By guest authors Irina Patterson and Candice Arnold
This is the forty-fifth interview in our series on financing for entrepreneurs. I am talking to Heather Onstott, director of small business at LaunchCapital, a Cambridge, Massachusetts–based seed investment firm with a twist. In addition to traditional seed-stage venture funding, they also offer a non-recourse blend of equity and debt financing up to $150,000, which is rather unusual in the VC world.
Irina: Hi, Heather. Let’s start with your background and how you arrived at this point.
Heather: I did my undergrad degree at a liberal arts school in South Carolina, and then finished up an MBA up here in New Hampshire.
And I worked for a commercial bank, a retail bank, for, pretty much, my entire career. I think I have about 15 years of banking experience and a couple years of consulting experience.
I joined LaunchCapital not quite two years ago to start up their small business division.
LaunchCapital started as a seed stage investment firm in January 2008. Toward the end of 2008, as everyone recalls, the bottom fell out of the world – at least the financial end of the world – and LaunchCapital limited partner stepped up and said, “Hey, there must be a way that we can help some of these Main Street, mom-and-pop style entrepreneurs get off the ground.”
I had worked with the managing director of LaunchCapial, Elon Boms, at a consulting firm in the past. We knew each other in a prior career life. So, about a year and a half ago, he invited me to step in, and he and I designed the LaunchCapital Small Business (LaunchCapital SB) offering.
I came on board in February 2009, and we made our first three investments in October 2009.
So, LaunchCapital as a firm has two investment vehicles. One of them is the traditional venture capital, seed stage investing, and that is equity investing. That’s what most venture capitalists do. And our LaunchCapital SB offering is basically small business loans with a small slice of equity for that risk pricing piece.
Irina: What is the size of your venture fund?
Heather: We’re a bit unusual. We actually have an evergreen fund. So, it doesn’t have a vintage. We didn’t go out and raise a fund. We are backed by a single, limited partner, and that’s a family office out of Connecticut.
There is not a defined size. We have a pretty good idea of the amount of capital that will end up going in before it becomes self-sustaining, but it’s a relatively small amount.
Irina: Do you know how many deals are in the venture portfolio?
Heather: I believe we have over 50, somewhere in that neighborhood.
Irina: Let’s talk about the overall firm, and then we’ll focus on what you do there. How many partners manage the venture fund?
Heather: We have one managing director, and then we have a director here in our Cambridge office. We have a director in our New Haven office, and then our San Francisco regional managing director.
Irina: Those are the people who are screening the deals, right?
Heather: That’s correct.
Irina: How many investments would you say they made in the past 12 months?
Heather: I’d say between 8 and 10 each. For myself, I’ve made 5 investments in the past 12 months.
Irina: What is their geographical focus?
Heather: It’s interesting; we do have deals all across the country, but for logistics’ sake, you’ll find a concentration around the regions where we work. I think that’s pretty typical of the venture capital world. We’re not opposed to doing a deal out of Chicago, but the reality is that the way our deals are sourced, it would be difficult to get to that Chicago deal. As a result, we end up really focusing on the Northeast and the San Francisco area.
Irina: What are the sources of deal flow?
Heather: I think, broadly, it’s our network. The venture capitalists work very closely with service providers; they work closely with other angel investors; with other venture capital shops. For me, for the small business group, I also work with those same sources, and also attorneys and bankers. I’ll often work with economic development corporations, so a lot of quasi-public organizations as well. Economic development corporations are probably the best sources, then bankers, attorneys, CPAs, and other finance people.