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I've done a fair amount of writing over the years, from grant applications for nonprofit arts organizations to business plans. Here are three feature stories commissioned by the Governor's Summit on Venture Capital.

Appleton Papers Employees Buy the Company from its Foreign Owner Using Retirement Savings

Appleton Papers/BCI Group


“I want to give it all to Doug.”  That’s what one Appleton Papers employee wrote on the ballot form when choosing whether or not to transfer some of his retirement funds into company stock.  He was referring to Appleton Papers’ CEO, Doug Buth.


An extraordinary thing happened in Appleton, Wis. last year.  The employees of Appleton Papers purchased the company from its foreign owner for $810 million, using hard-earned retirement savings as the down payment.  In today’s post-Enron atmosphere, it’s hard to imagine such a deal taking place, but these employees saw their futures as being inextricably linked to the company’s well-being, and under Buth’s leadership, they decided to take control of their collective destiny.


For the city of roughly 70,000 nestled in the Fox River Valley, the scope of the deal was colossal, involving two home-grown companies, both national leaders in their respective markets.  Appleton Papers manufactures carbonless and thermal papers (used for things like business forms and credit card and cash receipts).  And for assistance with the buy-out, Appleton Papers enlisted the support of BCI Group, a well-respected firm that specializes in employee stock ownership plans (ESOP’s).  BCI is literally right down the street and across the Fox River from Appleton Papers, and their teams worked very closely together for months.  To round out the Wisconsin connection, the lead law firm for the international transaction, Godfrey & Kahn, is headquartered in Milwaukee.


The story of how the deal came together against all odds is heart-warming.  The barriers that had to be surmounted were considerable, including the attack on the World Trade Center the week Appleton Papers was in New York City to finalize negotiations.  The circumstances would have shut down most other teams, but these folks had deep willpower, mutual trust, and the unshakeable conviction that employee ownership would lead to the best possible future for the company.


CEO Buth is a straightforward and winsome leader, evincing integrity, a keen intellect, and modesty.  He attended Notre Dame on a full football scholarship and was a member of the 1973 national championship football team.  Playing tight end, Buth was on the receiving end of a scoring pass from Joe Montana.  “It was a great opportunity, a great experience,” he said.


Born and raised in Green Bay, Buth’s education is in finance and accounting, and after a stint with Price Waterhouse in Milwaukee, he went to work for BATUS in Louisville, Kentucky.  B.A.T., the parent company of BATUS, was a $20 billion British-owned firm holding several groups of companies across disparate industries such as tobacco and insurance, Appleton Papers among them.

Buth was eventually transferred to New York City to work in the company’s retail operations.  He and his wife Gayle, from Milwaukee, had started a family, and with a two-hour commute each way from work, Buth wasn’t seeing much of his young kids.  “I’d go three and four days in a row and not see them because I’d get home at night, and they’d already be in bed,” he said.  “Both my wife and I wanted to get back to Wisconsin, and we wanted to be closer to our families.  Having been from Wisconsin, lived in Louisville, and living in New York, we knew where the quality of life was.”


Their two oldest children were ages two and three when Buth asked for and received a transfer to Appleton Papers in 1988.  The family grew by one more child after the move.  They haven’t regretted the choice.  “Although we had never lived in Appleton, we love it here,” Buth said with a smile.  “It’s a fabulous place to live and raise a family.  Our kids are in the school system and doing great.”


Buth started as the Director of Strategic Planning for Appleton Papers, and in 1991 was promoted to VP of Marketing.  “That was a big leap and was probably the key to my career,” he said.  “That CEO saw something in me, if you will, and wanted to give me another opportunity because I was a finance guy.”  Buth progressed to VP of Sales, where he was on the road in front of customers for five years, then became Executive VP and General Manager of the company’s carbonless business.  He was named CEO in November 1998.


B.A.T. restructured in 1990 and “demerged” Appleton Papers and a sister company in the UK, Wiggin Teape, into another entity, which ultimately evolved into French-British parent company AWA.  AWA was a publicly held company traded on the London stock exchange, whose largest shareholder is a wealthy Italian industrialist family that has ownership interest in Fiat and other enterprises.  AWA wanted to get out of the U.S. market and therefore put Appleton Papers up for sale in 1998, but the timing was poor – the market dipped – and AWA took the company off the market to wait for more favorable economic conditions.


Appleton Papers’ Treasurer Dick Wehrel came up with the basic ESOP idea during that time, in conjunction with the strategy of switching from a C corporation to an S corporation for tax savings.  (More about that later.)  Buth approached the chairman of the parent company as to the possibility of employee ownership but was turned down.  Early in 2000, the process started over – Appleton Papers was on the block again.  According to Buth, “It was obvious that this was going to be a leveraged sale.  They were marketing our company to venture and financial types – it was not going to be a strategic sale to another paper company.”  Such an owner might be expected to extract as much cash as possible from the company without reinvesting, a future that was not what Buth had in mind for the stable, profitable, $1 billion enterprise and its 2,500 employees.


This time around, however, Buth had a new boss and was able to sell the idea of employee ownership.  “That was a phone call on December 6 of 2000, I’ll never forget the day,” said Buth.  “We reached a letter of intent on February twelfth [2001], we had a definitive agreement on July fifth, and then we closed on November ninth.”


Hearing those simple words, it’s hard to grasp the uniqueness and complexity of the deal.  The transaction plowed new ground in many ways, and culminated in striking success, including one of the highest rates of employee participation ever for an ESOP buyout, both in percentage of employees taking part and percentage of retirement money contributed to the deal.  Over 90 percent of Appleton Papers’ 2,500 employees nationwide (two-thirds of whom are union members) allocated $107 million or nearly 75 percent from their 401(k) accounts to the purchase of company stock.


How on earth was this feat accomplished?  One answer is that Doug Buth had put together a highly capable management team without big egos.  From that team, Buth named Paul Karch, VP of Human Resources and Law, to lead the entire project.  Karch is a native of Baraboo, Wis. who earned both a bachelor’s degree and law degree from Harvard.  After spending twelve years with a firm in San Diego, he and his wife wanted to return to Wisconsin to raise their children.  “Family life is very important to us.  We moved back to Wisconsin because of the schools, and it’s been fabulous,” said Karch. 


Karch became the architect of Appleton Papers’ internal process for the transaction, coordinating the logistics, enlisting teams of advisors, and overseeing negotiations with the seller, banks, and the employees.  “This project has been the highlight of my working career,” he said.  “I never dreamed that moving to Appleton would lead to such an exciting event.”


Another reason for the success of the transaction was the history of enlightened leadership styles and employee cultures found at both BCI and Appleton Papers.

“I’ll give you the nickel tour,” said BCI’s CEO and founder Dennis Long.  BCI is a privately held company housed in a newly remodeled building on the south side of the Fox River.  It’s a stately and impressive historic building, but, since BCI derives about 70 percent of its revenue from administering ESOP’s for businesses all across the nation, it’s just an office building.  What’s there to see?


Plenty.  The tour speaks volumes about this company and its founder.  BCI’s digs reflect a commitment to the company’s most important assets – its 92 employees.  The workout equipment in the company gym is being put to good use by a couple of sweaty employees on their lunch break.  When they’re done, they head to the locker rooms installed with showers.  There is a sizeable kitchen and a dining area that looks more like a French bistro than a company cafeteria. Lots of windows everywhere allow in natural light.  The pièce de resistance, to be sure, is the $350,000 auditorium/training room/conference center with state-of-the-art presentation, computer, and communications equipment.  The room is even equipped for the hearing-impaired.  “We show Packer games, we have Friday night movies in here, we’ve invited in the folks from the assisted living facility down the road, and we’re making the room available to community nonprofit organizations,” smiles Long.


At BCI, the emphasis is on the team.  “We don’t just want to rent skills from our employees,” said Long.  “We want 92 people, not 91, thinking and acting like partners, coming up with ideas.”  The company has also instituted a mentoring program, intended to prepare the next generation of senior leaders.  Those being mentored sit in on high-level meetings and meet with clients, becoming acclimated to the bigger picture at BCI.  Although it doesn’t have an official ESOP, BCI operates with a commitment to employee ownership through a stock purchase plan.  Employee-owners elect the board of directors on a one person, one vote basis, which is highly unusual.  “They could even vote Dennis off the board if they wanted to,” quipped Pete Prodoehl, Senior Consultant and principal for BCI.

Perhaps the biggest surprise of the tour is reaching Long’s cubicle.  That’s right, the CEO of this nationally known firm works in a cube alongside other employees.  “Well, I decided I didn’t want the big corner office,” Long shrugged modestly.


Long was born in Appleton, raised in nearby Neenah, and graduated from Marquette University with a bachelor’s in business administration, having majored in economics.  He carved out a successful career in the benefits industry and was working with a consulting firm in sunny Palm Springs when he decided to move back to Wisconsin and start his own business.  The origin of the name, BCI, was Benefits Consulting, Inc., and that was the niche that Long targeted for BCI back in 1978.  Administering ESOP’s now comprises most of BCI’s business, and they’ve developed a reputation as the industry leader.


In fact, BCI recently received the President’s Award for its work privatizing a federal agency, US Investigations Services, via an ESOP.  The company has enjoyed double-digit growth over the past six years, averaging about 30 percent per year, and Long anticipates solid growth over the next five as well.  Although they deal on a national level, BCI assisted another high-profile Wisconsin company, Schreiber Foods of Green Bay, to do an ESOP in 1999.  Schrieber is a whopping $2.5 billion company with 3,200 employees, a manufacturer of processed cheese for the institutional food industry.

