3c hapter - Index of

86 Locavesting
Angel investors politely declined. Even though CEPS has
been growing at a 17 percent annual clip and the acquisition
would position it for even greater growth, they didn’t see a clear
payoff or exit. That’s when Umland’s banker brought the deal
to Hamilton, who thought it was a perfect candidate for royalty
fi nancing. “John took the time,” says Umland. “He wants to know
not only does the business make sense, but does the person have
the personal attributes he’s looking for in a partner—because he
views this as a partnership.”
Since Vested for Growth caps its investments at $500,000,
there was still a fi nancing shortfall. When Hamilton and Umland
went back to some of the same angel investors with the new royalty
structure, this time they bit, and the acquisition was completed in
January 2010. The royalty funding concept, says Umland, “provides
the kind of return that a mezzanine (high yield debt) investor
would want, but with the patience of an equity investor. I like
it because we get to keep all the equity, yet if you did this with just
traditional debt, you could have all kinds of bad things happen if
you miss your numbers.”
Out of 13 such deals Hamilton has done over the years, he’s
seen it all: big success, losses, and the “living dead.” But Vested for
Growth’s internal rate of return has averaged out to a respectable
13.6 percent.
“People are talking about relying on our small businesses to
get us out of this recession,” says Hamilton, “but they’ve just taken
it on the chin for the last couple of years. Many of them don’t have
the ability to get additional credit from banks, because they’re not
creditworthy from the way the bank looks at it. I understand why
a bank whose focus is on least cost debt cannot help them, but
then we have to answer the question, ‘How are we getting growth
capital to our established businesses? I think this is a major step in
the right direction.”
Big Opportunities, Less Capital
Across the CDFI fi eld, demand has spiked as the credit vice has
tightened around many businesses and communities. Mark Pinsky,