By Dick Hughes

AUGUST 11, 2011 10:34 a.m

With Proterra out of cash to pay workers building battery-powered buses, a group of Greenville residents quietly raised the money to keep the company alive when no one else could or would.

They acted to keep Proterra viable not only for its jobs but also for its potential to attract a cluster of green energy transportation research and development to Upstate.

It is the untold story of how local investors gave Proterra a lifeline when its funding was lost and its credibility at risk, however innocently, with a federal fraud indictment of its main investor, a man no one here had ever met.

It was also a demonstration of how close relationships among Greenvillians could quickly create a network of individuals and a prestigious state investment firm to assist a new company with no close ties here but with great promise in sustainable energy transportation.

Proterra was on the verge of bankruptcy and had nowhere to turn when it made a panicky request to local people for enough money to stay alive until it secured a $30-million investment from Kleiner Perkins Caufield & Byers, a highly regarded Silicon Valley green technology venture capital firm.

“Greenville business and community leaders understood the significance of helping to ensure Proterra’s success and rallied to support them based upon Greenville’s commitment to economic development for the Upstate,” said Rick Davis, managing shareholder of Elliott Davis, who acted on his own and not as an Elliott Davis officer.

Angels to the Rescue

Davis and Matt Dunbar, managing director of Upstate Carolina Angel Network, brought together 13 individuals who collectively contributed $250,000 “with no real expectations that they would end up with equity ownership or that they necessarily would even get their money back,” said Davis. They were prepared to put in $500,000 more if necessary.

Tim Reed, an Angel Network co-founder, brought SCRA, the statewide investors in technology, to the table, and SCRA came through with a separate loan of $250,000.

Without that money, said Marc Gottschalk, Proterra’s general counsel and director of business development, Proterra would not have made it to closing on the promised $30 million from Kleiner Perkins.

“Kleiner Perkins still needed quite a bit of time to complete their due diligence, and our existing investment pool at that point was essentially exhausted,” he said. “This last piece that came in from Greenville completed the puzzle to get to closing.”

Gottschalk said Proterra, which came to Greenville 18 months ago after a nationwide site search, probably would not have had that kind of response any place else.

“The fact of the matter is being in Greenville is a lot like being adopted into a family.”

Innocently Snared In a Ponzi

Proterra was running out of money in the last months of 2010 as it waited for $8 million from its main source of funding, MK Energy and Infrastructure of Stamford, Conn. The company had already invested $20.4 million in Proterra.

Proterra had slowed or stopped payments to suppliers.

Then in January, Francisco Illarramendi was indicted on charges of defrauding hundreds of millions of dollars from pension funds of Petroleos de Venezuela, the state-run oil company. Unbeknownst to Proterra, those ill-gotten gains funded the $20.4 million investment. Illarramendi pled guilty and awaits sentencing.

Running on Fumes

“MK kept putting it off and putting it off, and it dragged into January,” said Gottschalk. “We were supposed to be receiving our capital the week of January 17 when on January 14 the Securities and Exchange Commission filed its lawsuit against MK, and all of the MK assets were frozen. At that point, we were on fumes.”

Not only were the MK assets frozen, which included Proterra because it was part-owned by MK, the court receiver wanted MK’s $20 million back to return to the swindled Venezuelan pension funds. By that time, the money was spent. For all practical purposes, Proterra was broke.

The court allowed Proterra to use money or raise money for payroll but nothing else, and Gottschalk had to fly from his home in California to Hartford, Conn., several times in January and February to get court permission to spend what money Proterra had.

“They wanted to make sure people got paid, but unfortunately our suppliers were not on that list , and accounts payable kept piling up,” said Gottschalk.

Firestorm in Venezuela

Things got worse. To tide Proterra over, MK’s investors agreed to loan Proterra $5 million from “hundreds of millions of dollars” believed to be in MK accounts in Venezuela, but on the day “the funding was supposed to happen, we were informed that they were not going to allow it to happen,” Gottschalk said.

“There was a huge political firestorm in Venezuela. Not only were people upset that the pension fund had been misused but also there was the revelation that the paperwork shown by MK showing existing assets in Venezuela were fraudulent, (and) there really wasn’t much of anything.”