Pete Prodoehl is Long’s right-hand man and has been with the company for 22 years.  Together, the two men are full of wit, ribbing each other good-naturedly but also staying highly focused.  Prodoehl grew up in Antigo, “Home of the Red Robins,” he smiled.  Educated at the University of Wisconsin-Eau Claire, he went to work for ITT in Milwaukee and was introduced to Long through a mutual friend at a Badger game.  Prodoehl was the primary point man for the Appleton Papers transaction, and his wife, Cindy, also played an integral role as a consultant for BCI’s education and communication division.  (His brother also works for BCI, but that’s another story.)


Long and Prodoehl explain that the Appleton Papers plan was not the typical leveraged ESOP often used in the industry; rather, it was a hybrid transaction customized specifically to accommodate the needs of the client.  Virtually all ESOP’s provide numerous tax advantages for participants.  In a typical (simplified) scenario, the business owner who is getting ready to retire can sell the company to employees through an ESOP.  The ESOP borrows the money from a bank, then pays the owner, who doesn’t have to pay any capital gains taxes as long as the proceeds from the sale are put into U.S. stocks, bonds or other qualifying investments.  The company then makes contributions to the ESOP over time using pre-tax dollars, and the ESOP uses these monies to repay the loan.  As the loan is repaid, the shares (ownership of the company) are allocated to the employees.  But, when the ESOP buys the company and pays the owner in this fashion, the value of the company’s stock generally goes down after the purchase because now the company and the ESOP (new owner) have additional debt.  The value of the business rises again as the company pays down the debt.


“Assume you’re buying a house worth $100,000,” said Prodoehl.  “You have to come up with a down payment of $20,000 (equity) then you go to a bank and borrow $80,000.  Well, what happens in a typical leveraged ESOP is you allocate pieces of that house to the employees over ten, fifteen, twenty years, depending upon the deal.  So the employees really don’t own that house for quite some time.”  (Anyone with a mortgage can relate.)


By contrast, the Appleton Papers deal was a non-leveraged ESOP.  There, the employees actually bought the whole company for the down payment of $107 million – in other words, they bought the house in the scenario above for $20,000.  Here’s how:  Through the ESOP, they put up the $107 million from their 401(k) retirement money as equity, then the company itself financed the balance of $703 million through bank debt, bonds and “seller paper,” a loan from the owner.  But the debt wasn’t made part of the ESOP, so the employees didn’t have to take it on.  Each year, as Appleton Papers pays off that debt for the employees – and they have an aggressive schedule for doing so – the company’s value will increase, and the value of employees’ stock will go up.


So why did they choose to structure the deal this way?  Two reasons:  First, by law, the foreign owners couldn’t enjoy the rollover tax advantages of the more traditional ESOP.  Second, Appleton Papers converted to an S Corporation immediately after the transaction.  And since Appleton Papers’ ESOP owns 100 percent of the equity right now, not 10 or 15 years from now – and since an ESOP is a tax-exempt retirement plan – and since in an S Corp, all the earnings flow through to the owners – the company will pay no taxes on its earnings.  “It will save the company millions and improve our cash flow,” according to Dale Parker, VP of Finance and CFO of Appleton Papers.  Employees will pay taxes upon withdrawal at retirement.  The plan is called a KSOP, kind of a combination of 401(k) and ESOP.  Ingenious.


The construction of the deal was sound, and it’s functional from many different angles.  The financial community thought so, too.  “It worked because we have a whole lot of things going for us,” said Parker.  “First of all, this is the best working management team I’ve been around in my 35 years in business.  And we have strong cash flow, we’re well-invested from a capital equipment perspective [about $300 million in the past five years], we have strong labor relations, a high quality product and customer service, and strong R & D.”


The tax savings from the new structure yield an ample positive cash flow, part of which will be used to pay down the debt aggressively.  It will also allow for an even stronger commitment to R & D, especially important because the demand for Appleton Papers’ primary product, carbonless paper, is steadily declining.  This R & D effort is already underway.  The company has created a new business development arm and recruits from specialized university programs around the country, including the University of Wisconsin-Stevens Point.  Appleton Papers is leveraging their current technology to apply to new markets and has several exciting new products on the horizon.  “We’ve had some patents issued recently, trying to protect this new technology,” said Buth.


But what about the employees?  How were they convinced to transform their retirement savings, safely invested in various Vanguard funds, into company stock?


The answer is three-fold.  First, CEO Doug Buth is a well-respected leader who literally brought the deal to each and every employee in person.  Second, Appleton Papers has a long history of honesty and integrity with its employees, whose average length of service is over 16 years, and third, an extensive educational campaign was planned and executed, a collaboration between Appleton Papers and BCI, with lots of help from a team of attorneys at Godfrey & Kahn led by Chris Noyes.


“This project was one of the career-defining events of my life,” said Noyes, a graduate of the law school at the University of Wisconsin-Madison.  “Godfrey & Kahn tries to find creative solutions addressing our clients’ needs, and these transactions required expertise in multiple practice areas such as securities, tax, environmental, finance, and employee benefits.  At any given time we had 15 – 20 people working on the deal.”  Helping to advise on the communication process was a key role for Noyes, and communication was the key that opened the door to employee participation.


Dave Brown is the president of local 7-0469 of the Paper, Allied-Industrial, Chemical and Energy Workers International Union (PACE) at Appleton Papers. “We’ve always had a good working relationship with the company.  We haven’t had a strike in 32 years,” according to Brown. “Appleton Papers has always been free with the numbers.  The company puts out a lot of information for us, and so the confidence was there to begin with.”


But there was a long row to hoe in terms of the learning curve, and not just for employees.  “I knew that an ESOP meant an employee stock ownership plan, but that was probably the full extent of my knowledge about an ESOP,” laughs Kerry Arent, Director of Compensation and Benefits for Appleton Papers.  “We had not had an ESOP, and I had not worked for any other company – I vaguely remembered some stuff from college, but that was years ago.”  Union leader Brown echoed Arent’s words:  “Never hearing of an ESOP before in my life, I had to get on the Internet and learn about the downfalls and upsides to it,” he said.


Arent is a native Wisconsinite who has been with Appleton Papers for almost 20 years.  Born in Northern Wisconsin, she lived in Waukesha, LaCrosse, and Sun Prairie growing up and earned a bachelor’s in human resources management from the University of Wisconsin-Oshkosh.  Arent got involved early on in the deal.  “When we reached the letter of intent [February 2001], we immediately announced it to employees,” she said.  Here’s where BCI got heavily involved.  “In terms of plan design, we decided to merge the 401(k) with the ESOP to create the KSOP – we had always wanted to have a stock ownership option, but since the stock was traded on a foreign exchange, we couldn’t incorporate it into the 401(k) plan before.”  According to Arent, BCI helped develop things both conceptually and in detail, but really kicked into gear on the communications side of things.


From Appleton Papers, Karch, Bill Van Den Brandt, Manager of Corporate Communications, and Arent got together with BCI’s team, including Cindy Prodoehl, an education and communications consultant.  Prodoehl and her team specialize in the financial education and employee communication for just such a project, although according to Pete Prodoehl, this effort was the most extensive they’d ever undertaken.  The BCI/Appleton Papers team was responsible for getting employees up to speed about the KSOP proposal, the risks, what could happen to Appleton Papers if a “financial buyer” rather than a “strategic buyer” purchased the company, and myriad other details.


Employees needed to be educated, but the team was required to follow SEC regulations since employees were being offered the opportunity to purchase stock. “The SEC rules are stringent with respect to disclosure, and all communications efforts had to walk a fine line between being informative, but not pre-selling the idea,” Prodoehl said.  “Chris Noyes and his team at Godfrey & Kahn were great in this area.  They reviewed all our materials and were incredibly fast and responsive.”


The communications team devised a multi-pronged strategy for reaching not only employees, but their spouses and financial advisors as well. The BCI/Appleton Papers team sprang into action, assisted by Godfrey & Kahn’s attorneys.  All were committed to doing whatever it would take, having corporate cultures that were conducive to that attitude, and the teams put in long hours and months of hard work.  The plan involved developing a prospectus – the disclosure document for the stock purchase, producing an in-depth video, publishing newsletters, conducting numerous meetings at every Appleton Paper facility (the company has production facilities in Ohio and Pennsylvania as well as in Wisconsin), creating a PowerPoint presentation and “road show,” and putting Buth in front of employees.  BCI even set up a hotline with operators taking questions until 10 p.m. every night, writing special software to track employee questions, and then feeding that information (no names) to Appleton Papers daily.  “Dennis [Long] even answered phones,” said Prodoehl.  Spouses and financial advisors were invited to presentations, Q & A sessions were held regularly, and employees were provided with links to Internet sites with ESOP information.


The newsletters are still being published today, although not as frequently, and one of the January issue’s topics covers the Enron debacle.  (As a side note, this deal may not have taken place had the Enron situation erupted earlier.  According to Long, the scandal has harmed the ESOP climate, and overanxious legislators are contemplating fixes that would actually preclude the type of transaction that Appleton Papers put together.  Long has been busy testifying on Capitol Hill – “I think that ultimately, they’ll make the right decisions,” he said.)


The culmination of the outreach to employees would be the “election”:  Over the span of one month last summer, employees voted on whether to allocate 401k funds for the transaction, and if so, how much.

The actual election period was a nail-biter.  There was no way of predicting the outcome, and one of the significant concerns was the economic climate at that time.  Leading up to the election, the market was slowing.  The company knew they needed $100 million from employee retirement funds to make the deal work, and when they started, the funds were worth about $160 million.  “But when it was time to get the deal done, the value of the funds had dropped to about $150 million, and we still needed the $100 million, so it was pretty stressful,” said Buth.


