photo by Michael Miller

Harbor Light Capital completes its first year

By Casey Farrar - Sentinel Staff

(Published in The Keene Sentinel and NH SentinelSource: Saturday, November 07, 2009)

A Web site for dog lovers and a “bathroom-in-a-box” company don’t have much in common.

But both are businesses that caught the attention of Harbor Light Capital Partners, a Keene-based private equity firm that opened last year.

Since then, managing partner Todd E. Warden says the firm has found its footing with investments in the Littleton, Mass.-based, pre-built bathroom company Eggrock Inc. and Portland, Maine-based Fetchdog.com, and with its getting to meet a lot of people.

“We feel very good about our strategy,” Warden said in an interview at the firm’s Central Square office this week. “We sense that there is quite a bit of opportunity to find and work with great, growing companies in the region.”

Harbor Light, which has an investment pool of $30 million to draw from, puts money into small businesses and start-up companies that have potential for growth. It focuses its investments on early-stage technology companies in northern New England — Maine, Vermont, New Hampshire and Massachusetts — Warden said.

Over the past year, the three partners, who include former investment banker Richard Upton and Darby Kopp, a former marketing and business development manager at Markem Corp., have looked at about 150 companies, selecting two to invest in.

In February, the firm invested $2 million in Eggrock, a company that produces pre-built bathrooms. The company has begun to expand from the hotel market into hospitals, dormitories and military housing.

Six months later, in August, Harbor Light and Hanover-based Borealis Capital Partners made a $4 million deal with Fetchdog. The funds have helped the company that runs a Web site and catalog aimed at dog owners to add employees and bring on Chief Executive Officer Claude P. Sheer.

“It is a bit of a matchmaking business,” said Warden, who added that venture capitalists can expect to see up to 100 companies for every one investment. “Not every business is perfect for us and we’re not perfect for every business.”

The firm is funded with part of the proceeds of the Putnam family’s sale of Markem Corp., an international printing technology firm founded in 1911, to Dover Technologies in 2006. The Keene company was later merged with a French firm and is known as Markem.Imaje.

Once Harbor Light invests in a company, one of the partners takes a seat on the board of directors — or helps to form one if the company doesn’t already have one — and works with the company as it grows.

“We’re not just pure investors where we sprinkle money around and hope it comes back,” Warden said. “We want to find opportunities where we can bring our experience and expertise to bear on opportunities that we want to work with.”

The partners look for companies in emerging markets that have strong management teams. The quality of the company’s business plan is also important, Warden said.

Harbor Light launched last year just as global markets crashed and credit markets tightened, sending businesses that previously found credit readily available scrambling to find new ways to fund expansion of their operations.

At the same time, many private equity firms have become more conservative about investing in startup companies.

A recent report showed the number of venture capital deals made in the New England region through the third quarter this year dropped about 35 percent compared to same period the year before — from 368 in 2008 to 238 this year.

There were 477 venture capital deals in New England for a total of $1.48 billion in investments in 2008, according to the report by PricewaterhouseCoopers, Thomson Reuters and the National Venture Capital Association.

The downturn in the market has, in some ways, worked in the firm’s favor, Warden said.

“Just because there’s now so little capital available in the markets more people are seeking or looking for sources of capital and thinking in more creative ways, that they may not have in the past, about partnering,” Warden said.

It’s also brought the value of companies back to more realistic levels, Warden said.

“The fact that we have now at least come back to sort of a baseline of long-term historical mean for how you value a company is really a positive thing for us,” he said. “On the flip side, we now own companies that are out on the market trying to sell, and it’s a tough economy out there.”

Along with involvement in companies it invests in, Harbor Light’s model takes a longer-term approach than typical investments that range between 10 and 12 years, and the firm often invests with multiple investors.

“If we get involved in something, we know that we’re going to invest over the life cycle of it so that requires several different periods where we’ll put money in,” Warden said. “But we’ll typically try to map out what that capitalization will be and then think about progress points and when you would bring other dollars in and how much that will mean to us and other partners.”

Looking toward the future, the partners in the firm think they can handle about five companies each with an average investment of $3 million per deal.

“We don’t really have aspirations of being like other funds that will raise a series of funds,” Warden said. “They basically get a lot of dollars under management and what ends up happening is they have to add more partners that spools into becoming bigger and bigger.”

The firm is in the midst of talking to some promising companies, including some in the medical technology industry, and expects to add another three or four investments over the next year, Warden said.

“I always say investing is really all thesis until some point in the future when you actually make a realization,” Warden said. “You don’t really know how you’re doing until, at some point, the proof is in the pudding.”

Casey Farrar can be reached at 352-1234, extension 1435, or cfarrar@keenesentinel.com