While the news about Illarramendi’s fraud broke early in South America, the news media in the Upstate was slow to catch on to the mess Proterra found itself in, and Proterra was hoping the lid stayed on until after Secretary of Transportation Ray LaHood’s Jan. 27 visit to Proterra’s Greenville assembly plant.

It did, and LaHood gave Proterra’s battery-powered buses a ringing endorsement for public transit agencies as the only bus that meets federal standards for grants covering 80 percent of the cost of purchase.

Katherine Smoak Davis of Smoak Public Relations, who had been hired last year to handle local public relations, said there was relief “that they had the secretary of transportation’s visit with a smiling face, if you will.”

Reaching Out for Help

But there were no smiling faces about Proterra’s increasingly dire financial condition, and the company hired South Carolina lawyers to prepare bankruptcy papers. “At a couple of different points, we were within hours of filing for bankruptcy,” Gottschalk said.

Around that time, Gottschalk and Jeff Granato, the president, asked Smoak Davis to introduce them to people who might be willing to make bridge loans. With their permission, she sat her husband Rick Davis on a stool at their kitchen island and briefed him on the company’s financial straits.

Over the next 60 days, Davis and Dunbar brought Granato and Gottschalk together with potential investors “to let them tell their story, what their need was, where they were going and how that would transpire to the long-term good of Greenville.”

Time was running out, while Proterra had a firm commitment from Kleiner Perkins, it was unlikely the deal could close until mid-June, and it soon would be unable to meet its bi-weekly payroll of $250,000 for 80 workers in Greenville and five at the headquarters in Golden, Colo.

Reed recalls being asked on a Friday to “write checks on the following Monday. But nobody really knew the terms of the deal so that was a pretty bold call, so we asked that it could be extended for additional days so the local folks could do their review.”

Dealing with the Here and Now

Lewis Smoak, Katherine’s father and a founding partner of the law firm Ogletree, Deakins, Nash, Smoak & Stewart, said Proterra came up at a meeting of active and retired executives who informally “put their automotive connections into play to get the Upstate in the running for an additional automotive facility” beyond BMW.

“We said ‘Why don’t we work on this automotive company that is right here now and has the potential of 1,200 jobs in Greenville? Why don’t we help them out?’ That’s how we got involved.”

Among others who chipped in were Dennis Braasch, director of Braasch Building Group, and Craig Brown, co-owner and president of Greenville Drive.

Brown, who came to Greenville six years ago to start the Drive baseball team, said contributing was “my chance to return the welcome and support we received as newcomers to the community.”

In a practical sense, he said, supporting Proterra fits perfectly with Greenville’s mission to attract technically advanced companies offering well-paid jobs.

The loans from the Greenville 13, which were bundled into a single entity, and SCRA gave Proterra enough money to make it to the closing in mid-June of the $30-million equity investment by a syndicate led by Kleiner Perkins.

It includes $6 million from General Motors’ venture firm, giving the automaker its first ownership stake in zero-emission electric buses for mass transit.

The bridge loans were converted to equity, so the local investors and SCRA now have an ownership stake, however small.

Reed said local investors came through in support of “game-changing technology that someday will not only benefit our local area but municipalities all over the country,” and he marveled at the irony of Greenville’s small investors keeping Proterra alive long enough to receive $30 million.

“It is one of those stories that is hard to believe – that they got this close to collapsing for lack of an investment that percentagewise was not much of an additional investment, but it came so close to not coming to fruition. That was what was really scary.”

By Rudolph Bell
STAFF WRITER
dbell@greenvilleonline.com

Last fall, Evan Solida had reluctantly shelved his longtime dream of starting his own company and was planning to go back to work as an industrial designer.

A year earlier, he’d left a design job with Confluence Watersports, the kayak maker in Easley, to devote his full attention to building his own business around his idea for a “digital bicycle mirror.” Solida, a former bicycle racer who lives in Mauldin, had applied for a patent, created a website and made models of his product, a tiny camera and screen that gives cyclists a view from behind their bicycles without having to turn their heads or use clip-on mirrors.

By early November, however, Solida hadn’t attracted any investors for his venture and so felt like he had to return to his previous career “to keep food on the table,” he said.