BCI actually received and tallied the election forms.  Employees could designate anywhere from zero to 100 percent of their retirement funds to go toward the purchase.  According to Long and Prodoehl, even though every ESOP transaction is unique, the industry high water mark for this kind of deal might be around 30 percent.  “We’ve always said that getting more than 25 percent is a hard job,” said Long.  Even though Appleton Papers was optimistic, there was absolutely no way of knowing whether or not the deal would fly.


The ballots came in slowly, and the first three weeks yielded nowhere near the numbers they needed.  By law, the election was confidential – only the plan administrators know who contributed how much to the purchase.  “You’d like to put one of those United Way thermometers up on the wall to encourage everybody,” said Prodoehl wistfully, “but as far as the Department of Labor is concerned that’s coercion.”  The only result Appleton Papers was allowed to see was the daily aggregate, and that went only to Buth.  The ESOP’s trustee, State Street Global Advisors of Boston received the full reports.


“The election period was 30 days,” said Prodoehl.  “On Day 26, we didn’t even have half of what we needed. Day 27, it went from $50 million to $80 million, and we were just ecstatic.  Day 29, we were thinking it wasn’t going to happen.  About halfway through Day 30, the last day, it blew right through $100 [million], literally blew right through it.  I’ll never forget Cindy coming up to my office, she was crying, ‘It happened, we made it.’


“From our perspective as a company, it was very emotional,” said Prodoehl.  “It was an emotional roller coaster. There was a time that we thought the deal was dead – the parties weren’t talking, and we didn’t have a deal after so much of the communications had been done.”


“I remember a Sunday night in July, like one in the morning, the phone rings for about the tenth time, and Cindy’s running up to the fax to review text for the team in Chicago, furiously drafting the prospectus in yet another all-night session.  There was a lot of that stuff.”  At its peak, Prodoehl estimates that BCI had a team of about 25 people on the project.


In the end, over 90 percent of Appleton Papers’ 2,500 employees contributed an average of nearly 75 percent of their retirement savings to buy company stock.  Unheard of.


“The percentage that we needed kept going up, and the employees just stepped up in a big way,” said Buth.  What was the real driving force for the outcome?  According to Prodoehl, “The employees have so much respect for the leadership of that company.  During the road shows, people would come up to Doug and he would know them by name.  I couldn’t believe it, several thousand employees.  It’s just an example of the tremendous amount of respect he has for them and they have for him.” 


Another factor was the rest of Appleton Papers’ management group.  When they decided to do the ESOP, the entire executive team publicly committed 100 percent of their retirement funds to the purchase, putting their money where their mouth was.  And they had strength of will.  “You couldn’t say ‘no way’ to that group,” said Prodoehl.  “The neat thing about it for us and the other advisors was that they could do things internally – turn things around overnight, so they weren’t asking their advisors to do anything more than what they as a management team were doing themselves.”


Parker’s financial team in particular worked virtually around the clock for weeks, putting the rest of the components of the deal together.  Parker, Appleton Paper’s VP of Finance and CFO and the father of five children, came to Appleton from Baltimore just three years ago.  Three of his kids are out of the house, and his two youngest are still in high school.  “I came because of Doug,” said Parker.  “He’s a fine man, and Appleton Papers also has a great reputation in the United States for quality products and quality people.”


Parker graduated from Miami University in Oxford, Ohio, then went on to earn an MBA from Xavier University in Cincinnati.  When he came on board, the company was up for sale, and Parker was fully prepared to assist with that sale.  When the ESOP/S Corp possibility was raised, however, Parker was in his element.  He had had plenty of experience putting together financial deals in the industry, having spent over 25 years with Black Clawson, a heavily capitalized and privately held manufacturer of capital equipment for the paper and plastics industries.


The challenge for Parker was assembling the financing to make the transaction happen.  In conjunction with an ESOP-advising company, Houlihan Lokey Howard & Zukin of Washington, D.C., the decision was made to structure a combination of bank debt, high-yield debt (bonds), and an eight-year note from owner AWA.  Investment banker Bear Stearns then entered the picture as the lead lender, helping especially with the bond sales.  So, while BCI, Karch, Arent and communications manager Van Den Brandt were busy on the employee side of things, Buth and Parker were on the road presenting the company to interested investors who would buy bonds.  They had a good story to tell because of the stability and profitability of Appleton Papers, but there was one thing that had to be dealt with first: the three unions.


“We had to negotiate all three contracts at once in order to get the banks on board,” said local PACE union president Brown.  It was challenging to get everything done simultaneously, but all three new contracts passed.  “That was one busy summer,” he added.


Everything was lining up nicely – the down payment was secured, and lenders and investors were interested.  Early September was looking good.  Then came the conflagration in New York City.


“We were hurt by September eleventh, we had to pull out of the market and everything came to a halt for awhile,” said Buth.  “In fact, Paul Karch, Dick Wehrel, Chris Noyes, and his partner Jim Phillips were in New York on September eleventh.  They were in Midtown, thank God.  We were scheduled to be in the Sears Tower in Chicago that week, and that all got canceled.  Personally, I probably would not have gone, I was not going up in a big office building that week.”


“As we watched the buildings crumble…we decided we had two choices,” said Parker.  “We could pack our bags and say we can’t get it done, or the second choice was to not let this stop us and find a way to get it done.  We chose the latter, obviously.”  Parker added, “It was very emotional for us.  This isn’t the first financing I’ve been through in my life, and I know that you run into a lot of obstacles, but very seldom do you run into an obstacle as gigantic as the one we ran into.”


“To our bank’s credit, our lead bank was Bear Stearns, they stuck with us,” said Buth.  “They said this is a deal that should get done.”  Parker recalled the days immediately following September eleventh, the conference calls back and forth with the bankers, and the decision to go forward: “We knew we had something valuable to the employees, valuable to us, the managers, and we just were going to make it happen.”


“We were leading the market,” said Parker.  “We’d go to New York City to see Putnam, for example, and we’d be the only ones in the lobby.  There was nobody else there.  Just us…Everybody else was watching us.  If we made it, with the complexity of our structure, I think everybody was thinking there was hope.”


Business started picking up again, and Parker and Buth got the bonds sold.  There had to be some restructuring, though, as business conditions had changed significantly since the attacks.  And there was a fortuitous decision that forestalled further problems as a result of the terrorist attacks.


“The other unique thing is that we moved all of the employee money, which was generally invested in equities, and we converted it all into cash on September fourth,” according to Buth.  Had the funds been left in the equity markets, their value would have plummeted the following week.  “If we had delayed seven days, we wouldn’t have a deal,” said Buth.  “There was a lot of luck going on there, timing was everything.”  And not only was the timing right, but the interest rates on some of the bank debt turned out to be quite favorable, in the five to six percent range.


The day of the closing, November ninth, was a great moment for the company.  There was a ceremony in the parking lot with a flag-raising, and a large banner was installed on the side of the building that reads, “Now Employee-Owned.”  “It was an extremely emotional moment for all of us,” said Parker, whose team had been up until midnight the night before, finalizing the deal.  “I think it was one of the most emotional days of my life,” he added.  Employees and management congratulated each other, and the mood was one of exuberance and optimism.


That optimism persists today and is even stronger.   Employees are taking even more interest than ever in the well-being of the company, and a new program, Line of Sight, is helping everyone understand (quantitatively) exactly how their job both contributes to and subtracts from the bottom line.  According to Buth, “They’re making the connection between what they do and how it affects the value of their stock.  And the more that happens, the better the company will run.”


Appleton Papers anxiously awaited the results of the first independent valuation of the company since the purchase, which would confirm whether or not they got a good deal.  It just came in this month, and the valuation was significantly higher than the purchase price.  So, everyone’s stock has already risen in value, and their decisions have been validated.  As Parker put it, “The future of the company is absolutely unlimited now.”

Orion Energy Finds Investors by Advertising in the Newspaper

“My business is simple.  I eat what I kill,” Neal Verfuerth says matter-of-factly during a conversation about risk-taking and venture capital.  His point is that, unlike established corporations with ample cash reserves, there is no safety net for his young business, and to grow sales has meant taking absolutely nothing for granted and working hard on the “hunt.”


Verfuerth’s business is expanding because he and his powerhouse team are hungry enough for the “kill.”  In fact, their appetites are mammoth, and judging from recent activity, they’re planning to sit down to a feast.  The team includes a board of directors with a representative from Madison Gas & Electric and a former Wisconsin Power & Light Holding Company executive; a management group boasting a Wall Street veteran, a former Boston-based CFO, and a business development professional with national experience; and there’s even a former NBA player in the mix.  These are heavyweights, and they’re on board because the company has tremendous potential.


Verfuerth is the 42-year old hard-hitting founder and CEO of Orion Lighting and Energy Services, based in Plymouth, WI, a charming town of about 7,600 located between Fond du Lac and Sheboygan.  Although Verfuerth is justifiably proud of Orion’s manufacturing operations, there is a lot more than product fabrication taking place here.


Yes, it’s true that the company makes innovative, patented lighting fixtures.  But this is a story about dramatic energy efficiencies – enough to get the attention of the Wisconsin Public Service Commission and enough to free up significant quantities of power that can be reallocated elsewhere.  If Orion’s products and services were in widespread use today, Wisconsin’s power difficulties would be less severe, and utility companies would have at least one less generating plant on the drawing board.  And it’s all quantifiable.


But that’s not it.  The story is also about a whole bunch of regular folks from small-town Wisconsin who have invested in this innovative company and its vision:  Seventy-four of them for a total of $1 million, to be exact.


