Frank Adams and Grotech Partners tap new sources of venture capital with their mid-Atlantic stategy


September 10, 1990|By Blair S. Walker

The memory is vividly stamped into Frank Adams' brain.

He was running his own company and desperately needed his venture capital firm to help him wriggle out of a tight financial situation. At stake was his ability to make payroll, not to mention the existence of his business. Mr. Adams huddled with his financial backers and informed them of how he planned to alleviate his problems, as well as the consequences of not doing so.

"They were strict, academic types," Mr. Adams said. "To very specific questions, they were giving me dissertations on market theory, oligarchies. It was like we were on two different planets. I got very exasperated with them and terminated the meeting early."

Scores of mid-Atlantic companies would later benefit from that seminal 1981 encounter: It encouraged Mr. Adams to start his own venture capital company, Timonium-based Grotech Partners.

"I was convinced that somebody who had nuts and bolts experience could give much better guidance at the board level to an entrepreneur than somebody who had never been there," said Mr. Adams, who averted his former company's financial crisis, made the company a success and sold it for a profit.

He and his four Grotech partners like to view themselves as the entrepreneurs' best friend, whether the business is in a start-up, expansion or mature phase of its life. The colleagues feel they have a sixth sense about whether to coax, motivate or coach entrepreneurs, largely because three of them have been entrepreneurs themselves.

"Most venture capitalists are either investment bankers or out of business school and serve apprenticeships in the venture capital business," Mr. Adams said.

"When we sit down across from the entrepreneur and they say, 'You don't understand how bad it is,' I understand. I was there. It's not unique and it's not the end of the world, so relax and we're going to get through this. It gives them comfort and, more importantly, it gets us focused on the real issues."

Grotech's business plan is a model of simplicity: Concentrate on mid-Atlantic region companies and always operate with integrity and honesty. The latter part of that strategy may sound corny, but Mr. Adams and crew say it's an integral part of their success.

Their way of doing business apparently goes over well with many traditional backers of venture capital companies, as well as some non-traditional ones. Initially funded at $12 million in 1984, Grotech has doubled its size every three years, growing to $24 million in 1987 and $50 million this year.

One backer was Pennsylvania's pension fund, which had never given a cent to an out-of-state venture capital firm before Grotech. Preaching the gospel of mid-Atlantic opportunity, Mr. Adams and Grotech's managing director, Stewart Frankel, have also convinced pension fund managers in Colorado and Dallas to send Grotech millions of dollars.

The firm's regional emphasis influenced Mitchell Hutchins Institutional Investors, a Manhattan-based company that advises Fortune 50 companies on venture capital, to funnel several million dollars into Grotech.

"They're investing in the mid-Atlantic region and we didn't have good exposure in that region," said Mitchell Hutchins Vice President Peter W. Lisi, whose firm has had a business relationship with Grotech since September. "There are good market opportunities in the niche that they're going to be an investor in. We did extensive due diligence on the principals and were impressed with what we found out. When it comes to venture capital, I guess we're convinced that they're the sort of people who can help build companies."

Locally, USF&G Corp. has also made a monetary alliance with Grotech. From the time the venture capital firm was created six years ago, USF&G has been its single largest investor, and has been a general partner since 1987, Mr. Adams said.

Incisive and hard-driving, Mr. Adams is described by a former boss as unable to savor business victories because he's too busy looking ahead to the next battle. Grotech has taken on some aspects of Mr. Adams' personality, in that it's aggressive and willing to take chances, specifically on companies that financial institutions, pension funds and other venture capital firms have shied from.

"We go out on a limb all the time -- we live on the limb, we live on the edge," Mr. Adams said. "It's just a matter of how you rationalize it. Why do we take risks at all? First of all, you've got to love building companies, you've got to love the thrill of adding value and really making a difference in the world.

"This is not so much altruistic, because only by making things better do you make real money. You make a serious company that makes a difference in the world, it makes money."

Grotech has doled out money to 27 private companies dotting the Eastern Seaboard, ranging from North Carolina to Massachusetts.

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