"Since we're a chemical company, we're looking for materials-based opportunities," McGrath says. "We're not looking at software companies, we're not looking at pharmaceutical companies. We're interested in chemistry, advanced materials technology."
McGrath says the venture fund's goal is to make one or two investments per year ranging in size from $500,000 to $2 million. Investor benefits include equity stakes (typically 2-10%), access to a company's human resources and the option to appoint board members. H.B. Fuller Ventures has made four such investments to date.
"We're interested in linking the startup company strategically to our company," McGrath explains. "The benefits go both ways; we're not just looking for access to technology from the startup. We have a worldwide infrastructure - sales and marketing and access to distribution - that a startup may not have. They may offer us the ability to go out and bring new technology to the market, and we may offer them the ability to get their product out a lot quicker."
While the ventures fund is technically a part of Fuller's overall corporate development group, McGrath says there is a distinction to be made between what goes on in an investment situation and what happens in a mergers & acquisitions scenario.
"The bigger deals that Fuller does are on the acquisition side," McGrath says. "The startup companies that we look at on the ventures side tend to be small, therefore the amount of money that goes into an investment tends to be small."
Small investments may serve to limit an investor's financial stake, but they cannot eliminate the risks inherent to any venture capital scenario. McGrath describes Fuller's approach to investments as a numbers game of sorts, albeit one where research and calculation can work to the player's advantage.
"If you do 10 investments," McGrath says, "a couple are going to be rocket ships with huge returns, a couple are not going to do well and probably go bankrupt, and the ones in between will have varying degrees of success. What you're looking for is the two or three that are home runs to provide the bulk of the financial return.
"We look at investments similarly to the way we look at R&D. When we put money into venture capital we're investing in some of the best ideas out there that have already had a lot of money go into their development. It's still not a sure bet, but that technology has been though a number of different screens. I view it as a little higher probability net than putting money to work at the front end of the process where you're trying to generate the idea."
June 2003: Nanosys, a leading nanotechnology firm based in Palo Alto, CA
March 2004: EcoSynthetix, a leading developer of bio-based replacements for synthetic polymer-based adhesives, inks and other everyday products, based in Lansing, MI
Oct. 2004: SAGE Electrochromics Inc., a developer, manufacturer and marketer of electrochromic glass, based in Faribault, MN
Corporate Headquarters: St. Paul, MN
Fiscal 2004 Sales: $1.410 billion; 54% from North American operations, 23% from Europe, 13% from Latin America and 10% from Asia/Pacific
Number of Employees: 4,500 worldwide
Number of Plants: 39