“I read about Orion in the [weekly] Plymouth Review, and after my husband and I moved to the area, I watched their new building go up, starting from a hole in the ground,” said Margaret Kirton, one of the company’s backers.  “I had seen the ad in the paper looking for investors, and I called to see if there were any shares left.”


Ad in the paper?  Isn’t it illegal to advertise to raise capital?  Not if it’s done through a unique but little-used program administered by the Wisconsin Division of Securities:  The State of Wisconsin Issuers Exemption program.  “Wisconsin is the only state in the nation with this kind of exemption,” according to David Cohen, the Supervising Attorney for the program through the state’s Division of Securities.  “Most states don’t allow advertising.”


“Advertising was the key,” said Verfuerth.  “You’re really limited to the amount of networking you can do with friends and family, and trying to run a business to boot.”  Orion’s Vice President of Business Development, Jim Prange, agrees:  “I know the time [Verfuerth] puts in.  It is so difficult for a person who runs a company to go out and have to raise capital.”


Enacted in 1986 by the state legislature, the Wisconsin Issuers Exemption program is tailor-made to give small companies the chance to raise money they wouldn’t be able to obtain otherwise.  Businesses receive a “fill-in-the-blank” prospectus and detailed instruction book.  Advertisements targeted to the public must be approved by the Bureau of Registration & Enforcement, and the offering can be open for up to a year, or even more with extensions.  Until last year, the program allowed businesses to raise a maximum of $1 million from as many as 100 unaccredited investors, but changes to the program championed by Madison attorney Joe Hildebrandt of Foley & Lardner just pushed that limit up to $5 million.


The Wisconsin Issuers Exemption program has been a lifeline for Orion.  The business faced daunting hurdles trying to raise funds in a less-than-favorable investment climate:  The market corrections of 2001 decimated investor portfolios, risk tolerance is lower, and some angel and venture investor groups only work within specific market sectors.  “I bet we could get millions if we cloned a cow,” bemoaned Verfuerth. 


There are also some financial fast-talkers out there, one of whom offered to raise money in return for a retainer of $20,000 a month.  “It was like he didn’t understand that I was raising money because I needed it, so I certainly couldn’t pay him that much,” remarked Verfuerth.  Other barriers to raising capital have been investors who simply don’t “get” the business model, and the fact that traditional manufacturers like Orion don’t have the allure for investors that “high-tech” does.


Then there are the income/asset restrictions for traditional venture capital:  Money can only come from “accredited” investors – those with a net worth of at least $1 million or annual income of at least $200,000.  “I don’t know about other areas, but Wisconsinites in this neck of the woods tend to be conservative about their money.  How are you supposed to find out who you can approach?” asks Verfuerth rhetorically.  “Or, you think you have a hot prospect, they fill out the paper work, and then you find out they don’t qualify,” adds Prange.


Using the state Issuer’s Exemption program, Orion maxed out their first round, and the team is preparing for a second round of $3 to $5 million this spring.  According to Cohen, Orion was the only company in Wisconsin to avail themselves of the program during 2001.


Fellow Plymouth business owner Jim Pankow, a general contractor specializing in commercial and industrial work, invested in Orion – it was the first time he had ever bought stock directly from a company in a private placement process.  “I invested for three reasons,” stated Pankow.  “I’m sold on their idea and products; they’re local; and I got to know Neal.  He stopped into my office one day and I had a good feeling about him.”


Verfuerth was born and raised in Mequon, WI, and has been in the energy conservation business – buying and selling other peoples’ products – from the start.  An entrepreneur early on, he formed Energy 2000, a distributor in the lighting business, in the 1980’s.  In the late eighties, that company became the distributor for a California manufacturer called Lights of America, which was just hitting the market with compact fluorescent technology.  Energy 2000 became the top distributor in the nation of LOA’s products, and then with his two partners, Verfuerth started a company called Virtus to duplicate the business model across the nation, competing with Philips, GE, and other biggies.


Virtus was so successful that LOA approached Verfuerth to buy the company.  Instead, LOA ended up buying out Verfuerth’s partners and bringing him into the fold.  He opened offices all over the country, functioning as the company’s exclusive manufacturer’s rep.  Verfuerth developed strong industry relationships, and sold to giants like Cargill, Tyson, Hyatt, and Marriott.  He was eventually put in charge of all non-retail sales in North America, and also did business in South America and Mexico.

In 1996, Verfuerth founded Orion with his two former partners.  “I started Orion because Lights of America just didn’t seem to have the commitment to the commercial and industrial sales,” he said.  “They were more focused on the big box retailers, you know, the WalMarts and the Home Depots.  And the retail side of things doesn’t require specification-grade products.”  Lighting fixtures have to withstand harsher environments in the commercial, agricultural, and industrial markets.


So, in addition to functioning as distributors, Verfuerth and his partners decided to develop a higher quality of compact fluorescent fixtures themselves.  The company acquired a license for a robust ballast design, and had those components made in Shanghai and Taipei.  Orion purchased injection molding tooling to make the enclosures for the lighting fixtures, and assembly was set up at their facility in Wisconsin.  Between equipment, the license, accessories, and marketing their brand, Orion had to come up with about $400,000.  But, as the company began to sell the new high quality, industry-specific products, they were able to command a higher margin.  Orion’s initial start-up costs were paid for with personally guaranteed bank debt. 


The products, especially those designed for animal confinement operations, won multiple industry awards for innovation.


As Verfuerth continued to design and improve the lighting fixtures – always responding to market demands – it became evident that the technology should be patented.  “It’s been kind of an ongoing process, and we were led astray at first,” Verfuerth said.  “We had a patent attorney, the kind you read about in the back of a magazine out east…you keep sending him checks every week, and the finish line was always just out of reach.”  They finally wised up when the discretionary cash was depleted, and sought support elsewhere.


They found it in the person of Bob Johnson, an 85-year old Intellectual Property attorney right in Plymouth.  “His first patent goes all the way back to a derivative of penicillin,” said Verfuerth with a smile.  “He comes and sees me almost weekly.  He’s an honest guy, and he still has the passion for it.  He works out of his home, and he’s really reasonable.  He’s got a guy on the inside, and he brings me over every patent issued in the lighting industry for me to see.  Neat guy.”


Stepping into Orion’s manufacturing area is like going out into the noonday sun.  The light is clean, bright, and beneficent.  Working with this lighting makes humans more productive.  “If we were cows, we’d produce more milk,” laughed Verfuerth.  In fact, Orion’s lights can be found in numerous dairy operations, contributing to higher milk yields.


Orion’s core products are designed to replace electric lighting such as the incandescent bulbs, standard first-generation fluorescent fixtures, and metal halide lights in plants, offices, and other commercial operations all over the world.  The one that’s getting so much attention is called the Illuminator, a product that won the Wisconsin Governor’s Spirit of Ecology Award last May.  Designed with individual reflectors for each bulb and several other patented innovations, the Illuminator results in two quantifiable changes when replacing existing light fixtures:  It increases the quantity of light output by about 50 percent, and reduces the electricity draw by about 50 percent by harvesting and focusing light more efficiently.


Think about those numbers for a minute – think about them incrementally – the millions of light fixtures out there multiplied by the electricity savings.  Think about the ramifications.  Almost lost in the glow of those striking numbers is the fact that the lights weigh substantially less, standard bulbs can be used and they last longer, the fixtures are easier to install, and the light is of a quantifiably higher quality that shows colors more accurately.


Sounds too good to be true, but the company proves it with meters, offering demo installations to prospective customers. (Most industrial lighting circuits are segregated on electrical panels, so it’s easy to install a special meter for monitoring.)  Orion got the local utility company’s attention when usage started dropping dramatically at various plants in central Wisconsin.  “They even sent a technician out to one of our customers to see if there was any funny business going on, you know, tampering with the meters or something,” according to Prange.

As the energy-saving implications of Orion’s proprietary products became evident, Verfuerth hired Mike Potts as Vice President of Technical Services.  Potts’ name had been floated as a potential Wisconsin PSC appointee, and he had managed Kohler Company’s energy strategy, legislative and regulatory intervention, conservation, and entire corporate energy portfolio.  He was chairman of Wisconsin Manufacturers & Commerce’s energy committee, and his background also includes power plant development and creation of electric municipal authorities.  At the time (June of 2001), Potts was the president of Energy Executives, Inc., an energy management firm he founded which merged with Orion last fall. Energy Executives’ primary client was W.I.S.E.R. (Wisconsin Initiative Seeking Energy Reform), an industry organization comprised of sizeable energy users such as Quad Graphics, Stora Enso, Proctor & Gamble and the city of Kenosha.


Potts, 37, had met Verfuerth while overseeing an Orion installation at Kohler.  He immediately saw the potential, and stayed in touch after he left Kohler to start his own company.  Once on board with Orion, Potts helped Verfuerth develop and refine a way to capitalize on how Orion’s products were affecting the supply and demand of energy.  They expanded the company’s business model to incorporate what they call the Orion Virtual Power Plant, or OVPP.  In a nutshell, Orion’s fixtures save so much energy that the newly-found capacity can be aggregated and then diverted or sold elsewhere.


“We’ve estimated that we could displace 500 megawatts of generated power in this state if all the facilities used Orion lighting,” according to Verfuerth.  That’s the equivalent of one average nuclear or coal-powered generating plant.


Potts explains that the OVPP can be a very important new element in a utility or energy company’s portfolio.  Just as investors diversify to mitigate risk, so too, do energy companies.  They like to have numerous options available, such as nuclear, hydro, natural gas, and coal-powered plants, as well as wind farms and other alternative energy sources.  For the power industry, the OVPP can be a quantifiable, reliable way to boost capacity.


