Adventuring Group

Good performing and potential rewards keep this “opera” center-stage

by Virginia Lindauer Simmon

Fresh Tracks Cairn Cross (center), is co-founder and managing director of FreshTracks Capital in Middlebury. He is pictured with managing directors Lee Bouyea (left) and Tim Davis in the kitchen at Eating Well, one of the companies funded by FreshTracks.

It wasn’t long after Cairn Cross and Charlie Kireker met 1995 that they realized they had very similar views on a lot of issues. Cross was a commercial lender at the Howard Bank in Burlington, and had been assigned to work with Green Mountain Capital, a fund launched a few years earlier by Kireker and two partners.

“That was my first exposure to the venture world,” says Cross, “which was fascinating, because all of a sudden, there were these financial tools I didn’t know a lot about that were being used.”

Cross and Kireker worked so well together that, when a position for a half-time associate portfolio manager opened up at Green Mountain the following year, Cross left the Howard Bank and took the plunge into the riskier world of capital funding. Today, they are principals in FreshTracks Capital, a venture fund company they co-founded in 2001 and operate in partnership with Tim Davis and Lee Bouyea.

Back in 1995, Kireker, whose real estate development company, Twin Birches, had been featured in a November 1993 article in what was then Business Digest, was scaling back on his real estate activities and delving deeper into the world of venture capital.

He had founded Green Mountain, a mezzanine small-business investment corporation, in the early ’90s, when, he says, “there was a pretty serious national recession that hit Vermont pretty hard.” Many banks were failing around the country or were under pressure, and he and his partners “perceived an opportunity between what the venture capital funds and the banks were doing.”

Kireker uses an opera house as an analogy to explain the relative positions of banks, mezzanine funds and venture funds. “Capital from a bank, which has a claim on assets,” he says, “is in the orchestra section. The mezzanine would be a lender who charges a higher rate of interest, but knows if the company goes bad, the first claim on assets is the bank’s. In the upper deck is equity. Equity only gets a claim after the bank and the mezzanine lender are paid off.

“Equity has the first claim on the up-side,” he explains, “and the bank has the first claim on the down side.”

With a chuckle, Cross describes his move from banking to a mezzanine fund to the equity world of venture capital as “working my way down the balance sheet.”

Cross did not begin his working life in finance. With a degree in agriculture from Montana State University in Bozeman, he came to Vermont around 1980, right out of college, to work for the U.S. Ski Association at its national headquarters in Brattleboro.

He’d been here before. A descendant of four generations of Vermonters, he jokes that his family makes up half of Windham County. Cross’ father, George (now a state legislator), had moved the family to North Adams, Mass., where Cross was born, to be close to his teaching job in Stamford, Vt.

Cross worked at the ski association until 1986. Somewhere along the way, he realized that the skiing life “just doesn’t pay the bills.” He entered an evening program at Southern New Hampshire University to study for his MBA. Upon graduation, he landed a job at Vermont National Bank in Brattleboro.

He worked in a variety of positions before finding commercial lending, “because I determined that’s where the action was in banking, and it held a lot of interest for me.”

By 1990, “when there was an overbuilding of real estate and the balance sheets of Vermont banks were deteriorating pretty drastically,” Cross had figured out that Burlington was the place to be. “The Howard Bank, part of Banknorth at the time, was trying to hire folks and take advantage of the fact they had a good balance sheet compared to the other banks.” He joined the Howard in January 1991.

Fresh TracksCo-founder Charlie Kireker is still active with companies in the first FreshTracks portfolio, but as FreshTracks II gets under way, he is once again contemplating other pursuits. To that end, his role is evolving to that of a consultant to the fund.

Cross found himself attracted to companies and situations that were “not in the box; things that were a little more complicated.” For example, he was put in charge of the program to figure out how to bank captive insurance companies. “It was a lot of fun because it was very different, and something other banks were not paying a lot of attention to.”

Cross also found himself involved in “a lot of the stuff somebody in the bank had decided we probably ought to do but hadn’t figured out how to do it,” he says. One of those was Green Mountain Capital.

In 1996, he left the Howard and went to work half time for Green Mountain. The other half, he spent with a business he called Cross Vermont Capital, offering strategic and financial advice for growth companies and banks.

In 2000, Cross and Kireker decided there was what they called a “capital gap” for equity financing and capital. They began developing FreshTracks.

Middlebury College’s endowment fund is the largest institutional investor for both of the FreshTracks funds. When Cross and Kireker were pitching Middlebury College on the idea of a venture fund in 2000, they learned about a Massachusetts group called Village Ventures.

