Aug. 4–In a sign of the times, a company that thinks of mice as pests — not computer accessories — has reported raising the largest amount in private equity investments in the Philadelphia area inrecent months.

GCA Services Group Inc., of West Conshohocken, is in a business few would immediately associate with the technology-focused world of venture capital: It provides janitorial services.

Year after year, only 10 percent of the deals funded by venture funds involve non-technology companies. Only 2 percent, like GCA, provide business services. Besides, since the Internet bust, investments in company start-ups have been increasingly rare.

But GCA’s founder, Graeme Crothall, has proved before with similar ventures that there’s a lot of money to be made in such humble enterprises.

Initial investors in his previous three companies got 30 percent returns, Crothall said. That was great also for key employees, who could buy company stock.

“Several of my managers became millionaires,” he said.

Especially now, profits are what matters, said Michael A. DiPiano, managing partner at NewSpring Ventures, of King of Prussia, which has committed $3 million to GCA.

Venture-capital investments averaged a loss of 29 percent in the 12-month period through March — worse than the 28 percent loss registered by Nasdaq over the period.

The thinking is, “If there’s no technology, that’s OK,” DiPiano said. “We are looking for profits.”

In May, GCA received commitments for $90 million, drawing down more than one-third of that amount last quarter.

Early-stage investments, as in GCA, staged a comeback in the second quarter after several years of doldrums, according to the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

Nationally, it was the first quarterly increase in such investments since late 1999, to $956 million.

Locally, the $54 million in early-stage investments outstripped the $40 million invested in company expansions during the last quarter. The last time that also happened was in late 1999.

Investments in expansions usually are considered less risky than in start-ups and therefore more prolific.

Nationally, for the first time since early 2000, total venture investment stopped declining and actually grew slightly, to $4.3 billion.

One three-month period’s numbers need not portend a trend, Bill Molloie cautioned. He heads the venture-capital practice in the Philadelphia office of PricewaterhouseCoopers. But he said the upsurge in early-stage investments was “a really strong indicator” of rising optimism among venture investors, who tend to look as much as a decade down the road as they calculate their potential returns.

Helping the trend locally were a half-dozen investments in new life-sciences companies by BioAdvance, the state-funded technology “greenhouse” in Philadelphia.

The investments are the first by the organization, which is funded from Pennsylvania’s share of the national settlement with tobacco companies.

They include Gelifex Inc., of Philadelphia, which in many ways is more typical of an early-stage company than GCA.

Two of the company’s founders, Michele Marcolongo and Anthony Lowman, teach at Drexel University’s school of engineering.

Using technology they developed at the school, Gelifex is working on a medical device that would repair spinal discs in early stages of degeneration — a source of back pain — by injecting them with a restorative gel.

A commonly used treatment now is spinal fusion, which involves removing the disc, fusing the vertebrae at that point, and shoring up the spine with metal scaffolding.

“It’s very invasive, and patients take a long time to recover,” said Alastair Clemow, chief executive officer of Gelifex.

The company got off the ground with $405,000 from BioAdvance. It expects to need $6 million to $8 million over the next two years to start human clinical trials, Clemow said.

Because they must meet tough regulatory standards every step of the way, life-sciences companies are notorious for consuming large amounts of money and taking a long time to yield returns.

Still, “medical devices cost a lot less to develop, take a shorter time to bring to market, than pharmaceuticals” and are just as profitable, Clemow said.

BioAdvance is trying to fill the increasingly unmet need for small, seed investments, said Barbara Schilberg, managing director of the fund.

“Small investments require the same amount of work as big investments,” she said, and are taking longer to yield returns. Both are disincentives to private investors.

For Crothall, it’s the fourth time around with what company officials prefer to call “facilities management.”

About a year ago, he sold Crothall Services Group, which specialized in hospital cleaning, to Compass Group for about $250 million.

Crothall, 64, said he contemplated retirement, but “the closer I got to it, the less attractive it seemed.”

So he decided to create yet another cleaning company.

In large part because of Crothall’s track record, GCA starts with unusual advantages. Its first act was to buy SunStates Maintenance Corp., a cleaning company based in Greensboro, N.C. — acquiring 3,000 employees, clients such as Exelon Corp. and DuPont Co., $60 million in revenues, and profits that Crothall won’t disclose.

He hopes to add schools and colleges to the current roster of industrial clients.

He knows that will be a challenge. Contract cleaning companies have made few inroads into schools, he said, in part because school administrators must constantly pinch pennies and because of security concerns over contract workers.

But Crothall said he expects his reputation for good work and efficiency — his former hospital-cleaning company’s customer-retention rate was 99 percent — to bring schools and colleges on board as new customers.

Actually, there will be a lot of technology in his new company, he said, citing proprietary software to schedule work and control costs. But investors see his venture as a “safer play,” he said.

“This type of business, even though it is just buckets and mops, brings recurring revenues,” he said. “Plus … even when times are not good, buildings need to be cleaned.”

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(c) 2003, The Philadelphia Inquirer. Distributed by Knight Ridder/Tribune Business News.