Mark Williamson, Executive VP of Madison Gas & Electric and a new member of Orion’s board of directors, agrees:  “On a targeted basis, it could work quite well.  Coupled with real power plants and used as part of a package for emissions strategies, the OVPP would make sense for the utilities,” he said.


To illustrate how it works, here’s a real-world example:  The proof-of-concept was successfully showcased in January at Simplicity Manufacturing, Inc., a maker of garden tractors, snowblowers and lawn equipment in Port Washington, WI.  Simplicity is spending about $100,000 to replace all the lighting fixtures in its 400,000 square foot facility.  The project isn’t yet complete, but early metering indicates that the facility will save about $35,000 per year in electricity bill reductions, yielding a three-year payback.  Additional benefits are projected maintenance savings of close to $7,000 per year; better lighting (Simplicity products are known for their bright orange paint, and quality control of the paint finish is now more accurate); and higher worker productivity.


The “displaced capacity” generated by the project is estimated to be 143.87 kilowatts, power that is now available to be sold to other customers by the local utility.  A similar project at a Bemis Company facility in nearby Sheboygan Falls generates even more striking numbers.  The plant is in the midst of installing the OVPP (by retrofitting lights), and based on metering, projects a cumulative estimated annual energy savings of $317,896.59; maintenance savings of $63,579.31; an annual reduction in electricity of 6,300,289 kilowatt hours; and displaced capacity of 731.4 kilowatts (almost 3/4 of a megawatt, enough to power approximately 450 homes.)

According to Prange, the Bemis retrofit has reduced the average demand on the entire grid of the city of Sheboygan Falls by 4.5%.

It’s easy to see why the folks at Orion are so excited.  There are 1,000 kilowatts in one megawatt, so it would only take somewhere between 500 and 1,000 retrofits the size of Bemis’ to generate the capacity equal to one average power plant.  And according to Prange, “There are 10,796 manufacturing firms and facilities in Wisconsin – many of them are smaller than a company like Bemis, but if we look at it in aggregate, we can make a huge impact.”


Ave Bie, Chairperson of the Wisconsin PSC, visited the Simplicity facility and was enthusiastic about the implications for the state’s power challenges.  “This project benefits the community, it benefits the state, it benefits the utilities,” she said.


Mike Potts concurs.  “The OVPP brings a supply-side perspective to the traditional demand-side energy business,” he said.  “Demand used to be fragmented, but now we can aggregate the unused capacity and make it quantifiable in a way that emulates the supply side.  We’re bridging the gap and bringing real solutions to solving demand-side issues.  All customers can benefit from this.”


Orion likes to translate the impact that their energy conserving products have into environmental terms.  Using EPA statistics, the Bemis project alone will reduce (annually) carbon dioxide emissions by 4,725.22 tons, sulfur dioxide emissions by 17.36 tons, and nitrogen oxide emissions by 40.27 tons annually.  This is equivalent to planting 1,156 acres of trees, or removing 892 cars from the road, which would save 572,753 gallons of gasoline, reducing oil demand by 136.37 barrels.


Orion’s investors are well aware of that connection.  Margaret Kirton mentioned that the “green” aspect of the company was one of the reasons that she wanted to be part of it.  “It’s a win-win situation for everyone involved,” she said.  “My husband and I like to invest in socially aware companies – Orion’s products are energy efficient and innovative, and they’re progressive people.”


For a manufacturing firm employing about 30 in small-town Wisconsin, Orion has the kind of high-caliber management team and board one would expect to find at a more developed corporation.


The company’s board includes chairman Patrick Trotter,  Executive VP of Aurora Healthcare and one of Verfuerth’s original business partners.  Richard Olsen is the other primary partner and shareholder, and was involved with Verfuerth during the Lights of America/Energy 2000 years.


Mark Williamson, Executive VP of Madison Gas & Electric recently joined the board, as did Lance Ahearn, president and CEO of Virdigen, a developer of renewable energy technologies and projects.  Williamson is responsible for MG & E’s corporate strategic planning, environmental, safety, power supply and engineering, and electrical system planning.  Ahearn previously served as the CEO of Heartland Development Corp., the unregulated arm of Wisconsin Power & Light Holding Co.


The others rounding out the board are Verfuerth, Potts, and Joseph Wolf.  Wolf is both an investor and salesperson for Orion.  He’s also a former NBA player who grew up in Kohler.  Wolf disappointed Marquette fans by playing for North Carolina out of high school, then got drafted by the NBA, playing for the Milwaukee Bucks among others.  “He doesn’t have any problem reaching the light fixtures,” quips Verfuerth.

CFO Dan Waibel, 41, came to Orion from Boston-based Radius Capital Partners, a boutique venture capital and business formation firm.  While at Radius, Waibel engineered the formation of Vialog, which became the North American arm of Genesys (NASDAQ: GNSY), the largest teleconferencing services company in the world.  Waibel also acted as the financial architect of several private deals in the financial services, manufacturing, and food products markets, and was the CFO for Ryko Corporation, one of the largest independent music labels in the United States. 


Waibel and his wife were both born and raised in the Midwest, but had been living in Boston while he was with Radius.  Waibel was on the road a lot, and he and his wife were raising three children.  In 1999, they realized that they wanted to make a change.  “We needed to decide on a place to live where we could raise our children and count on staying for the next 10 - 15 years,” he said.  They ultimately chose to move back to her home town of Sheboygan.  He continued to work for Radius, covering the Midwest for that firm, while looking for something that would keep him closer to home.


Waibel attended the Venture Conference in Madison last year and connected with three people affiliated with Orion:  Its banker, its chairman, and Prange, the vice president of business development.  “I saw from the conference roster that Jim was working in Greenbush right down the road, and I called him up and asked what he was doing,” said Waibel.  One thing led to another, and he came on board full time in June of 2001.  “I like Neal’s creativity and aggressiveness,” said Waibel.  “My main concern was finding a company that wanted to grow and needed to raise capital,”


Prange, 50, has a similar story.  He and his wife were raising two children in Chicago when he founded Northern Equity, an investment banking, capital consultation, and private equity firm focused on emerging growth companies.  Prange received both bachelor’s of business administration and master’s of science in management from the University of Wisconsin – Whitewater.  His wife is from New Holstein, and after years in Chicago, the family decided to move back to Wisconsin for quality-of-life reasons.  Prange enjoyed a highly successful career in capital formation.  He consummated numerous capital and real estate deals worth over $200 million, and although the move could have meant career sacrifices, Prange’s family is a top priority:  “What is important to me right now is seeing them [his children] have success for themselves,” he said.  “The smaller schools here enable the kids to participate more fully in the classroom and in sports, and they’re also more connected within the community.”

Orion is certainly supportive of that family-centric approach to life, and for good reason:  Verfuerth’s wife, Patricia, 42, has been VP of operations management since the company’s inception in 1996, and their twin sons, Zach and Josh, have worked for Orion since they were 16 (they’re now 24).  Verfuerth has been working with her husband since he formed Energy 2000.  Running at a rapid pace, she handles human resources, accounts payable and receivable, purchasing, manufacturing, and scheduling.  “We complement each other – Neal’s the visionary and salesman, and I do the operations and management.”  Verfuerth sees the entire staff as a family: “Having the family here has been a positive for the company, and we treat everyone like family.  Some of these people have been with us for 10 or 15 years since the Energy 2000 days, and we’re a team,” she said.  “The company is the people and they are Orion.  If there’s anything that I want to keep as we grow, it’s that feeling.”


Director of Communications Stephen Heins is one of the new heavyweights on the Orion team.  Heins, a.k.a. “the word merchant,” is a powerful crusader for energy conservation and other causes.  Heins moved to Central Wisconsin after serving as marketing director for Wall Street’s Trautman-Kramer, a boutique investment firm.  Another displaced Midwesterner, he grew up in Wisconsin.  “My dad had the first truck stop restaurant in the state of Wisconsin, and we ran a chain of truck stop restaurants in the Midwest,” recalls Heins.  A writer and gourmet cook, he studied American Poetry at Columbia University and once owned a French café at 93rd and Madison in New York City.  Heins has a teen-aged daughter in Madison, and, like so many other members of Orion’s team, came back to Wisconsin in part for family reasons:  “I got the sense I was missing her teenage years, even though she would come to visit me several times a year, and I would come here,” he said.  “I just felt the need to be closer.”


Heins and Verfuerth met in New York when Orion was considering raising funds through Trautman-Kramer.  When Heins decided to leave the east coast for Wisconsin, Verfuerth hired him to do some independent PR work for Orion.  Heins was also providing marketing and PR services for NorthNet LLC of Oshkosh, a smallish Internet Service Provider (ISP.)  This is where it gets interesting.

Heins single-handedly threw a monkey wrench into the massive AOL/Time/Warner merger in the fall of 2000, gaining major national media attention for himself and NorthNet.  While working with the Oshkosh ISP, Heins managed to finagle a copy of the actual term sheet of the merger, and was alarmed by what he saw as “closed architecture.”  “The way the deal was structured, nobody had access to their infrastructure,” according to Heins.  “I began to realize the implications of this closed architecture to the future of telecommunications.”  In essence, the deal would have shut out the small ISP’s, putting many out of business.  Heins leaked the “very anti-competitive term sheet,” managing to get it to the chairs of both the  FTC and the FCC (it had been obtained by signing a non-disclosure agreement.)  The press got hold of the story, and Heins was featured in over 200 national stories with headlines like “How an Internet David rattled Goliath.”  CNN/Moneyline flew to Oshkosh twice for interviews, the Wall Street Journal did eight articles, and he was profiled in Fortune and The Washington Post.  In the end, the merger’s terms were changed to reflect the “NorthNet manifesto,” a model plan requested of NorthNet by the FCC that would accommodate access for outside ISP’s.