“Their idea was to knit together a group of venture funds in nontraditional markets,” says Cross, “because 90 percent of venture capital is invested in a few major metropolitan areas, which comprise 10 percent of the population.”

One of the things Cross and Kireker feared when they set out was that they would be isolated here in Vermont. The idea of joining with other small funds was appealing.

At a meeting with Village Ventures, they found much to like. “We became the first contractually affiliated fund with them,” says Cross. “Village Ventures invests money in FreshTracks and provides us one member — in our case, Matt Harris, a general partner.” FreshTracks is by far the smallest of Village Ventures’ 14 affiliated funds across the country.

That relationship allows FreshTracks to call on peer fund managers across the country with various skill sets and expertise. It also brings more capital to the table, says Cross. An example is Vermont Teddy Bear, which FreshTracks helped go private.

“We invested about $800,000 in Vermont Teddy Bear, and Mustang Partners — part of the Village Ventures network — invested $16 million.” Not just any suitor was going to win that deal, Cross continues, so part of FreshTracks’ criteria was finding who was “quirky enough” to be able to understand the company. Mustang was perfect for that, he says, adding quickly, “Quirky in a good way.”

Fresh Tracks After years in Middlebury, FreshTracks is moving to Chittenden County. Space at 29 Harbor Road in Shelburne is being renovated.

Another example of the power of connections is Eating Well in Charlotte, also a beneficiary of co-investing. Kireker’s connection with a senior executive at Web MD helped pave the way for Eating Well to play an active part in Web MD’s content.

In 2005, when Kireker and Cross decided to raise FreshTracks II, they brought Tim Davis in as a principal. Three months later, Lee Bouyea was hired, first as an associate, and promoted to principal in 2006. Both have Vermont connections. Davis is the son of Frank Davis, who was state treasurer under Gov. Richard Snelling. Bouyea’s Burlington family owned Bouyea’s Bakery for three generations before it was sold in 1989.

Before joining FreshTracks, Davis managed a series of manufacturing companies to get them ready for sale. A University of Vermont alumnus, with an MBA in economics from Harvard, he and his wife returned to Vermont when their son entered Middlebury College. “Half my time for Fresh Tracks is finding little companies getting to the point where they can be invested in; the other half of my time is spent with my philanthropic activities; and the other half of my time,” he says, laughing, “is spent with the portfolio companies I work with.”

Bouyea majored in economics at Colgate University and moved to San Francisco after graduation in 1997, working for Nextel Communications and an online startup called Ebates. After a return east to earn his MBA from the Tuck School at Dartmouth in 2005, seeking a job in venture capital, he contacted FreshTracks, “because they were one of the few located in Vermont,” he says.

Although each of the partners is responsible for searching out companies for investment, they are also responsible for guiding companies in the portfolio. Kireker and Cross work primarily with Fund I companies, and Davis and Bouyea work with those in Fund II.

Equity capital presents a lot of risk, Cross says. “The difference is that you have a lot of influence, and a lot of potential reward. We are very active investors.”

The partners have daily contact with the companies they’re responsible for. “It’s everything from soup to nuts,” Cross says. That includes serving on the board, monthly meetings in many cases, hiring people, setting strategy, setting pricing, finding a new bank, insurance-related quotes — “the kind of details that a normal entrepreneur needs some help with.”

Keeping track of all this — the money and partners, preparing accounts for audits, trouble-shooting and managing the portfolio company documents — is no easy job, but Holly Killary appears equal to the task.

Killary, the administrative assistant, was hired by Kireker as a bookkeeper at Twin Birches in 1999. He brought her into the new venture.

Kireker is still active with companies funded by FreshTracks I, but as FreshTracks II gets under way, he is again contemplating other pursuits. To that end, his role is evolving to that of a consultant to the fund. As he moves on to other spheres, Killary has begun to take on the role of personal assistant for him.

Each partner in turn echoes Cross, who says, “I’m pretty bullish as to the prospects of Vermont.” They bristle when they hear that there are no opportunities for young people here.

One of their biggest ongoing challenges is helping to build the management teams of the portfolio companies they work for. “At any time, there are dozens of jobs going unfilled,” says Cross. “That makes it hard for me to listen to folks who say there are no jobs in Vermont. I say go look at Vermont Teddy Bear or any company that has growth and advancement potential and take an entry-level job.”

“Our task — our main mission — is a return on investment for our limited partners,” says Davis, “but the other part of our mission is helping to expand and grow the economy of Vermont, and we do a great deal.

“When we focus our primary business on getting a return for investment for our investors, we’re doing whatever we can to help the state grow and be a better place to live. •