An investment fund that awarded a total of $500,000 to a dozen New Hampshire technology startups earned its limited partners $4.65 on every dollar they put in, organizers say. It also sparked the growth of a national contender.
CleanFiber, a company that received $50,000 from the Millworks Fund in 2013, was named the No. 1 fastest growing manufacturing company on the Inc. 5000 list last year. The company, now based in Buffalo, New York, has secured more than $125 million to expand production of its building insulation products.
The Millworks Fund, established in 2012, offered a total $100,000 a year to three companies competing in the NH Tech Alliance’s TechOut competition, awarding prizes of $50,000 for first place, $30,000 for second and $20,000 through 2016.
Annother group of investors, in partnership with the New Hampshire Business Finance Authority, established the Millworks Fund Series II and supported the TechOut competition through 2021.
The New Hampshire Tech Alliance hopes another group will step up to create a new fund.
“When we conceived of it, right out of the gate, we looked at a five-year window where we could go out and get commitments from angel investors and other accredited investors in the community who might not be as active and maybe not even call themselves angels, but were willing to commit to putting money into the prize purse for five years,” says Matt Pierson, who helped launch the MillWorks Fund.
The fund’s impact was underscored in October when CleanFiber CEO and cofounder Jonathan Strimling was honored by the Tech Alliance as Entrepreneur of the Year. The maker of cellulose building insulation made with recycled corrugated cardboard was founded in a tech business incubator on Elm Street in Manchester (now the home of The Bookery).
About 90% of startups ultimately fail.
About 75% of companies that grow large enough to secure venture capital also fail — meaning no return for investors, according to Harvard Business School.
The Millworks Fund ended up batting .500.
“Fifty percent of the 12 blew up. And then the other six provided some level of return to investors,” says Tom Daly, who managed the fund with Pierson. “Three of them solidly outperformed in the pack, which if you go to typical venture capital portfolio theory, I would say we ran way above benchmark in terms of the quality of the return.”
Daly and Pierson did not disclose which company, but one returned 26 times the original investment. The other top performers returned three and four times the investment.
“I think it shows off some of the quality of the startups in New Hampshire,” Pierson says. “We had quality companies come in and present that had viable businesses that $20,000, $30,000 and $50,000 made a difference.”
While the fund has closed out, investors will be monitoring the success of CleanFiber.
“As a venture capital portfolio would typically do, we’ve actually distributed the shares that Millworks held in CleanFiber directly onto our limited partners,” says Daly, CEO of Big Network in Nashua. “So those are still active shares that our partners hold, even though we haven’t seen an outcome for that company yet.”
‘A social mission’
While the investors were happy to see a return, they knew they were taking a significant risk on a bunch of untested companies, with founders who hoped for the kind of success Daly and Pierson enjoyed with their companies.
Daly was co-founder of Dyn, an internet performance company that commanded a significant presence in the Millyard for several years before it was acquired by Oracle in 2016 for more than $600 million.
Among Pierson’s successes was cofounding and selling DTC Communications, growing it to $30 million in revenue before the Nashua company was acquired by Cobham for $48 million in 2004. He currently serves as managing director of Dunn Rush & Co., a Boston-based company that provides merger and acquisition services.
“I think everybody saw (the Millworks Fund) as more of a social mission,” Pierson says. “Sure, if they got money back, they would have been happy. People actually saw a very healthy, respectable return on their money, and they did some good things and helped create hundreds of jobs.”
Bob Barmore, founder of Therma-HEXX, paid back the investment quickly. The Portsmouth company makes modular radiant heating and cooling system designed for surface areas like pools, roofs and driveways.
“He was unique in the fact that he took our investment, $30,000. And I think within a year or two, he paid it all back,” Daly says. “And he’s like, ‘Thank you. It’s exactly what I needed. Here’s your money back. Plus, a little bit of interest. Have a great day.’” While the investments were important to startups, participants in the competition received valuable advice from volunteer judges.
“Each year we had a different group of people providing feedback, acting as mentors. And I just think that that helped a lot of companies, even ones that didn’t win,” Pierson says.
Pierson and Daly managed the fund as volunteers. They’re ready to see someone else in the community create another fund to continue supporting local startups through the Tech Alliance.
“After 12 years of doing this, which is a fair bit of work on occasion, we are happy to have it over, but we’d love to see somebody else step up and bring their expertise in and take it on as a contribution to the tech community,” Pierson said.
Julie Demers, executive director of the New Hampshire Tech Alliance, praised Pierson and Daly for their long-term support of the local tech industry.
“Both Tom and Matt were one of my first meetings when I came on as executive director. They have demonstrated such a commitment to ensure a healthy tech ecosystem remains,” she says.