Lately, Heins has set his sights on the energy situation in Wisconsin.  He fills the email inboxes of local and state politicos and media types with relevant, salient information about the issues, making the case for Orion’s products within the greater message of energy efficiency.  He writes letters to the editor, educates legislators serving on various committees, and puts the spotlight on the accomplishments of Orion’s customers.  In fact, he and Potts recently became registered lobbyists for Orion in Wisconsin.  “We want to be a source of good, solid information about the issues,” he said.  “There’s an educational component to this – I have a guest column printed in the Marketplace magazine called the Importance of Energy Efficiency to the State of Wisconsin.”


Heins also wants to ensure that Wisconsin has a visible debate while formulating its energy policy.  “I don’t want it to be one of these things done behind closed doors in some smoke-clogged room somewhere,” he said.  “We want to talk about legislation and we want our [conservation] point of view represented in the debate.”  And Heins  doesn’t just confine his approach to the state scene.  “I have the email addresses of every member of Congress who belongs to what’s called the Renewable Energy and Energy Efficiency Caucus,” he said.  “They get copies of everything that I do.”


Clearly, Orion’s management team is ready for growth, not just theoretically, but physically as well.  Ronald Ernst is the VP of Manufacturing and Engineering and is currently preparing to double Orion’s manufacturing space.  One of Verfuerth’s neighbors, Ernst came to Orion after his employer, Milwaukee-based Tower Automotive, cut back operations in that city, moving engineering services to Detroit.  Ernst had been commuting an hour each way from Random Lake (near Plymouth) for his position as senior manufacturing engineer and planner, and likes the 15-minute commute to Orion a lot better.

Ernst is overseeing an addition that will add assembly, R & D, warehousing and office space.  Orion’s warehouse is already packed to the gills, and it’s possible that the company might have to expand again sometime in the future, depending on its growth rate.  “We’d like to stay in the area,” Ernst said.  So far, the labor pool has been adequate for their needs.  “Right now we have to decide if we’re going to add a shift, or hire more people for the current shift,” said Ernst.


Supply is also well taken care of, and is sourced in Wisconsin whenever possible.  Orion works with a company farther south that provides the specialized aluminum (Alanod) used to build the reflectors for the Illuminator.  That company, HUI, is also prepared to help with fabrication of the aluminum components should rapid growth tax Orion’s capacity.


In the spirit of conservation, Orion is working with another Wisconsin company, Mirro (in Manitowoc) to recycle the old fixtures removed during retrofits, extracting premium aluminum for reuse.  And CEO Verfuerth is always thinking of the next way to do things better.  The relationship between Orion and its customer, Bemis, may develop into something more:  The two companies are working on a joint R & D project using plastics instead of aluminum for the Illuminator’s reflectors.  “The porosity of the surface affects the harvesting and focusing of the light, and the surface of the plastic can be sealed in a way to lower that porosity,” Verfuerth explained.  “We’re always working to get more light using less electricity.”


If the plastic reflectors achieve that goal, Orion will be able to use Bemis as a supplier.  And not only will the product be improved, but Orion’s cost of raw materials will drop:  According to Ernst, the company pays $4 per pound for the aluminum, but the plastic is likely to cost well under $1 per pound, and the quantity used will be roughly comparable.


Verfuerth and Ernst also mentioned that Orion’s production process would be conducive to automation using robotics.  The assembly alone uses a lot of fasteners, and according to Ernst, “We’re working to determine if we want the product to move under the automated equipment, or if we want the robots to move over the stationary product.”


But all of this innovation and growth takes cash, which brings things back to the topic of raising money.  The vision is big, and to get there, Orion needs to be adequately funded.  The company goes to market by selling directly to customers through a sales force, some of whom are Orion employees, and some of whom are independent reps.  Expanding their market share will require a larger sales force supported with stronger marketing. 


Although the company would certainly be open to raising capital through conventional venture groups, so far, they have been met with a less than enthusiastic reception.  Whatever the reasons may be, Verfuerth and Prange agree on one – the investment climate in Wisconsin is too conservative.


So, at present, the company plans a reprise of what worked so well for them last year – a second round of $3 to $5 million using the Wisconsin Issuer’s Exemption program.  They’ll begin reaching out to the public in Wisconsin next month, selling shares of Orion through newspaper advertisements.

And if they raise the funds they require?  The national market for just one of Orion’s products – the Illuminator – is estimated to be about $38 billion, but the company only needs a little morsel of that to achieve significant success.  The team wants more than just a mouthful, though, and is out to hunt down and devour a full-course dinner.  The good news is that Wisconsin is starting to take notice of Orion’s accomplishments.  Earlier this month, the company was awarded the Manufacturer of the Year Grand Award for an Emerging Company by Wisconsin Manufacturers and Commerce.


In addition, there is plenty of optimism at Orion about the upcoming round of financing.  If investor Margaret Kirton is any indication, the company will be able to sell out the offering.  “I’m confident they’ll be successful,” Kirton said.  “I like their philosophy, their energy and their location, and so do a lot of other people around here.  The more money you can keep locally, the better.  I only wish I had more money to invest.”

Diode Lasers Emerge from the University of Wisconsin

Rushing to prepare the Alfalight business plan for first-round venture capital financing, CEO Eric Apfelbach knew he needed a corporate logo, but there was no time.  Apfelbach spontaneously created a logo from clip art in the AutoShapes bar at the bottom of his PowerPoint screen.  He selected a star shape and colored it blue.  Later, at a presentation seeking financing from venture capitalists, he and CFO Mark Zager were complimented on the logo.  They graciously accepted the praise, not daring to look at each other for fear of laughing out loud.


Did they get the funding?  You bet.  In just one year, Wisconsin-based Alfalight, Inc. successfully closed an initial angel round of $380,000, followed by first-round venture financing of $6.1 million primarily from Midwest investors (the largest ever first-round in Wisconsin at that time); and second-round venture financing of $28 million from both Wisconsin and national venture firms.  The following year saw a round of debt financing for $9 million here in the U.S., and there is a pending loan for $1 million in Canada, home to part of their operations.



Alfalight was aided in this effort by some fairly new state legislation designed to support entrepreneurial growth: Both of Alfalight’s venture rounds included financing through the State of Wisconsin’s CAPCO program, which allocated an aggregate $50 million in tax credits to specific companies (certified capital companies) making early stage funding available for young and growing Wisconsin-based companies. The company providing this funding for Alfalight was Advantage Capital Wisconsin Partners I, managed by Venture Investors LLC of Madison.


How on earth did this Wisconsin industry, tucked away in a facility near the Madison airport, attract so much financial support?  The answer to that question is threefold:

  • Alfalight develops and manufactures innovative products for a hot market: high-powered lasers for the telecommunications industry.

  • Networking (not just an overused cliché in this case):All of the principals involved, whether business people, investors, or scientists, made and maintained lots of connections during their education and career.They used those connections to put together a stellar team, raise funds, and build a facility with a cleanroom second to none in the state.

  • Alfalight has strong leaders at the helm, whose skills, experience, and values complement each other, and who command respect from within and without the company.


 It all started at the urging of one of the four founders, Tom Earles, son of two nuclear physicists.  Earles showed an early interest in chemo-physics, but predicting a better income potential, his parents encouraged him to study computer and electrical engineering.  Earles earned his bachelor’s degree from Northeastern University, taking six years to do the five-year program – “I don’t want to go into details about that, but it involved a lot of surfing in California,” he laughs.


In the fall of 1998, Earles came to the University of Wisconsin-Madison to attend graduate school and work as a research assistant with Professor Henry Guckel, a leader in micro-electro-mechanical systems.  Earles came to the Midwest not only for the research opportunity, but because his family was originally from the area.  “I have a cousin and a lot of other family around here, and they set me up with an apartment and everything else,” said Earles. His cousin, Cyndi Ochsner, even donated Alfalight’s first office furniture:  a card table and some folding chairs.


Later, as Alfalight grew and began to recruit from around the world, the management team found others like themselves who were interested in returning to the Midwest from far-flung, frenzied, and less friendly locales.  According to Mark Zager, Alfalight’s CFO, “It got to the point that when we saw a resume of a person from the Midwest who was working elsewhere, we knew we had a shot at getting them.  People who had grown up or gone to school here want to come back.”


While taking a technical writing class as an undergrad, Earles developed a strong interest in optical logic devices.  During his master’s work in electrical engineering at the UW, he learned that there was a group on campus specializing in optical devices, the Reed Center for Phototonics.  He decided to pursue a Ph.D. in the field, unaware that the world of the entrepreneur would soon beckon.


Earles went to work on his Ph.D. under the auspices of UW Professors Dan Botez and Luke Mawst, both of whom would become co-founders of Alfalight.  Well-known in the field of high-power semiconductor lasers, Botez is a theoritician, and Mawst is an experimentalist, complementing each others’ skills nicely, according to Earles.



The products the pair developed were aluminum-free, high-power semiconductor pump diode lasers.  These lasers can be used to amplify digital signals in fiberoptic networks, saving telecommunications companies big bucks.


During this time – the summer of 1998 – the field of optoelectronics was getting very hot, due to the burgeoning telecommunications industry.  (Think Cisco Systems, fiberoptics, Internet infrastructure…)  As a result, the business world had enormous interest in this UW team’s research.  “Alfalight had proprietary technology that could serve large markets.  During that time, the demand for telecom bandwidth was doubling every three to four months – It has certainly slowed since then, but it’s still doubling every year,” explained Scott Button, a partner with Venture Investors LLC of Madison.  Venture Investors specializes in seed and early stage funding, and was the lead investor, with Arch Venture Partners, in Alfalight’s first round of venture funding.


