THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Saturday, January 25, 1997 TAG: 9701250277
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 90 lines
An aspiring business owner recently asked Eastern Virginia Small Business Investment Corp. for funds to help him open a store.
It didn't take long for J. Alan Lindauer to turn down his request.
``The applicant certainly had a dream, but he didn't have an understanding of what his plan would require,'' said Lindauer, president and chief executive of the Norfolk-based investment company.
Since opening last May, Eastern Virginia has received more than a hundred applications from small companies and entrepreneurs hoping to launch their own businesses. Many of these requests, said Lindauer, haven't met Eastern Virginia's investment criteria.
``We're telling more people `No' than we're telling `Yes,' '' he said.
Before being licensed by the Small Business Administration last spring, the company raised more than $5 million from 96 investors, including a handful of banks in Hampton Roads.
So far, it has put $1 million of that to work in two small companies. Plans call for investing $140,000 in a third business, a start-up in Norfolk that will line up Small Business Administration-guaranteed loans for qualified borrowers.
Eastern Virginia is still evaluating 31 applications and probably will invest in two of these later in the year, Lindauer said.
Like other small business investment companies, Eastern Virginia channels funds from its shareholders into small businesses needing capital to expand. To compensate for the high risk, Eastern Virginia seeks a return on its investments higher than what it could earn in the stock or bond markets.
Eastern Virginia made its first investment last November, a $700,000 stake in Real-Time Data, a Norfolk company that processes checks and provides accounting services for small credit unions.
Its second investment, in December, was $300,000 for stock and warrants in a San Antonio-based company that handles billing chores for providers of long-distance telephone service.
``A venture capital company called me and said, `We can't do the deal because it's too small for us,' Lindauer said. ``They knew that we're looking for deals of less than a half million dollars.''
So Lindauer flew to San Antonio and checked on the company's background and facilities.
Although Eastern Virginia is concentrating on investments in southeastern Virginia and the state's Eastern Shore, it invested in the Texas company because of the financial prospects. Also, the billing-services company may eventually open a regional sales facility in Hampton Roads, Lindauer said.
The time devoted to researching an application depends on the type of business involved and the applicant's background.
The company moved its offices from a building near the Virginia Beach Oceanfront to downtown Norfolk last year to be closer to larger law firms and more centrally located.
``Without the volunteer work of investors and directors, I couldn't run this thing,'' said Lindauer, whose background includes operating a fuel-oil business and appraising businesses. His staff includes two assistants who provide administrative and financial help.
The final decision on all investments rests with a six-member executive committee. Much like a bank loan officer preparing for a loan-committee meeting, Lindauer tries to anticipate questions that committee members will raise. Two members, he said, routinely ask probing questions and express skepticism about some applicants' prospects.
``That's good because I tend to be very optimistic,'' Lindauer said.
In some instances, the research process has taken months. Someone seeking funds to manufacture a health-care product came to Eastern Virginia last October.
``I thought we could be back to him in two to three weeks,'' Lindauer said. ``He's very frustrated with me because we're still evaluating his plan.''
A key part of Eastern Virginia's evaluation of applicants is determining how it will recover its investment. In some cases, the company it finances eventually will have a public stock offering and use the proceeds to buy back Eastern Virginia's stake. In other cases, Eastern Virginia expects to recover its investment when a company it finances is sold.
In all of these cases, Eastern Virginia expects to complete the investment process in about five years. To protect its stake in a company, Eastern Virginia will take a seat on a company's board of directors. But Lindauer, who has worked as a trustee of bankrupt companies, said he is prepared for the possibility that some of Eastern Virginia's investments will go sour.
``I'm going to make mistakes here,'' he said, ``but I hope to make a minimum of them.''
Meanwhile, Lindauer is thinking about more pleasant tasks: raising additional capital and being able to make larger investments than the company can do now.
To do that, Eastern Virginia may sell additional stock in an initial public offering in the next two years, he said. ILLUSTRATION: [Color Photo]
File photo/Charlie Meads
J. Alan Lindauer is president and chief executive of Norfolk-based
Eastern Virginia Small Business Investment Corp.