By Allan Maurer
OAK RIDGE, TN – Meritus Ventures is the only venture capital firm between Cincinnati and Atlanta and between the NC Research Triangle and Nashville, says Grady Vanderhoofven, a partner and fund manager with Meritus. “It’s a big, wide open, tech rich area in a capital starved region,” he says.
Meritus is a Rural Business Investment Company established in 2006 in response to the creation of the Rural Business Investment Program by the U.S. Department of Agriculture, Meritus is a $36.5 million fund that invests from $250,000 to $2.5 million in rural areas of central and Western Appalachia. “One million is the sweet spot for a first bite for us,” says Vanderhoofven, “and we might invest $2.5 million over time.”
The competitive advantage of tech
The fund’s roster of investors includes a number of banks and several private financial institutions, including member institutions of the Farm Credit System, several large foundations, a number of high net worth individuals, and regional stakeholders such as the University of Kentucky, the Appalachian Regional Commission, and the Tennessee Valley Authority. In addition, the fund is partially capitalized via the sale of debentures guaranteed by USDA.
“We’re generalists and we’ll look at most things except life sciences,” says Vanderhoofven. “We like technology and the competitive advantage technology can provide,” he adds. So the firm looks at firms in IT, software, medical devices, diagnostic tools, and semiconductors.
Working in a captial-starved region has its advantages. “We don’t have to fight over deals,” says Vanderhoofven. “We just look and sift.”
The fund’s portfolio companies include Greenville, SC-based Zipit Wirelss, which develops and makes wireless communication and entertainment devices that allow consumers to access the Internet; SinglePipe a facilities-based Voice over Internet Protocol (VoIP) provider that delivers residential and business services to the wholesale and channel markets; Kentucky-based Wazoo sports.com; and Oak Ridge-based Aldis, which focuses on the transportation logistics and advanced infrastructure management markets.
Oak Ridge Labs getting huge funding
Grady Vanderhoofven
Vanderhoofven tell us he previously worked at Oak Ridge National Labs, first as a materials engineer, then in its tech transfer office. “That’s what led me into this,” he says. “I became enamored of spinning out Oak Ridge Lab technology.”
But, he says, companies would spin out, then go where they found a source of capital, landing in Austin or San Diego or Long Island.
“So this is an effort to establish a local source of venture capital with the idea that we can capitalize on some of the technical resources in the region.”
He points out that there is a “huge amount of money flowing into Oak Ridge National Labs right now. They’re receiving something like a billion dollars from the stimulus package and building new one-of-a-kind facilities. You wouldn’t recognize it from five years ago.”
But Oak Ridge isn’t the region’s only source of technology expertise. There is also the University of Kentucky, the University of Tennessee, Virginia Tech, Vanderbilt, the Army Missile Command at Huntsville, Alabama, and more.
Fund shifted from early to expansion stage firms
Vanderhoofven says Meritus “plays will with others” and prefers to co-invest and isn’t opposed to deals that include angel investors.
“Historically we have been early stage investors, but in the last year or so we migrated toward more expansion stage investing.”
Early stage investing, he says, “Is a riskier proposition than it was five years ago, so we migrated to the expansion stage where some of the risk is taken out.”
That follows a trend we have seen from venture capitalists generally in the last several years.
Over time, however, Vanderhoofven says Meritus may “Swing back to earlier stage investments.”
For those entrepreneurs in Western North Carolina lo0king for funding, here’s a tip: “We’d like to do a deal in Western NC, but just haven’t found the right one yet,” says Vanderhoofven.
www.meritusventures.com
