Virchow Krause expands into capital markets
Jeff Horein jokes about how far he’s come considering he was "born in a small log cabin in Fort Wayne, Ind." Horein is the president of Virchow Krause Capital, LLC, a wholly owned subsidiary of Virchow Krause & Co.
VK Capital provides private equity investment offerings, investment banking, due diligence and venture capital financing to Wisconsin-based companies.
It is a calculated but somewhat risky move for Virchow Krause, the 14th largest public accounting firm in the country, to move into the high-rolling investment banking industry, but a natural move for Horein. He also acts as Virchow Krause’s services managing partner, meaning he supervises and runs all of the non-accounting-related services for the firm, including a large mergers and acquisitions practice.
"This is kind of the next evolution of that mergers and acquisitions practice," he said. "I also lead our firm’s R&D group, so as we start new things, I’m generally involved in them."
The move for the firm could be viewed as risky because clients served by the firm in an accounting or auditing capacity cannot be serviced by VK Capital and vice-versa because VK Capital works on a contingency fee basis, meaning they give up their independence with regard to the client. It’s the kind of separation of duties and independence that was sorely lacking in the Enron debacle, so every potential client of VK Capital is evaluated at the highest level.
"It’s a business decision," Horein says, "But by formalizing this service into this level, we elevate that decision to a firm level. So the firm makes the decision that we are or are not going to do something and that decision is actually made at our Executive Committee where we decide whether we’re going to provide this service to our client or not because when we make that decision, we’re foregoing our bread and butter."
The decision to start VK Capital was market-driven, Horein said, because companies in Wisconsin — and not just the high-tech companies, but the "middle American metal benders" that want to expand or open new plants couldn’t raise capital using conventional markets. The other side of the equation to launch VK Capital was that Virchow Krause had a ready list of high net worth, private investors looking for high-risk, high-return investments.
"We basically facilitate the introduction between the people who need money and the people who need to invest using private placement memorandums and offerings," Horein said. "That’s our vision and that’s really driven by the demand of our client base. It’s not something we concocted to do to make money."
The firm is currently registered to do business in about 30 states, but is focusing on providing funds for Wisconsin businesses first and foremost.
"We want to be our clients’ most valued adviser, but our corporate directive is to be a contiguous Midwestern firm centered out of Wisconsin right now at least," Horein said.
The firm’s first placement was for $16.5 million and came within 45 days of being licensed by the National Association of Securities Dealers (NASD) last November.
April 12, 2002 Small Business Times, Milwaukee
