StoneL was a young startup company that needed to raise some equity capital in order to move forward. They had developed a valve monitoring device and were ready to take it to market, but where would they go for equity and how would they get it?
One problem was that few people knew what a valve monitoring device was, and worse, few people cared! Wally Stommes, CEO of StoneL explained it to me very simply. In a processing plant there are pipes that carry fluids, on the pipes are valves that let the fluids out that are turned on and off via an actuator, not the kind of twist valve that I have on my outside hose that I think of. By putting a chip in it and letting it communicate to a central PC, a plant superintendent can monitor the processes to be assured that everything is functioning as required. Or in simple language, is the beer getting the right ingredients?
But even knowing that, or believing you understand it, would you invest in such a venture? Well, several people did, and each had their own reasons.
- One of Wally’s former professors understood the product, and believed in Wally and his partner Gerry Nelson
- A local guy that liked to invest in companies, knew Wally and Gerry and was willing to bet on the people and product as well as his interest in the community
- A Twin Cities entrepreneur that had very little understanding of the product, but was immensely impressed with the people and the fact that the founders were buying stock at the same price as they were offering it to him. They were taking no “free” founder stock
So, that is how they got started with angel money. They eventually attracted other investors from around the area and the Twin Cities, (including me, one of my best investments ever!) borrowed money from economic development organizations, and financial institutions. And through very frugal management they bootstrapped their way to survival. Profitable years were few, but they were becoming a well known player in their industry.
But, as most know, investors want an exit plan so for several years Wally spent a lot of time studying and talking with his competitors and possible acquirers. With this knowledge and the relationships he created, they sold StoneL in 2000 to a strategic buyer that understood valve monitors very well and needed the device to complete their product line. All the investors received a substantial return and all the lenders were repaid. With a NYSE company behind StoneL now, they are doing well, growing and building a new plant.
I worked with these people for almost 10 years, my final involvement being helping with the sale of the business. My first project with them was to arrange some financing when they were in a bind and had no idea where to get debt financing. I treasured the people relationship and the profit on my investment as did every other investor/lender that was involved. Just goes to show how profitable it can be to invest in and work with people that are unselfish, have integrity and passion for what they do.