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Grand Rapids 'band of angels' seeks worthy companies to bless with cash Investor group selects MotherLode as first buy

by Don Jacobson – businessnorth

March 4th, 2004 – MotherLode North America, an emerging e-commerce company based in Grand Rapids, plans to hire four new workers this year. That's maybe not a lot in sheer numbers, but it's a sign that efforts to diversify the region's economy and workforce are taking hold.

The hires are coming because the firm has landed an investment from some "angels": specifically, from a new network of community-minded angel investors who have come together to help launch local companies. In the process, they are giving Grand Rapids the means to move beyond its dependence upon the wood products industry.

One of this "band of angels" willing to put personal money on the line is Peter McDermott, acting president of Itasca Development Corp. (IDC). McDermott and his partners have christened their new North Star Fund LLC with a $50,000 equity investment in MotherLode. McDermott figures it this way. In addition to furthering the workforce diversification goals of the development corporation's "Jobs 2020" initiative, he's also taking a personal stake in the region by committing his personal investment resources.

"When I came to the IDC, the issue of jobs diversification was important," he said. "Whether it's been by design or happenstance, we're getting the diversification because larger industries are laying people off or doing the job with fewer workers. Therefore those people who don't want to leave the area are looking for other things to do, and starting their own businesses is an option." Jobs 2020 is a joint public-private effort in Itasca County to unite around a common vision: an economic future that depends less on the primary forest products industry for jobs. Community leaders know new jobs for retrained workers likely will come from small businesses but only if emerging entrepreneurs can get the capital they need to launch or expand.

MotherLode is co-owned by Ed Zabinski, a former senior management team member at UPM, Blandin Paper Mill, and former Grand Rapids mayor Jim Houlihan. Houlihan also is chief executive at Industrial Lubricants, an industrial supplier there. Zabinski said his two-year-old company has only three-employees, but is poised to grow. MotherLode needed an angel to help it through a key juncture in its evolution. "Our business is gaining traction," he said of the firm that provides customers with automatic, online supply chain management solutions. Essentially, MotherLode creates a paperless, Internet-based way for forest products, mining and utility companies to interact with their suppliers. But as its business model became apparent, Zabinski said the company needed a bit more capital for sales and marketing efforts to cash flow.

"Our first customer was Blandin, and they say the first customer is always the hardest to get. Now we've got a second customer Basin Electric Power Cooperative of Bismarck, ND. After two years of pitching a business plan, our company was catching on. But normally it's so hard to find investors to help a startup move along."

In came North Star Fund LLC with its $50,000 stock purchase. It's the kind of small-scale, personalized venture capital investment that to the dismay of many an entrepreneur is as hard to find in rural areas as a needle in a haystack.

Zabinski said his plan includes hiring four new employees by year's end. The North Star Fund has five investor/founders who together helped raise $400,000 in capitalization to launch it. Some $160,000 came from the Minnesota Investment Network Corp., or MIN-Corp., of Minneapolis, a nonprofit venture that administers a $15 million equity fund targeted at rural Minnesota. MIN-Corp, through such investments, has established a series of four "bands of angels" around the state, called RAINs, or regional angel investor networks.

Several North Star Fund individuals, as well as MIN-Corp itself, previously had invested in MotherLode, which made the choice of North Star's first equity recipient an easy one, said Joan Wurzer, MIN-Corp's investment director. But going forward with new companies to consider, MIN-Corp will help with the workload.

"What happens a lot with these RAIN groups is that they will invest as a group and then will invest alongside it with more personal money," Wurzer said. "It works very well. We have a rural Minnesota portfolio of about 15 companies that we're always turning over and we organize these RAIN funds and participate as a member. If they want us to, we'll organize and keep the books, put together their private placement memoranda and help with the due diligence on deals." One of the problems that economic developers face in finding ways to diversify local workforces in rural communities is that local money people usually prefer to invest their dollars elsewhere. Local investors in places like Grand Rapids are retired bankers, industrialists and other wealthy folks who are unfamiliar with high technology, so instead of helping emerging companies in their own back yards they will give their money to brokers, who in turn put the funds into publicly traded stocks.

MIN-Corp is challenging that dynamic, Wurzer said. It also helps manage regional Minnesota angel networks in Worthington and Alexandria. She said the Alexandria-based network, Lakes Venture Group LLC, has fully invested its first venture fund and is launching its second one. The North Star Fund also is still searching for more investors, she said.

"There's an awful lot of capital out there in rural Minnesota. These people are very community-oriented and want to help local businesses. They just need to be aware of the opportunities."

About MotherLode North America
MotherLode North America provides technology solutions to streamline business processes. Our primary market focus is the rural utility industry. We provide field service scheduling software; purchasing automation services; database development; and business process review and facilitation services. For more information, visit www.motherlode.biz, or call (218) 327-8870.

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