Madison Development Corporation (MDC) has closed on two recent loans to promising Madison technology companies.
MDC, a local non-profit development company helping hard to finance small businesses with loans, started a Venture Debt Fund to help technology businesses stretch scarce local venture capital dollars. Since starting the Fund earlier this year, MDC has made 6 loans, totaling over $1 million to local tech businesses. Two loans were just closed to Extract Systems LLC, and Universal Separators, Inc.
The most recent loan, to Extract Systems, was closed this month and will help the company market its data extraction and redaction software. Extract has proprietary technology and software which expands optical character recognition (OCR) technology with enhanced capacity to identify critical information in unstructured legal, property or medical documents. Extract has expanded its data capture capabilities into four product lines and has extended its reach into new vertical markets. But the company required additional capital to market and service customers in those markets, including county governments, title and legal professionals and medical records. MDC’s Venture Debt Fund provided Extract with $200,000 to hire essential staff for the company’s expansion.
According to Extract President, Dave Rasmussen, “Extract Systems, and other tech companies like us are fortunate to have Madison Development Corp. as a funding source. They have experienced business people who have taken time to understand our business. That’s important because software companies don’t have lots of hard assets like other kinds of businesses. Our assets are our people and that makes it more difficult to find conventional funding sources. There would be a big hole in our business plan if not for MDC.”
MDC also provided $150,000 to Universal Separators to market its new technology, systems and components for separating oil and other impurities from cooling and cleaning fluids used in the metal working and fabrication industries. Universal’s skimmer and separator work simply and simply better than anything else in the market. Universal’s systems provide immediate cost savings and their recycling impact is an important environmental side benefit. While the systems are unique, they need to market the units to gain first mover advantage. MDC’s loan helped the company add a new CEO, enabling the founder and inventor, Rick Terrien to get face to face with customers, since his enthusiasm and knowledge of the product makes him the company’s best sales tool. According to Terrien, “Universal Separators was most fortunate to receive the financial support and guidance provided by MDC. Our products and services are providing a global list of customers with recycling technologies for their industrial fluids. Utilizing the financial support provided by MDC we plan to grow our presence in the global marketplace.”
Frank Staniszewski, of MDC, stated that “MDC’s Venture Debt Fund has nearly $1 million still available for tech businesses in Dane County.”
The MDC Venture Debt Fund makes loans at rates from 2 ½ to 10% over prime depending on risk. The Fund also takes a small percentage of the loan amount, not to exceed 10%, in warrants or conversion rights for equity at a later date. The Fund complements other equity venture money, and despite the interest rate, is cheaper for companies than giving up more precious ownership in the company. The Fund has worked cooperatively to supplement other sources of financing for local businesses, including local venture capital and angel funds and the State of Wisconsin Dept. of Commerce’s technology funds.
Money for the loans comes from MGE Energy, The City of Madison, The City of Fitchburg, and participating financial institutions including Johnson Bank, Associated Bank, Anchor Bank, State Bank of Cross Plains, Capitol Bank, Middleton Community Bank, and Oak Bank. MDC uses an expert Advisory Group to review the technology and business plans, and funding decisions are made by the participants. The fund was started in 2004 to help mobilize the capital resources of financial institutions to supplement scarce venture capital and angel money in Dane County.
