Closing the capital gap: Hill Capital Corp. proposes to fund small, regional businesses
FARGO—Representatives of a proposed regional investment fund are looking to close a capital gap they say exists for business owners wanting to borrow between $250,000 and $1 million.
Patrick Donohue, president and CEO of Hill Capital Corp., told a group of investors at the Prairie Den last month that the amount is too much for most individual investors and not enough to interest institutional investors.
"Wall Street has become a pretty well-oiled machine. The problem is it's become too well-oiled for big business," he said. "So, for anyone who needs under $5 million, it's really not accessible. And private equity and venture capital firms deal in the hundreds of millions. Their minimum bite size is typically not under $10 million."
According to Donohue, Hill Capital's investments will be in the $250,000 to $1 million range. Ninety percent of the fund will be invested in businesses that have achieved a few million dollars in revenue and need capital to continue that growth. The remaining 10 percent will be devoted to earlier-stage businesses.
'The Empire Builder'
The fund gets its name from James J. Hill, the man responsible for building the Great Northern Railway from the Great Plains to the Pacific Northwest. Hill, nicknamed "The Empire Builder," was also known for his support of the communities along the railway.
Following his death in 1916, that support continued in the form of the James J. Hill Reference Library in St. Paul. Donohue said the library was established in 1921 to serve as "a resource to the business community throughout the region, especially the region in which the Great Northern Railway did business, including Fargo and all the way west."
He asserts that a number of Fortune 1000 businesses got their start with the help of the library.
Jeanne Voigt, a native of Enderlin, N.D., spent time there before launching her direct marketing company, MindWare, in 1989.
"It was the days before the internet where you had to go and sit down and search for stuff. I spent hours over there researching things. It was one of the big starting points for my research in starting MindWare," Voigt said.
When fewer people began using the library several years ago, its board of directors began looking for new ways to fulfill its mission of connecting entrepreneurs with resources.
Their answer was a regional investment fund that would support communities along the railway in North Dakota, Minnesota and Wisconsin.
The goal is to raise $10 million to $20 million. Five thousand shares were made available to the public through an offering circular earlier this spring. The remaining shares will be sold to larger accredited investors.
If the minimum of $10 million is not secured by Sept. 30, the escrow funds will be returned to investors.
Voigt is an investor and member of Hill Capital's board of directors.
She sold MindWare in 2003 and the company eventually wound up in the hands of Warren Buffett and Berkshire Hathaway. She met Donohue when she was invited to attend one of Berkshire Hathaway's annual meetings.
Considering her history with the Hill Library, Voigt felt things had come full circle when he asked her to serve on the board of Hill Capital. She joined Donohue at the investor meetings in Fargo.
"It was so good to go out to the communities and see how this works. It's about real people investing in other people. There is such an authenticity to that I really liked," she said. "This isn't about calling your broker. It's moving it from the abstract to real human beings."
What: Hill Capital Corp.
Contact: (651) 452-8488