His luck changed, however, on the very day he had scheduled an interview with Trek, a bicycle maker in Waterloo, Wis.  That day, Solida got a call from Matt Dunbar, managing director of the Upstate Carolina Angel Network, a group of affluent individuals who invest in startup companies.

The call led to a presentation front of UCAN members at the Greenville Chamber and ultimately to an undisclosed amount of funding from the investor group. Combined with a loan arranged through a Michelin program that helps small businesses, Solida had enough money to hire the Greenville office of Aeronix, an engineering services firm, to develop the electronics for his product and to line up a factory in China to make it.

Now he’s set to introduce the device — called the Hindsight 35 — to the cycling market at the Interbike trade show in Las Vegas in September. Solida said he couldn’t have continued as an entrepreneur without support from UCAN and Michelin Development.  They made it happen,” he said.

Solida’s startup company is one of three businesses that got a total of nearly $230,000 in loans in the latest funding round from Michelin Development, said Amy Friess, a spokesman for Greenville-based tiremaker Michelin North America.

From UCAN, Solida also got valuable business advice from one of its members, Mark Smith, who ran companies for a private equity group before moving to Greenville from Atlanta about a year ago.  Smith said he thinks the Hindsight is a “very intriguing product with a lot of potential.”

The 50-member UCAN has provided $4.4 million to 15 startup companies, 10 of them in South Carolina, since it was founded in 2008, Dunbar said.  It’s one of about 340 angel investor groups across the country, up from about 100 in 2000, said Marianne Hudson, executive director of the Angel Capital Association in Kansas City.

“People are figuring out these angel groups are a good thing for both the investors and the entrepreneurs,” she said.  Hudson said the groups provide a way for entrepreneurs to find high-quality investors and for investors to find good investments, pool their capital and lear n from each other.  The groups also help their communities by assisting with job creation.

Solida said he’ll keep his startup, called Cerevellum, in Greenville because the city’s focus on cycling makes it a great place to create products for the sport. He envisions the company making other cycling products over time. Solida said the Hindsight, which he plans to sell for $229 or $249, will enhance cycling safety and could attract more people to the sport.

“We were surprised nobody had done it before,” Dunbar said.  The Hindsight’s camera is mounted behind the bicycle seat and its screen be tween the handlebars. The device also functions as a cyclometer, measuring speed, distance and time, and its three LED lights make it a taillight.

In addition, the Hindsight continually records video of the view behind the bicycle in 30-second loops, and stops if the bicycle is suddenly jarred, which makes it a “black box” for bicycles, recording the moments leading up to an accident. Solida said he got the idea for that after being struck by a car while cycling near Wren High School.

Sean Priddy, director of business development for Aeronix in Greenville, said he sees the Hindsight as an “evolutionary platform.”  ”There’s definitely more innovation that can happen with this product,” Priddy said.

Upstate Angels Realize Successful Early Exit with Sabal Medical Investment

Greenville, SC – The Upstate Carolina Angel Network (UCAN) is celebrating the new year with the announcement of its first liquidity event for investors. Earlier this month, UCAN realized an early exit when portfolio company Sabal Medical, a Charleston-based medical technology company, was acquired by Swisslog, a global supplier of integrated logistics solutions.

In a deal valued at a total of $9 million, UCAN investors realized a return of more than three times their investment in less than six months, yielding a rate of return of more than 2000%. UCAN’s investment was made last summer as part of an investment syndicate with SC Launch and Nexus Medical Partners.

Sabal Medical provides hospitals with a range of hardware and software solutions to help them safely manage and deliver patient medications while meeting all compliance requirements. Their products, including a secure mobile bedside drug kiosk, will become part of Swisslog’s Automated Drug Management Systems within their Healthcare Solutions division.

The Upstate Carolina Angel Network is a group of more than 50 accredited investors from across the Upstate who support start-up and early-stage, high-growth businesses with their intellectual and financial capital. Since its inception in April of 2008, UCAN has invested $3.8 million in 13 companies. $2.7 million of the total has been distributed to 8 South Carolina companies that have sustained more than 60 high-paying jobs.

Sabal Medical represents the group’s second successful exit event for a portfolio company. Selah Technologies was acquired by privately-held Lab 21 in 2009 in a stock transaction, making the Sabal acquisition the first cash return for investors.