Earles couldn’t get the market potential out of his mind, and his entrepreneurial spirit emerged. “That summer, every day at lunch, I’d bring it up with the group, asking what it would take to make this research into a business,” recalls Earles.  He continued lobbying the team, planting seeds about starting a business.  In November of 1998, the three went to the UW’s School of Business and asked one of the professors how to start a company.


Alfalight started as a Limited Liability Company (LLC), and its founders, who had already patented their UW research through the Wisconsin Alumni Research Foundation (WARF), were able to license back that technology for the new business.  “WARF is very supportive of start-ups, in fact that was one of the best experiences I had – working with them,” said Earles.  (WARF eventually became a part-owner of Alfalight, starting with a 5% stake in return for licensing the technology.  They also invested cash in both venture rounds, the first time WARF had ever invested in one of its licensees.)


The founders also spent a lot of time the first year trying to find someone with business experience, avoiding a classic pitfall that can plague technology-driven entrepreneurs – the inability to let someone else run the show.  They were prepared to do whatever it took to succeed with research and product development, and they wanted someone with the same level of commitment who was willing to work full-time on the business side of things.


The fledgling company found that person in Eric Apfelbach, a proven leader with a track record in global technology management, having worked with companies such as IBM, Applied Materials, Texas Instruments, Motorola, and National Semiconductor. It didn’t hurt that he had a BS in Chemical Engineering.


Apfelbach was raised in Janesville and educated at the UW-Madison, but his career took him all over the globe as he worked his way up the management chain.  Enormously successful at sales and management – while at Applied Materials, he helped grow sales from $175 million to $4.5 billion in six years – “like riding a bucking bronco” – Apfelbach relocated regularly, calling Texas, Vermont, and New York home at one time or another.


But the husband and father of two decided to move back to Wisconsin for a better quality of life, even if it meant sacrificing income and career options.  Apfelbach found a challenging opportunity with a privately held Lake Mills company, Standish LCD, and helped position that corporation for a buy-out by Planar Systems, a publicly held company based in Beaverton, Oregon.  During that time, Eric met and worked with Mark Zager, a former Ernst & Young consultant who had formed his own business.  Zager was handling the Standish CFO duties on a contractual basis, and he and Apfelbach found that they had a lot in common, both in work styles and in their personal lives.


Zager had enjoyed a successful career at Ernst & Young, but when he and his wife started a family, jetting around the country no longer appealed to him.  Zager vividly remembers the day the decision crystallized.  “I got up in the morning, took a train to Chicago, had a one-hour meeting in Chicago, got on a plane, flew to Montreal, had a one-hour meeting in Montreal, then got on a plane to Los Angeles.  So, about 11 at night, I was flying somewhere over the Midwest on my way to L.A. and I was thinking about the fact that I was going to become a father, and this was not an atypical day I was having.  By the time I landed in Los Angeles, I had decided to look for alternatives.”  After leaving Ernst & Young, Zager’s first engagement was with Standish, where he met Apfelbach.


Zager had earned both an undergraduate degree in accounting and a law degree from UW-Madison.  He rose to partner with Ernst & Young and specialized in strategic planning and restructuring.  Fortuitously, his client base included manufacturers of electrical transformers and liquid crystal displays (LCD’s) so, like Apfelbach, he knew what it would take to bring an idea into production.  In addition, Zager is a C.P.A., and as such, has been uniquely qualified to assist Apfelbach with Alfalight’s fundraising efforts.  The skill sets of the two men complement each other nicely, making for a strong “tag team” team in the challenging world of venture capital.


Back to Lake Mills — about a year and a half after the Planar takeover, Apfelbach was asked to move west to Oregon, chose not to, and decided to find a new opportunity in Wisconsin.  He, together with Zager and Charlie Hoke, the former owner of Standish (now one of Alfalight’s board members and investors) decided to seek an opportunity to either buy an existing business, or help get one off the ground.



To that end, Apfelbach started researching opportunities in Wisconsin, and eventually found himself at the WARF offices.  Former WARF Director Dick Leazer told him about Alfalight, and Apfelbach contacted  Earles.  “I was working in the lab when he called, and we had been through a number of candidates who didn’t work out,” reminisces Earles.  “I thought to myself, ‘Oh no, not another one’ – I wasn’t as pleasant as I could have been.”


His fears were unfounded, however.  Earles said that during their first meeting, he learned more about business in two hours than he had the whole year.  Immediately understanding the market potential for the products, Apfelbach was willing to take significant risks, such as working full-time without pay.  That was exactly what the team was looking for.  Apfelbach brought the opportunity back to Hoke and Zager, who agreed that the market potential was huge, and that with guidance, this contingent of researchers from UW had what it would take to bring their proprietary technology into the marketplace.


Apfelbach came on board as the fourth founder, while Zager stayed involved as a consultant.  By December of 1999, they had written the initial business plan and arranged for the first round of angel financing, which totaled $380,000.  Those angels were Charlie Hoke and Earles’ best friend from high school and college, Mike Odell, who invested with newly-minted dot-com dollars.


Hoke, a successful Wisconsin-based businessman, made it clear what he expected from the team.  “I told them that if I was going to invest, they had to put their careers on the line.  Tom Earles had to make a choice.  Was he going to be a Ph.D. student or start a company?”  Earles heeded the call of the marketplace, and left the Ph.D. program just six months short of completion.


Hoke also identified the characteristics of the team that gave him the confidence to invest:  “I believe in people.  And Tom, Eric, and Mark all have integrity, the ability to communicate complex ideas in an understandable way, patience, thoughtfulness, and the willingness to ask for advice.  That makes for strong leadership.”

The year 2000 was huge for Alfalight.  In January, they used some of the proceeds from the angel round to purchase a computer and rent about 800 square feet of office space in the MG & E Innovation Center (a high-tech business incubator) on Madison’s Rosa Road.  They also hired their first employees, Dr. Mike Nesnidal and Dr. Dave Forbes.  Nesnidal is now director of development for Alfalight, and, Forbes, a “grower”, or specialist in the growth of semiconductor materials, runs the “MOCVD” or Metalorganic Chemical Vapor Deposition equipment.  (Both men were educated in the Midwest and successfully recruited from California, again, for quality-of-life issues.)


The telecom industry was booming and there was a six-month lead time for the big-dollar equipment that the start-up needed.  They decided to go for it, ordering what they needed on sheer faith that additional funding would be in place by the time the invoices came due.  In the interim, the group was able to rent lab space and equipment from the UW.  Not only were there risks involved, but the team was willing to put their own resources on the line.  As Apfelbach put it, “The whole thing is a gamble.  In essence, you’re committing to spend money that you don’t have yet.  We moved a guy and his family up here from Los Angeles between our seed money and the first round.  I told him, ‘Listen, if I have to write you a check from my own money if this doesn’t work out, I’ll do it.’  Early on, you’re completely out on a limb…You’ve got to be able to make decisions that in a normal business environment would be insane.”


They may have been out on a limb, but it was a pretty stout one.  The market was sizzling hot and technology stocks were skyrocketing.  So Apfelbach and Zager began raising the first round of venture capital, doing the “dog & pony show” to investors all over the country.  In addition, they had to take care of several “housekeeping” issues before the first venture round:   The LLC was dissolved and Alfalight incorporated in Delaware as a “C” Corporation (investors feel more secure with Delaware’s extensive corporate case law), and the stock option plans had to be created.  All were costly processes due to significant legal fees.


Still, their prospects looked good.  There was tremendous interest in their proprietary technology, especially on the part of Silicon Valley venture firms, but those firms had a caveat:  Taking West Coast money would have meant moving Alfalight’s operations from Wisconsin to California, where investors maintained huge networks of support, recruiting, and expertise available to nurture young companies.


The Alfalight team considered the possibility, but declined.  “We were all Wisconsin flag-wavers,” said Hoke, “and we wanted to make it work here.”  Virtually every member of the company had left the state and come back because they appreciated what Wisconsin had to offer in terms of family lives, outdoor interests, and values.  They decided against moving, and sought support closer to home.  Venture Investors LLC was, quite literally, right down the road.


It was a perfect match.  “We specialize in seed and early stage funding for companies with proprietary technology that can serve large markets,” acknowledges Scott Button.  “They had the ideal scenario – a tremendous market opportunity, licensed technology out of the UW, Dr. Dan Botez, a nationally known expert in the field, and a great partner in WARF,” he continued.  “And the added benefit was Eric Apfelbach, a world-class manager.  It was really a luxury to have someone like that leading the charge in the community.  They had all the pieces.”


The other major investors in the first venture round were also from the Midwest:  Chicago-based Arch Venture Partners, and Enterprise Development of Michigan, both referred by Venture Investors.  Arch is fondly known in venture circles as “the tallest midget” – they’re a broad-based venture firm with an excellent reputation on the West Coast as well as a significant national presence.  Apfelbach skillfully used the demand for Alfalight’s technology to create a climate of competition among some of the venture firms interested in investing.  Even though the term sheets from other firms may have been more favorable in terms of pre-money valuation, the trust wasn’t always there.  Alfalight wanted more than just investors salivating over IPO potential and increases in valuation.


The first round closed in May of 2000, and Alfalight received $6.1 million.  The value of the company was pegged  at $9.6 million going into the round, and $15.7 million post-money. Keith Crandell, the representative of Arch Venture Partners, became a member of Alfalight’s Board of Directors, as did John Neis of Madison’s Venture Investors.


