If your name is Warren Buffet, you can invest in any company you choose. In fact, you probably have a line out the door of eager beavers with prospectuses in hand. If your name is Joe Everyman, it’s a different story.
In 2003, Manuel A. Henriquez launched Hercules Capital to offer everyday people the same opportunities as Warren Buffet.
“I really want to create an investment vehicle where the average Joe and Mary, the average investor on the street, can gain access to the privileged world of venture capital by having a vehicle, a conduit, like Hercules investing in these private illiquid companies that are pre-IPO, pre-M&A,” Henriquez explains.
“Now you, Mister Simple Investor out there, can actually participate in that pre-IPO company while you’re getting a nice dividend yield and getting some stock appreciation in the process. So, in essence, Hercules can look like a synthetic ETF [Exchange Traded Fund] or the venture capital industry.”
Since Henriquez founded the company, Hercules has completed more than $7 billion in transactions and commitments and invested more than $5.5 billion in almost 400 companies. “We’ve achieved that with tremendous performance for our shareholders while getting them access to this private privileged world of venture capital investing,” he adds.
Venture Debt for Entrepreneurs
On the other side of the equation is the entrepreneur who needs capital. An entrepreneur, himself, at heart, Henriquez wanted to offer others access to capital.
“Before I started Hercules, you had a barbell,” he explains. “You had equity on the left-hand side, and you had senior secured lending commercial banks on the right-hand side and nothing in between. Hercules came in and really helped fill some of that void in the middle by providing venture debt, which is less structured than a commercial bank, less rigorous.
“I don’t need you to put your operating accounts, your deposit accounts balances in my bank for me to give you a credit line. Nor am I going to be equity, where we’re asking for a huge percentage of your equity ownership in the company. I literally live in that middle world that provides entrepreneurs not only a displacement of equity but a compliment, augmenting the equity capital they raise to send their runways so they can actually get more milestone achievement under their belt in that 12- to 15-month period of time when their companies are growing.”
As the young companies matured, Henriquez saw they needed more working capital than Hercules could provide.
“They’re migrating from non-revenue generating entities to revenue generating entities. As they start approaching that maturation cycle, a natural product to offer them is an asset-based solution that is reflective of the risk profile that has changed in the company, and therefore it gives them a lower cost of capital that they should receive. And because we didn’t have that within our wheelhouse of product offerings for companies we went out sort of looking at an ABL solution,” Henriquez says.
The solution, Henriquez realized, was for Hercules to acquire an ABL lender. He investigated several different companies and in April, Hercules acquired Illinois-based Gibraltar Business Capital, an established provider of ABL loans and factoring facilities.
“I looked at a handful of different players throughout the last few years. And I wasn’t comfortable pulling the trigger on any of them until I came across the Gibraltar team and really resonated with their culture and with their discipline. Frankly, their long story track record on asset-based lending and factoring really played an integral role there. And it’s a great group of people out of Northbrook, IL.”
Gibraltar was founded in 1951 as Gibraltar Financial Corporation. In 2010, the company’s current CEO, Scott Winicour, partnered with CCCC Growth Fund to acquire GFC and transform it into Gibraltar Business Capital. Gibraltar began with a $15 million senior secured facility from Wells Fargo Commercial Finance, which has grown to a $100 million line of credit with an accordion option. In addition to ABL loans and invoice factoring, the company specializes in factoring for staffing agencies.
What impressed Henriquez was Gibraltar’s proven track record in ABL and low credit loss record.
“They have a real understanding of asset-based lending, and that was really a critical driver for me to make the decision to buy them,” he says. “It has good leadership, albeit a small franchise in what they’ve been doing because ABL lending has been pretty much a regional business. With our capital commitment to Gibraltar and our own credit expertise, we expect to see Gibraltar grow pretty tremendously over the next three to five years.”
The plan is for Gibraltar to remain in Illinois and operate as a portfolio company of Hercules.
“Gibraltar will operate autonomously from Hercules. It will have its own independent board and will not be consolidated, but it will be held by us as a portfolio company. It is similar to how Crystal Financial is owned by Solar and North Mill is owned by Solar or Gordon Brothers is owned by BlackRock,” Henriquez explains.
Gibraltar as a Partner
“It is our expectation, over time, that if and when the appropriate maturing Hercules company becomes a logical candidate for asset-based lending, we will make the introduction to our partner company Gibraltar, and they’ll make the assessment and independent evaluation as to whether or not to proceed forward with that asset-based facility to the company,” he explains.
Henriquez sees both companies as generators of jobs and wealth for the 99%. His passion for his work is palpable, and he is dedicated to supporting the medical, technical and sustainable/renewable industries.
“I don’t mean to sound like Betsy Ross here, but we are actually propagating American ingenuity and American innovations. We’re creating American jobs and investing in companies that are developing and emerging that eventually end up creating tens of thousands of jobs and really moving forward American innovation.
“I love what I do, and I think it’s amazing the companies that we invest in are transformative to the American culture, the American business environment, and also, in the health care industries that we do. By making investments in very creative, innovative delivery of new medical treatments, whether it’s devices, whether it’s small molecules in helping people, it became a very logical part of the process. And that is who we are.”