“Most angel investments require several years to reach a successful exit, so we are very pleased that our investors were able to monetize this investment ahead of schedule,” said Matt Dunbar, UCAN’s Managing Director. “Just as importantly, we’re excited to see an innovative South Carolina company now well-positioned to take its products to market with the deep resources of a major global company.”

Dunbar added that “South Carolina entrepreneurs face tremendous hurdles in securing risk capital for their ventures, so it is vitally important that we continue to encourage and support angel investing activities across the state. We believe the proposed ‘Bill Wylie Entrepreneurship Act’ will help spur additional angel activity in South Carolina, which will in turn increase the private resources available to promising startup firms – the true engine of job creation in the U.S. over the last three decades.”

The Act would create a state income tax credit for angel investors who invest in qualified startup ventures.

For additional information, please contact:
Matt Dunbar
Managing Director
Upstate Carolina Angel Network
www.upstateangels.org
matt@upstateangels.org
(864) 751-4805

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Seeking Economic Recovery, South Carolina Looks for Angels

Columbia, SC - South Carolina’s two angel investor networks—Upstate Carolina Angel Network (UCAN) and Charleston Angel Partners (CHAP)—are joining forces with state legislators to help revive the state’s struggling economy.

“Angel investors” are high net worth individuals who meet the accreditation standards set by the U.S. Securities and Exchange Commission. These angels invest their own private capital in early stage companies that present high risks and potentially high rewards. However, according to a recent study by the Kauffman Foundation based on US Government data, it is start-up companies that have created all net new jobs in the United States since 1980 and are crucial to the economic recovery process. As such, many states have enacted legislation to create “angel credits,” which help promote much-needed investment in start-up companies located within their borders.

Rep. Dwight Loftis (R-SC 19th District) and the late Bill Wylie have worked with UCAN and CHAP to create the “SC Angel Investment Act of 2011,” which was revealed today as part of the House Republican Caucus legislative agenda.

The bill has been co-sponsored by Rep. Dan Hamilton, Rep. Tommy Stringer, and Rep. G. R. Smith, and is modeled after legislation that has already been implemented with great success in more than 25 states, including Georgia and North Carolina.  Implementing an angel credit system would help put young, high-growth companies located in South Carolina on a more level playing field with those seeking capital in neighboring states.

“This relatively small incentive would bring us in line with other states, where similar incentives have produced investments of 300 to 400% in private dollars,” says CHAP’s Executive Director, Andrea Marshall.  “This incentive would fuel entrepreneurial activity in South Carolina, which will grow our tax base over time.”

The angel credits proposed in the SC Angel Investment Act would help increase angel investing activity in qualified, high-growth start-up companies in South Carolina by offering a 35% tax credit to investors, taken over two years. A proposed annual limit of $100,000 per investor and $6 million in aggregate would apply.

Rep. Loftis say the exact figures of the credit may change as the bill makes its way through the
legislative process.

UCAN’s Managing Director, Matt Dunbar, acknowledges that it may seem counterintuitive to pursue this legislation right now given the state’s current budget woes and upcoming plans for comprehensive tax reform. However, being on the front lines each day with entrepreneurs around the state who are trying to locate the capital they need to grow their businesses and create new jobs, he says he has gained a full appreciation of the urgency of the situation.

“We know that startups create jobs, and we know that access to capital is the key limiting factor for most startups in this economy, so using an angel incentive to bring more private investors into the marketplace should be very beneficial for both the near and long-term health of South Carolina’s economy.”

“The more startups we can fund through the ‘valley of death’ to successful growth, the more jobs we can create, the more venture capital we can attract, and ultimately, the more revenue we can generate for the state.”

Currently, less than 1% of qualified accredited investors in South Carolina invest with the state’s two angel groups, and the state ranked 39th for venture capital investments over the last year.

Dunbar and Marshall warn that South Carolina will fall even further behind other states in generating early stage capital for job-creating startups if angel investors find it more attractive to make their investments in neighboring states with angel credits.  Georgia just passed a 35% angel credit in 2010.

Loftis agreed that “limited access to capital is one of the reasons South Carolina lags behind other states in entrepreneurship. We really need to focus on helping and growing small business to create jobs and improve the state’s economy.”