The proceeds from that first round were virtually already spent by the time Alfalight got the money.  The company was bringing in equipment and relocating new staff from around the country. Now, the overwhelming need was for a new location that could meet the unique demands of the company.


In October of 2000, the burgeoning company moved out of its start-up digs and into a 20,000 square-foot facility (expanded later to 36,000) on Madison’s East Side near Madison Area Technical College’s Truax campus.  Finding a new home was not an easy task – manufacturing lasers necessitates the use of poisonous and volatile gases, substantial capital equipment, and a demanding cleanroom.


And what a cleanroom!  The Alfalight facility recently won the Engineering Systems Team Award for their efforts.  Also known as the “fab,” the cleanroom was designed, constructed and brought on-line in 14 weeks, and under budget to boot.  Director of Processing, Craig Cheney, was another Midwesterner lured back.  One of the few in the country who could oversee the cleanroom project, Cheney was recruited to Wisconsin from New Mexico, where he had worked for Intel and had recently managed a fab expansion for Emcore, another laser company.


A tour of the facility requires special head-to-toe cleanroom attire, including safety glasses.  Steady air pressure, humidity, and temperature are maintained throughout, and particulates in the air must be kept under a certain low threshold.  Catwalks above the labs provide access to all the mechanical systems, and the company spared no safety measure.  Cheney oversaw every aspect of construction, and led both the company team and outside contractors through a complex process in a very short amount of time.  “We qualified the facility in February [2001] and produced our first laser in May,” said a proud Cheney.


Why such extra care with the cleanroom?  Reliability is one of the most important characteristics of Alfalight’s products.  Their lasers are likely to be found at the bottom of the Atlantic Ocean, helping to transmit digital signals from North America to Europe.  Equipment failure is prohibitively expensive, and the telecommunications industry demands a minimum 10-year guarantee (mean time to failure.)


“The parts are only as good as the facility you’re putting them together in,” according to Paul Roselle, vice president of operations in Madison. Alfalight’s attention to detail and ability to build reliable products have already earned the company a solid reputation in the industry.  The customers who have worked with Alfalight during the development process have given them very high marks, and some have placed advance orders, showing great confidence that the products will pass the exacting qualification requirements.


Alfalight is known for its high-caliber production team, which is staffed with Ph.D.’s and experts in various sub-specialties of the field.  According to Roselle, altogether, Madison’s Alfalight fab group has well over 100 years of experience in semiconductors.  And, no surprise, Roselle is part of the networking web central to Alfalight’s success:  Former Standish owner and current Alfalight investor Charlie Hoke recruited Roselle from Kodak to work for him in Lake Mills.  


As the new facility was being planned, Apfelbach and Zager knew they would need significantly more cash for the capital-intensive enterprise.  There was just one big stumbling block to the business plan, however.  In order to go to market, they had to “package” the lasers.  In other words, the lasers had to be made functional by attaching them to certain fiberoptic components, depending upon the applications.


Alfalight could make powerful lasers with exceptional reliability, but nobody would buy them unless they were packaged.  The packaging process is highly specialized and requires a knowledgeable and experienced team to produce a finished product with the reliability that Alfalight needed, but there were only a few such facilities in North America.


Apfelbach set out to put a packaging operation in place, somehow or another.  Even with heavy recruiting, they couldn’t find anyone for what Apfelbach described as “half the company’s strategic mission.”  The expertise was in exceptionally high demand; one potential employee demanded a $1 million signing bonus.  There was so much venture money pouring into the industry that the request wasn’t unheard of.


Apfelbach finally connected with a consultant (through founder Dan Botez) who lived in Montréal, Canada – Richard Murison, who visited the Madison facility.  Referring to Mazlow’s Hierarchy, Apfelbach said, “I went from being unconsciously incompetent to being consciously incompetent about laser packaging that day.”  Apparently a lot of Alfalight’s competitive edge could come from the packaging process, but it was much more complicated than they had anticipated.  “But we had already raised the venture money, so we had to do it,” adds Zager.  Murison suggested talking to an established packaging team in Canada, and Apfelbach got right on it.


The Canadian packaging team was willing to make a change, especially since their employer at the time had no employee stock-ownership program.  Alfalight decided to establish a foreign subsidiary outside of Montréal, offered the group equity as if they were founders of a new operation, and the packaging problem was solved.  “Of course that wasn’t in the budget, and it forced the second round earlier,” said Apfelbach.


Interestingly, just as the packaging operation was being established outside of Montréal, the Premier of Québec, Lucien Bouchard, visited Madison to attend a trade conference and sign trade agreements with Wisconsin to increase economic cooperation.

Now on an accelerated quest for more venture money, Apfelbach hit the road in early October of 2000, leaving Zager in Wisconsin to run the business.  While the new foreign subsidiary was a huge unexpected cost, it turned out to be a blessing in disguise – Alfalight’s second round closed just before the venture market crashed in January of 2001.  Fortunately, they had an inkling as to what was coming, and were able to put a lot of things on hold, concentrating solely on closing the deal before the end of the year.  Had they been even another week or two later, terms and valuation (at the very least) would have been drastically less favorable.


As it turned out, they were raising funds at the peak of the frenzy, just before the bubble burst.  The two men had worked up a new PowerPoint presentation (and the company now had a more permanent logo), and telecom sector stocks were still hot, hot, hot.  Alfalight generated intense interest in the venture capital world, which garnered them the pick of the litter.  “They didn’t even want revenue or cash flow projections, they just wanted to give us money,” Zager said.  “It was ridiculous.”


Apfelbach and Zager boast that they probably got the fastest commitment from a venture firm ever – about 15 seconds.  Apfelbach and Alfalight’s VP of Sales, Mark Demos, were around the conference table presenting to a group of venture capitalists at Dallas’ InterWest Partners, one of whom was telecom expert Barry Cash (“What a great name for a V.C.,”  quips Apfelbach.)  Cash was an original V.C. for optical networking company Ciena among others, and at one point in his career, Apfelbach worked for one of Cash’s companies.  As Apfelbach flashed the first PowerPoint slide – Alfalight’s mission statement alluding to a world-class packaging operation – Cash leans back in his chair and asked, “You have packaging?  I’m in.  What’s the valuation?…Let’s get it done.”


“It was euphoric…a wild process,” said Zager.  “That was a good indicator of how crazy it was,” added Apfelbach.  “It was a great experience, something I’ll always remember.”


InterWest was one of several top-tier companies that Alfalight considered as their lead investor for the second round, but in the end, InterWest ceded their lead position to Advanced Technology Ventures of Palo Alto (ATV), to whom Alfalight had been introduced by Madison’s Venture Investors.  The other major investors in the round were the Infrastructure Fund (California) and Centerpoint Ventures of Texas.


Alfalight had a pre-money valuation of $75 million at this point, up from $10 million for the angel round, and a post-money valuation of $15 million for the first venture round only months earlier.  In December 2000, they raised $28 million, just in the nick of time.  Between the new facility, foreign subsidiary, equipment, and staff, they certainly needed the resources.  Apfelbach remarked that they could have raised about $40 million, and in retrospect, they should have.  “But at the time, we thought that it was more than we needed.  We really did not think things would slow down as much as they have,” he noted.


After all of this major fundraising, did they manage to retain enough control in the company?  Zager answers carefully: “Just under 50% is owned by what I would call the outside professional investors.  The founders, employees, WARF and other insiders control just over 50%.”


There are seven seats on Alfalight’s Board of Directors, including Jack Harrington of ATV, who joined the board at the close of the second venture round. Other investors on the board are Charlie Hoke (angel), and Keith Crandell from Arch Ventures.  CEO Eric Apfelbach and founder Dr. Dan Botez also sit on the board, as well as Russ Johnson, a former vice president for JDS Uniphase.  There is one open seat, which will probably be filled by a strategic investor in the near future, according to Apfelbach.  Alfalight also has board observers representing their other investors, including InterWest, Centerpoint, Venture investors, The Infrastructure Fund, and EDF. 


“Constructing a good board is key to making the company happen,” says Apfelbach.  “Especially when the going gets tough.”


And the going is a little tougher now.  During 2001, Alfalight focused on getting their technology into production.  The telecommunications, fiberoptics, and venture markets have cooled considerably over the past year, and in order to conserve capital, Apfelbach and Zager made the difficult decision to lay off 14 employees, seven at the Madison operation, and seven in Canada.  “Try telling solid employees that you can’t afford to keep them when you have $17 million in the bank – it’s hard,” according to Zager.  Although the company is starting to manufacture product and demand is strengthening, they still have to make it to the break-even point.  That could be another year or more.


In April 2001, the company was able to secure $9 million in debt funding earmarked for capital equipment for both facilities.  Participants in that round of financing included Silicon Valley Bank, GATX, Third Coast Capital, and Transamerica.


At present, Apfelbach and Zager are preparing for a “strategic round” of investment from some of their customers and prospective customers – certainly a strong indication of industry confidence in Alfalight’s products, reliability, manufacturing capacity, and staying-power.  The challenge will be to keep the resources coming in, and to carefully manage their cash until the market rebounds, which fortunately has already begun.  Apfelbach and Zager are certainly up to the challenge, and are confident in the future.


Alfalight currently employs 80 people between its Madison and Canada operations.  Most of them are highly educated professionals, and many of those in the Wisconsin facility were recruited back to the Midwest by a management team determined to make their high-tech company work in a state to which they are fiercely loyal.


Loyalty wasn’t the only reason to keep the company in Wisconsin.  According to Charlie Hoke, Wisconsin taxpayers support the university system year after year:  “We [taxpayers] ought to get a return on our investment.  Capturing the technologies that come out of the UW and keeping them resident in the state of Wisconsin is one way to do that.”

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