By Pam Droog
James F.
O’Donnell III
Chairman and CEO
Capital For Business
Being a venture capitalist means James F. O’Donnell III
is part artist, part scientist. “There’s a lot of
both in this business,” he says. This business is Capital
For Business, Commerce Bancshare’s small business investment
company (SBIC), which O’Donnell leads as chairman and CEO.
CFB provides equity for buyouts or expansions of privately-owned
manufacturers, distributors and business service providers with
annual sales of up to $100 million. Through four private equity
and venture capital funds, CFB currently has invested and committed
capital of more than $100 million. It has offices in St. Louis,
Kansas City and Chicago, and ownership stakes in 20 small to
mid-sized companies in Missouri, Kansas, Illinois and Minnesota.
O’Donnell began his banking career at Northern Trust in Chicago,
supervising stock, bond and securities transactions in the trust
department. After earning his M.B.A. at the University of Chicago,
the Minnesota native rejoined the banking industry, in lending—in
Missouri. He landed here at the former Mark Twain Bankshares
at the invitation of its founder, Adam Aronson. “Early in my
career with Commerce I was frequently involved with fixing bank
loan portfolios that were underperforming,” O’Donnell says.
“It was out of those turnaround experiences that I was asked
in 1987 to rejuvenate Capital For Business.”
Back then CFB had one fund that made a few investments from
$300,000 to $700,000 each year. Today, a typical CFB investment
ranges from $500,000 to $5 million, and takes 90 to 120 days
to finalize. “In each transaction you have sellers, managers,
buyers, investors behind the buyers, banks, attorneys and CPAs,
and sometimes consulting and insurance firms,” O’Donnell says.
“The orchestration can be quite delicate, keeping everyone on
track.” That’s where the art and science come in, he notes,
and he clearly enjoys both. “I like every aspect of the business,
from sourcing transactions, to getting our name out into the
communities in which we market, as well as structuring deals
with my partners and sitting on boards.”
In fact, O’Donnell says, running Capital For Business is
“the most intellectually challenging job I’ve ever
held. I’ve never done anything where the highs are as high
and the lows are as low,” he says. “When a deal works
well, it’s really a euphoric feeling. On the other hand,
this is a high-risk business. With one phone call I can have
a serious mood swing.”
O’Donnell is constantly seeking out investment opportunities
for CFB. “We’re looking for ways to talk to people
and see deals, not looking for ways to screen them out,”
he says. He estimates CFB reads about 250 business plans a year,
“which does not necessarily include faxes, e-mails, videos
or napkins in restaurants, and we hear about hundreds more.”
Of course, not every plan fits CFB’s investment parameters.
“Anyone can say ‘no,’ but we like to say, ‘no,
but if I were you, here’s what I’d do,’”
O’Donnell says. “We want to also add value to those
ventures we’re not going to invest in, because we’re
in this business for the long run. Chances are, if we help them
when they weren’t looking for it, they’ll be back
down the line. And they’ll remember who went the extra
mile.”
’Donnell goes the extra mile as the current chairman of the
board of governors of the National Association of Small Business
Investment Companies, the 300-firm professional and trade association
for the industry. “It offers terrific national exposure, for
Capital For Business,” he says. Also, the position allows him
to work with some of the newer member firms, “to help them up
the learning curve.” His term will end in November, at which
time, O’Donnell says, “I look forward to keeping the tradition
of being the past-chair, a highly inactive spot.” However, he
plans to remain active in numerous other business, civic and
charitable activities, including the boards of the Association
for Corporate Growth International, Edgewood Children’s Center
and the Civic Entrepreneurs Organization. O’Donnell is also
a past board member of the St. Louis Small Business Development
Partnership, St. Joseph Institute for the Deaf, Missouri Venture
Forum and The New Theatre.
Besides CFB’s regional contributions as a member of the RCGA
Technology Gateway Alliance, O’Donnell feels the company plays
a significant role in the capital formation process. “Our money
goes into numerous businesses in this region and beyond, and
our money attracts other money,” he says. For example, he explains,
“Suppose a Capital For Business fund puts $2 million into a
company, but the investment takes $5 million. Then that $5 million
stimulated by our $2 million attracts senior debt of $15 million.
So by leading and engineering a $2 million deal, we’ve stimulated
a total capital formation of $15 million.” The result is, “When
equity goes in it creates a domino effect in a properly structured
deal that brings a lot of financial resources into play,” O’Donnell
says. “That can be very stimulating when it’s done time and
time again in a city or a region like St. Louis.”
Pam Droog is a St. Louis-based free-lance writer.