“Our state is telling entrepreneurs and their companies to move to Georgia or North Carolina and telling investors to follow them. We can’t afford to wait for a comprehensive reform bill to pass or wait for an economic recovery. We already know a simple, low-cost, high-return solution that is already working in states right next door to us. We need to act now.”

For additional information, please contact:
Matt Dunbar
Managing Director
Upstate Carolina Angel Network
www.upstateangels.org
matt@upstateangels.org
(864) 751-4805

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UCAN Investing to Improve Upstate Economy, Hosting Regional Investor Conference

Greenville, SC – After a busy summer that included investments totaling nearly $1 million in six fast-growth local and regional companies, the Upstate Carolina Angel Network (UCAN) has plans to leverage its success into future initiatives to develop early stage capital growth in South Carolina, including a regional angel investor conference in Greenville in October.

UCAN, a group of over 50 accredited investors located in Upstate South Carolina, invests in and supports start-up and early-stage, high-growth businesses in the Southeastern United States. Since 2008, the group has invested $3.2 million in 12 companies, including 8 South Carolina companies and 4 companies in Georgia and North Carolina.

This summer, UCAN completed first round investments in Zipit Wireless (Greenville, SC), Centrafuse (Atlanta, GA), Lab 21 (Greenville, SC), and Sabal Medical (Charleston, SC), in addition to second round investments in portfolio companies SensorTech (Greenville,SC) and Southeast TechInventures (Research Triangle Park, NC).

“With high unemployment rates and a shrinking venture capital industry, angel investing is playing an increasingly important role for the economy, especially in South Carolina,” says UCAN Managing Director Matt Dunbar, adding that South Carolina has lagged the country and the region for early stage capital formation, particularly in venture capital investments.

“New businesses need substantial financial resources to survive and grow, and the US economy desperately needs new, innovative private sector businesses to create sustainable jobs,” Dunbar adds, citing a recent Kauffman Foundation study which showed all net new jobs in the US since 1980 were created by startup companies.

Despite the uncertain economic climate, Dunbar sees evidence of a healthy deal flow and favorable deal terms. “Our primary concern is not the lack of investment opportunities, it’s ensuring that these promising new companies have access to the resources they need to succeed.”

Dunbar wants to see a more favorable environment and better infrastructure for angel investing groups operating in SC in order to help fill that funding gap. UCAN is working towards that end with several initiatives to support angel group formation and investment infrastructure for SC.

One such effort that UCAN is spearheading is the 2010 Southeast Region Angel Capital Association (ACA) Meeting in Greenville on October 19-21. The conference represents an opportunity to showcase Greenville to more than 25 angel groups and leading venture capital firms from across the southeast, potentially leading to increased funding sources for top Upstate businesses and new high paying jobs for area residents.  The meeting will include several powerful educational components that will benefit accredited investors interested in learning more about early stage investing opportunities.

The conference will focus heavily on “deal syndication” strategies between regional angel and venture capital groups, with guest expert David Verrill from Hub Angels in Boston presenting. Deal syndication, a strategy that helps investment groups de-risk while concurrently ensuring a client company is adequately resourced, is being increasingly utilized by angel groups in order to mitigate the risk associated with investing in early stage companies.
The conference will also feature presentations by six member-sponsored candidate companies, an Angel Capital Education Foundation workshop on Trends in Raising Capital (led by John May, Chairman Emeritus of the ACA), and a Southeast Venture Capital panel featuring several leading Southeast venture capitalists.   For more information, visit http://www.angelcapitalassociation.org/southeast-2010/

UCAN and the upcoming regional conference are sponsored by the Greenville Chamber of Commerce, NEXT, SC Launch!, the Wyche Law Firm, Merge, Elliott-Davis and Noro-Moseley Partners.

For additional information about UCAN membership or conference sponsorships, please contact:
Matt Dunbar
Managing Director
Upstate Carolina Angel Network
www.upstateangels.org
matt@upstateangels.org

Read UCAN’s feature, “Send me an Angel,”in the March edition of Greenville Business Magazine.

Listen to Managing Director Matt Dunbar discuss angel investing with Phil Yanov of the Connectorati.

Click Here to See the Presentation