3c hapter - Index of
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86 Locavesting<br />
Angel investors politely declined. Even though CEPS has<br />
been growing at a 17 percent annual clip and the acquisition<br />
would position it for even greater growth, they didn’t see a clear<br />
pay<strong>of</strong>f or exit. That’s when Umland’s banker brought the deal<br />
to Hamilton, who thought it was a perfect candidate for royalty<br />
fi nancing. “John took the time,” says Umland. “He wants to know<br />
not only does the business make sense, but does the person have<br />
the personal attributes he’s looking for in a partner—because he<br />
views this as a partnership.”<br />
Since Vested for Growth caps its investments at $500,000,<br />
there was still a fi nancing shortfall. When Hamilton and Umland<br />
went back to some <strong>of</strong> the same angel investors with the new royalty<br />
structure, this time they bit, and the acquisition was completed in<br />
January 2010. The royalty funding concept, says Umland, “provides<br />
the kind <strong>of</strong> return that a mezzanine (high yield debt) investor<br />
would want, but with the patience <strong>of</strong> an equity investor. I like<br />
it because we get to keep all the equity, yet if you did this with just<br />
traditional debt, you could have all kinds <strong>of</strong> bad things happen if<br />
you miss your numbers.”<br />
Out <strong>of</strong> 13 such deals Hamilton has done over the years, he’s<br />
seen it all: big success, losses, and the “living dead.” But Vested for<br />
Growth’s internal rate <strong>of</strong> return has averaged out to a respectable<br />
13.6 percent.<br />
“People are talking about relying on our small businesses to<br />
get us out <strong>of</strong> this recession,” says Hamilton, “but they’ve just taken<br />
it on the chin for the last couple <strong>of</strong> years. Many <strong>of</strong> them don’t have<br />
the ability to get additional credit from banks, because they’re not<br />
creditworthy from the way the bank looks at it. I understand why<br />
a bank whose focus is on least cost debt cannot help them, but<br />
then we have to answer the question, ‘How are we getting growth<br />
capital to our established businesses? I think this is a major step in<br />
the right direction.”<br />
Big Opportunities, Less Capital<br />
Across the CDFI fi eld, demand has spiked as the credit vice has<br />
tightened around many businesses and communities. Mark Pinsky,