The company: A national, nonprofit "angel" network committed to socially responsible investing, Investors' Circle brings its 150 members together with capital-strapped entrepreneurs whose products or services meet social or environmental needs.

Investors' Circle is neither a registered securities broker-dealer nor an investment adviser. It does not recommend specific investments to its members -- all accredited investors who join by invitation. (Accredited investors are those who meet the following Securities & Exchange Commission criteria: They've earned at least $200,000 for two consecutive years or have a net worth of at least $1 million.) Private investors make up about 70% of the membership, but the group also includes investment-fund managers and venture capitalists. "We have cashed-out entrepreneurs, people who have inherited wealth. There are a few family fortunes represented," says Woody Tasch, the group's board chairman. Funded by membership dues and other fees, Investors' Circle takes no commissions and holds no financial stake in any deals between its members and the entrepreneurs it brings their way.

Socially conscious entrepreneurs can make themselves known to Investors' Circle by submitting two-page summaries of their business plans, which circulate monthly among the members. Investors' Circle selects a group of entrepreneurs who get the chance to pitch "live" to its entire membership at the two Social Venture Capital Fairs it holds in different cities each year. Close to 44% of those invited to the fairs find "some level of funding" within six months, according to Jeanne Trombly, Investors' Circle's West Coast manager.

Since Investors' Circle was founded in 1991, its members have invested about $44 million in 60 companies and small venture funds specializing in socially responsible companies -- from the fairs alone. "There's at least another $20 million that has been co-invested by members in deals they shared with each other between fairs," says Tasch. Investments range from $25,000 to $3 million and fall mainly in the areas of health, education, environment and energy, community and international development, and women- or minority-led businesses.

The goal: Dedicated as they are to improving society or the environment, Investors' Circle members expect their ventures to make money. They're not likely to take a chance on visionaries selling tie-dyed T-shirts at a loss. But, says Tasch, "there is a wide range of opinion among our members as to how to assess a real financial strategy in this area. Some members are only interested in deals that bring the same rate of return as any other venture deal, [while] others target their dollars toward the more nontraditional company that has a high social and environmental impact but does not hold the prospect for generating competitive venture-capital rates of return." Venture capitalists expect annual returns of at least 25% to 30%, as a rule.

Members have funded such companies as Sonic Innovations, a startup that created a digital hearing aid; Fran's Healthy Helpings, another startup that launched a brand of nutritious frozen-food meals for children; Wild Planet Toys, a scientific-toys company; Wild Life Works, whose sales of organic clothing support a wildlife refuge in Kenya; and AgriQuest, a four-year-old biotechnology company that researches and develops natural herbicides and pesticides. "It has some very promising products that may reduce chemical pesticides," says Ann Partlow, manager of Rockefeller Co.'s Odyssey Fund, one of AgriQuest's investors." And there's a bonus, she adds: "It's headed by a woman."

Many members invest together after seeing a presentation at a venture fair. "Very little of the $44 million represents one person going into a deal," says Tasch. "The individual investments may be small, but you may have several investors doing a single amount that most venture funds wouldn't do in a single investment, because it would be too small." Energia Global, a company that develops hydroelectric, wind, and other renewable-energy sources in Central America, found eight Investors' Circle members who have put in more than $1 million, says Philippe Villers, one of the funders. About a dozen joined Villers in investing in GrainPro, a tiny Massachusetts company selling hermetically sealed grain storage units to Asia, Africa, and Central America. The storage units protect the food and eliminate the need for pesticides.

Most of the companies that approach Investors' Circle are startups or early-stage, "although it's all over the place," says Tasch. "Many have some sales, and most have had some previous financing." Having sales is "a great risk reducer," says Willy Osborn, chairman of the committee that selects companies to present at the fairs. "It means the investor can talk to customers."

The Typical Deal: When Larex Inc., a St. Paul (Minn.), manufacturer first presented at an Investors' Circle Social Venture Fair three years ago, it had no revenues and its plant wasn't operating. What it had was a patented process for extracting a versatile compound called arabinogalactan, or AG, from damaged wood left behind when larch trees are logged.

