Getting into movies or restaurants never used to be a problem in Williamstown, a college and resort town of 8,000 in Western Massachusetts. Now, you can barely get to the bar at some local bistros — and it's not because of the summer people or students. The places are packed with young techies, and retired executive George D. Kennedy is thrilled. "To see them walking around in sandals and baseball caps turned on backwards, with beards and earrings everywhere — it's really fun," says Kennedy, who once ran Mallinckrodt Inc., and International Minerals and Chemical Corp.

It's more than fun for Kennedy; it's validation of the vision he had for revitalizing the area. Three years ago, he and several other retired alumni of nearby Williams College launched Berkshires Capital Investors, a venture-capital firm with the dual aim of making serious money while boosting the economy of the Northern Berkshires, the hilly region surrounding the college.

With the departure over the last few decades of manufacturing, the economy of that part of the Berkshires has been almost exclusively dependent on its upscale tourist trade and the college, leaving a dearth of decent-paying jobs and opportunity. That's what Kennedy wanted to change, and his plan is starting to bear fruit: Since May 1997, BCI's first fund, of $5 million, culled from Williams College, local banks, hospitals, endowed institutions, and 35 individuals, including alumni, has bet on 12 startups, 11 of them high-tech. With an additional $40 million from larger VC companies, BCI's investment brought 280 jobs to the area. (The firm is seeking $10 million for another fund.)

Kennedy isn't the only venture capitalist with a Johnny Appleseed streak. In the last five years, approximately 40 U.S. venture groups have sprung up with the same goals as BCI: creating wealth for communities as well as their investors, according to Kerwin Tesdell, head of the New York-based Community Development Venture Capital Alliance. They now have some $350 million in assets under management.

Tesdell says venture money — cash for a piece of a company — packs far more punch in low-income areas than loans or technical assistance: "It brings together the two things most needed in low-income communities for economic activity to occur — equity financing and entrepreneurial training."

Doing good comes at a price, though — annual returns tend to be in the 5% to 15% range, vs. at least 25% to 30% for conventional VCs. However, investors with other interests in an area see additional payoff as the economy grows.

Berkshires Capital Investors is definitely interested in making money. It hews to a high-technology and "rigorously for-profit" strategy, says Matthew Harris, BCI's 26-year-old managing director, who cut his teeth at Bain Capital, a leveraged-buyout firm in Boston. "We've tried to be tough with ourselves and not invest unless we thought we could earn venture-capital returns," Harris says. Also, BCI will invest only in local companies or those that will move to the area.

Of course, building a high-tech nucleus in the Berkshires is a lot easier than in, say, Appalachia. The former has cachet from places like Tanglewood, the performing-arts complex, and high-profile cultural events like The Williamstown Theater Festival. And in addition to Williams, there are many colleges and universities within a two-hour radius. Such factors help sell entrepreneurs and potential employees on the region. "I tell them how great the quality of life is, how tight the community is, and how inexpensive it is," Harris says.

How are investors faring? BCI has only had one "liquidity event" — a buyout. Two are pending, though, and Harris foresees 20% annual returns or better. BCI's $350,000 investment in Tripod Inc., a personal-homepage network based in Williamstown, returned $1.5 million to investors when Lycos bought it in February 1998. Tripod's founder, Bo Peabody, Harris' Williams College roommate, has become an informal advisor to BCI.

BCI has had one failure. After Tripod, BCI put $20,000 into an operation that made cinammon-scented crafts, which went belly-up. That confirmed its niche: high-tech companies with angel investment that have a first product, but need guidance and new managers. BCI found that it could persuade bigger VC firms to kick in $1 million to $3 million by investing $250,000 to $500,000 and promising oversight.

Nurturing helped lure Resounding Technologies Inc., a startup with downloadable software (rogerwilco.com) that lets up to 30 computer users talk via microphone over the Internet. "What we did not want was to get a big chunk from a VC firm who showed up once a quarter," says CEO Adam Frankl, 34. Going with BCI has paid off: The VC firm helped Frankl shift his business plan. Instead of charging $20 for his software, he now gives it away to build a user base. In the last six weeks, 250,000 people have downloaded the software.

Can BCI generate long-term economic benefits for the region? The picture is mixed. There's always the risk that the hottest startups will leave. "Some of your most successful companies will grow faster than the Berkshires allow," Harris acknowledges.

That happened to one BCI investment, Employease Inc., an Internet-based network for managing employee-benefit information. After getting $15 million from other funds, including Hummer Winblad Venture Partners, it moved its then-20-person office to Atlanta, and tripled its staff.

Harris defends the fund's development role. "The 20 jobs over three years and the wealth created in the county by the success of Employease made it worth it." That experience made the fund more savvy, though. "We look for companies that want to stay in the area. That's what we need to hear from the CEOs," Harris says.

He estimates that the the region needs to be able to employ a critical mass of 1,000 or so skilled workers to take off as a high-tech nucleus. That could take 5 to 10 years. "The area gains legitimacy with each success story," he insists. "And people can say: 'I'm moving to take a high-tech job in Williamstown,' with a straight face."

It's unlikely that the high-tech boom will continue unabated for the next 10 years, which could threaten BCI's long-term goals. But in this business, optimism rules.

By Meg Lundstrom in New York

To: FINANCE