Published in Finance

New $50 million VC fund aims to keep businesses local for next generation

BY Friday, August 28, 2020 12:25pm

KALAMAZOO — A new $50 million venture capital fund that organizers launched in Kalamazoo seeks to offer opportunity to a new generation of business executives while keeping established businesses local.

Formed by two business professors at Western Michigan University, the Sleeping Giant Capital Principled Impact Fund I LLC has already secured “significant” commitments from investors, said Doug Lepisto, an associate professor at the Haworth College of Business.

Doug Lepisto, an associate professor at the Haworth College of Business COURTESY PHOTO

“Our fundraising is really taking off now and we’ll have our first closing very soon. We’ve made significant progress toward that $50 million,” Lepisto said. “The big vision here is really trying to create a big win and solve a bunch of problems that we see in our community here in West Michigan.”

Among those problems is the “tremendous number” of aging Baby Boomers who own a business, want to retire and lack a succession plan, Lepisto said.

Fund organizers want to provide an option for those companies to remain locally owned, he said.

“The risk for those companies obviously is not being able to survive, or maybe being acquired by private equity or other folks who maybe are not invested in our community and have the same long-term mindset that we have in thinking about the interest of jobs and the community first,” Lepisto said. “We have a vision from now that we can have all of these local companies stay.”

Lepisto manages the fund with Derrick McIver, who’s also an associate professor at the Haworth College of Business. The two also serve as co-directors at the Center for Principled Leadership and Business Strategy at the Haworth College, and are managing partners in the investment firm Sleeping Giant Capital LLC that’s affiliated with WMU.

WMU created the Center for Principled Leadership and Business Strategy in late 2019 with $6.5 million in donations from backers that include the Haworth family in Holland, Greenleaf Trust Chairman William Johnston in Kalamazoo, the Menard family of the Midwestern home improvement retail chain, and the Charles Koch Foundation.

The new venture capital fund will work differently from a traditional venture capital fund. Lepisto describes the Sleeping Giant Capital Principled Impact Fund as having a community focus and mindset with long-term goals that go well beyond generating financial returns for investors.

“We want to generate economic returns for our investors and for the College of Business. We want to generate social returns to make sure that capital stays local, those companies stay open, and there’s a benefit to changing peoples’ lives so they can actually buy a company,” he said. “We’re very interested in ensuring that there is a really well-represented, diverse cohort of aspiring owner/operators that come through this program because this is also a mechanism as we think about inequality and we think about being able to ensure everybody has the opportunity to be able to own capital.”

Small biz focus

The fund intends to target small businesses primarily based in West Michigan with $1 million to $10 million in annual revenue, Lepisto said. The fund will buy out the owner and bring in new owner/operators who were trained in a new program that the Haworth College of Business plans to launch this fall.

The potential new business owners coming from the Haworth College program will go through a competitive process to earn backing from the fund, which would own the companies in which it invests, Lepisto said. The 10-year fund will seek to make one or two investments annually, he said.

As the fund looks to back local companies transitioning to new ownership, organizers as well envision “creating a new career path” for experienced, mid-career business executives who would like to buy and run a company, Lepisto said.

“There are a lot of great professionals out there who have maybe dreamed of being a CEO one day or running a company, but they know they’ll never get there by climbing a big corporate ladder, or they think about starting something from scratch in traditional entrepreneurship, but that seems too risky,” he said. “So, we want to provide a life-changing opportunity for those aspiring owner/operators.”

The fund as well can provide an ongoing source of revenue for the Haworth College of Business.

The fund has garnered “a lot of interest” from WMU alumni who are interested in getting involved as either investors or mentors for new business owners, Lepisto said. The mentorship aspect offers an opportunity “to really get involved beyond just writing checks that a lot of our alumni have really been responsive to,” he said.

The new owner/operators that run the business in which the fund invests will take a greater equity position in the company over time.

“At some point we would hope the owner/operator buys out the fund and then can be the sole owner of the business,” Lepisto said. “Ideally, we would want to see that transition.”

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