establishment Capital is their tentative name for an initial investment fund of $75 million or more, with two thirds coming from the SBA and a third from local investors.

"We've been knocking on doors locally and in the greater Bay Area, and those doors are opening. There's tremendous interest in making this work, especially now that credit is tighter than ever," he said.

Because the process is complex and still in the formation stage, he declined to go into more detail. The purpose, he said, would be to help small companies make the leap – mostly by growth – to bankability.

"We envision an equity investment of $500,000 to $3 million over a period of three years. And we'll cast a wide net as far as type of business. For obvious reasons, we won't consider financial service firms or real estate, but those are the only exceptions," he said.

The partners are looking at companies in Sonoma, Napa, Marin and San Francisco counties initially.

Establishment Capital, he stressed, will bear no resemblance to the North Bay Angels or Keiretsu Forum, two angel groups operating in the North Bay.

"They want companies that are headed to Sand Hill Road, not a local bank, for next stage funding. They're swinging for the bleachers," he said.

The preference of equity investors is often early-stage tech startups, but data has shown that the probability of building a successful business is entirely independent of the type, he said.

"A restaurant or winery is as likely to succeed, and those industries offer lots of opportunities locally," he said.

In addition to funding, Establishment Capital intends to offer the business expertise of its partners.

Mr. Evers has 25 years of entrepreneurial ventures. He was CEO of five Internet-related companies and has raised more than $50 million in investment capital.

At Intuit, he led the development of QuickBooks, the phenomenally successful accounting software, and recently founded NetBooks, a Web-enabled enterprise software system for small to mid-size companies.

He's also the founder and owner of DaVero, an olive oil and wine making company in the Dry Creek Valley, where he has his home.

Mr. Mutter, a former newspaper editor and columnist, joined InterMedia Partners before it became one of the 12 largest cable companies in the U.S.

He's led three Silicon Valley startups that have raised hundreds of millions in private equity. Now a Silicon Valley investor, he's actively involved developing new revenue sources for newspapers.

Christian Hobbs has executive level experience in both investment and operating roles. He's an adviser to Millennium Hanson, a global merchant banking firm that manages growth companies he helped found, and he's been CFO of several Internet startups, including NetBooks.

"Together we have an extraordinary breadth of experience, which we can share with our portfolio of companies," said Mr. Evers.

Although he isn't certain where the headquarters of Establishment Capital will be located, he is committed to a North Bay site, he said.