Branching Out

H.B. Fuller widens its scope with venture fund



H.B. Fuller Co. hasn't had much trouble staying alive. In its 118 years, the St. Paul, MN-based company has successfully navigated the specialty chemical marketplace to become a $1.4 billion giant in the adhesives, sealants and coatings industries. Current core technologies include emulsion polymerization, water-based adhesives formulation, thermoplastic hot-melts and thermosets, but, in true forward-looking survivor fashion, the company is focusing attention on tomorrow's innovations through its corporate ventures fund, H.B. Fuller Ventures.

INVESTING IN THE FUTURE

Managing Director Bob McGrath, a 20-year veteran of chemical and technology industries, describes H.B. Fuller Ventures (established March 2003) as an extension of a business concept the company adopted in the late 90's that provided lab space and services to local start-up companies. Simply put, the fund allocates seed money to up-and-coming tech companies that offer strategic value to Fuller's core business lines.

"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."

FURTHER DOWN THE LINE

According to McGrath, there are no absolutes in Fuller's overall venture capital strategy. Startups that outperform their peers may one day find themselves part of the Fuller family, having been bought for what they bring to the table. In other cases, Fuller's role as an investor could go on indefinitely. Even underachievers are not without hope: additional investments from Fuller or stock offerings could serve to reinvigorate a company that struggles despite a solid business model. "There's always some value," McGrath says of potential capital investments, "even when companies don't execute what they hope they will."

For more information on H.B. Fuller Co., visit http://www.hbfuller.com.

H.B. FULLER VENTURES INVESTMENTS

2001: STS Biopolymers, a Rochester, NY-based developer and manufacturer of state-of-the-art biocompatible coatings for medical devices.

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

H.B. FULLER AT-A-GLANCE

Founded: 1887

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