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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
“Several of my managers became millionaires,” he said.<\/p>\n
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.<\/p>\n
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.<\/p>\n
The thinking is, “If there’s no technology, that’s OK,” DiPiano said. “We are looking for profits.”<\/p>\n
In May, GCA received commitments for $90 million, drawing down more than one-third of that amount last quarter.<\/p>\n
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.<\/p>\n
Nationally, it was the first quarterly increase in such investments since late 1999, to $956 million.<\/p>\n
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.<\/p>\n
Investments in expansions usually are considered less risky than in start-ups and therefore more prolific.<\/p>\n
Nationally, for the first time since early 2000, total venture investment stopped declining and actually grew slightly, to $4.3 billion.<\/p>\n
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.<\/p>\n
Helping the trend locally were a half-dozen investments in new life-sciences companies by BioAdvance, the state-funded technology “greenhouse” in Philadelphia.<\/p>\n
The investments are the first by the organization, which is funded from Pennsylvania’s share of the national settlement with tobacco companies.<\/p>\n
They include Gelifex Inc., of Philadelphia, which in many ways is more typical of an early-stage company than GCA.<\/p>\n
Two of the company’s founders, Michele Marcolongo and Anthony Lowman, teach at Drexel University’s school of engineering.<\/p>\n
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.<\/p>\n
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.<\/p>\n
“It’s very invasive, and patients take a long time to recover,” said Alastair Clemow, chief executive officer of Gelifex.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
BioAdvance is trying to fill the increasingly unmet need for small, seed investments, said Barbara Schilberg, managing director of the fund.<\/p>\n
“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.<\/p>\n
For Crothall, it’s the fourth time around with what company officials prefer to call “facilities management.”<\/p>\n
About a year ago, he sold Crothall Services Group, which specialized in hospital cleaning, to Compass Group for about $250 million.<\/p>\n
Crothall, 64, said he contemplated retirement, but “the closer I got to it, the less attractive it seemed.”<\/p>\n
So he decided to create yet another cleaning company.<\/p>\n
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.<\/p>\n
He hopes to add schools and colleges to the current roster of industrial clients.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
“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.”<\/p>\n
—–<\/p>\n
To see more of The Philadelphia Inquirer, or to subscribe to the newspaper, go to http:\/\/www.philly.com<\/p>\n
(c) 2003, The Philadelphia Inquirer. Distributed by Knight Ridder\/Tribune Business News.<\/p>\n","protected":false},"excerpt":{"rendered":"
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