Located in an office building across the street from a strip mall near the edge of the city limits, Capital Midwest got started years after prominent venture firms in the region and around the country had established themselves. Its fund is about a fourth the size of the industry average, according to Thomson Reuters and the National Venture Capital Association.
But the company has its own views on how to manage investments. Instead of merely serving as an angel investor that provides money but little hands-on support, Capital Midwest pays close attention to a company’s ability to chart a path to generating revenue. And if a company financed by the new fund doesn’t provide the investors an exit within five years — through an acquisition — then Capital Midwest requires the company to buy back its shares.
So far, Capital Midwest has benefited from a scarcity of venture capital in the region. Its current fund had an internal rate of return of about 43 percent through late August, according to Daniel Einhorn. In March, the firm sold its stake in one company, Therapeutic Proteins, which manufactures generic versions of biological drugs, for double its initial investment.
“My parents were big supporters when we launched Greenlight,”
Only recently did the family move into venture capital, when Stephen Einhorn, who had a long career advising specialty chemical companies, opted to try something new. In 2008, tapping Stephen Einhorn’s local connections, the firm raised its first venture fund, of just $4.5 million, and became known as Capital Midwest.
Capital Midwest tends to keep its distance from flashy young companies. A frequent target of Daniel Einhorn’s scorn is Groupon, a Midwestern company that became a darling of Silicon Valley but has suffered since its public debut last year. Daniel Einhorn says he advised David to bet against Groupon when it went public. “He still owes me for that one,” Daniel Einhorn said with a laugh, adding, “It was one of the best ideas I’ve had.
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