Research had shown AG to have multiple uses -- as a fiber in dietary supplements, and as an ingredient of pharmaceutical and personal-care products and printing inks. When it approached Investors' Circle, Larex had about $4.5 million in venture capital from Medical Innovation Partners and Northeast Ventures, a $10 million community-development fund that promotes entrepreneurship and employment in rural northeast Minnesota, an area hurt when its steel industry declined in the 1980s. As a member of Investors' Circle, Northeast Ventures brought Larex to the group's attention.

The connection wasn't enough at first, though. "There was a lot of interest in our concept," says Mike Finney, Larex' president and CEO, but investors at the fair were skeptical that the manufacturing process would work or that there would be a market for the product. "It hadn't been proved," says Finney. Result: Larex received only $50,000 from one investor. "It was surprising," says Finney.

Yet, just making the presentation proved valuable to the company. "You see the kinds of questions the group asks and where the emphasis needs to be on the facts," says Finney. "We were glad to get the $50,000." It gave the company credibility just at the time it was trying for another round of financing. "Having somebody actually put in money from [Investors' Circle] helped other investors feel good about putting money in," Finney explains.

Since that early presentation, Larex has "removed a lot of risk and proved a lot of issues," says Finney. The company will return to Investors' Circle -- something many previous presenters do -- in late April to pitch the company at its spring fair in Boston. Now, the company has a lot more to offer. Larex' $1.5 million manufacturing plant opened in Cohasset, a town of 600 in the woods of northeast Minnesota, in mid-1996.

Then, the company had only $250,000 in revenues. By the end of 1998, they had hit $3.7 million. Finney projects 1999 revenues will exceed $6 million and the company will turn a profit. The 21-employee company now has six trademarked products and contracts to supply dietary-supplement, cosmetics, and ink companies. Outside investors have put more than $10 million into the venture.

"I think we're going to be a very good fit for the Investors' Circle membership this time around," says Greg Sandbulte, a Larex board member who's also president of Northeast Ventures. "We've grown steadily in the three years since the last presentation... And I think there's a lot of people in Investors' Circle who see an opportunity to have an impact on a rural area like that as very attractive." The fact that Larex has found an added use for the damaged portion of the larch tree doesn't hurt either.

The process: Investors' Circle receives about 200 business-plan summaries a year. They must be in its specified format and include any patent information. Entrepreneurs pay a $300 fee for the summaries to be sent to the members, who make recommendations to the 10-person Social Venture Fair Presentation Committee. If a summary sparks interest, investors will call the entrepreneur directly. About three months before each fair, the committee reviews the briefings, chooses finalists, and requests their full business plans. After a preliminary review, the committee chooses up to 16 presenters per fair, who pay a $750 fee plus travel expenses to attend. The second 1999 fair will be in November.

As in most endeavors, it helps to know somebody. About 20% to 30% of those selected to present have an Investors' Circle member on their company board. "We'll talk to a board member to get their perspective on the company and the entrepreneur," says Willy Osborn, chairman of the presentation committee. "If somebody we know has put their money on the line and done the due diligence necessary for them to make an investment, it's part of the affirmation we look at." Then the committee discusses the prospects in four conference calls two or three months before each fair.

What works: Having a savvy management team in place. "I've seen investors over and over again fund a mediocre idea with a super management team over a brilliant idea," says Trombly. "Even if you can't afford to bring someone on staff, line up a consultant and get an advisory board. Find the strategic alliances."

What doesn't: Overvaluing your company. "Investors won't even bother calling," says Trombly. Overestimating your market is another red flag. "People love to say the market is huge when it's not," says Osborn. "People will have grandiose notions of what the market is, but their segment will be very small."Also a glaring faux pas: Saying there's no competition, Osborn emphasizes. "There's always competition."

Parting advice: Persevere. "I've seen a lot of entrepreneurs get kind of lazy and fall through the cracks," says Trombly. When investors ask a lot of questions, "it's really an invitation for the entrepreneur to come back. They're trying to get these people to sharpen themselves. Investors in the long run will give way to an entrepreneur who is absolutely not going to give up on a good idea."

By Karin Halperin in New York

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