BOSTON. Todd Mainwaring is a tech entrepreneur coming off his third round of venture capital financing, and he’s got the commemorative men’s wear to prove it. “I got this one for our Series A Convertible Preferred,” he says, pointing to the logo on the sweater vest he’s wearing, “and this was for our Series B Double Reverse Triangular Debentures,” he adds, indicating his fleece pullover. “I’d go further, but I figure you might put this on the internet, and I don’t want to embarrass any of our institutional investors.”
Cool sweater vest (venture capitalist sold separately).
Long viewed as just hors d’oeuvres at the banquet of business, branded “swag” clothing came into its own with the boom that resonated from this region’s tech companies to Silicon Valley, and a new style was born. “I figure it’s a fair trade,” says Vin Carruthers of Carrion Partners, a private equity firm here. “We take 40% of their company, and they get items of clothing that regularly retail for $44.95 and up.”
“Vote for me–I’m up for ‘Dealmaker of the Year’.”
But as with any capitalist phenomenon, this one had what economists call “externalities”: once discarded as too small, stained or worn, the “business hip” clothing makes its way to homeless shelters and second-hand clothing stores, where it can end up on the bodies of grizzled men like “Mike,” a sixty-something veteran of Boston’s streets. Mike refuses to give his last name to this reporter, preferring to be addressed by his semi-official title, “The Mayor of Lower Washington Street,” a neighborhood that was formerly the site of Boston’s adult entertainment district, but which is now struggling to transform itself into an upscale destination for well-heeled young people and affluent “empty-nesters” looking to leave the suburbs for the energy of the city.
“Look sweetie, that nice wino is a partner at Achilles Ventures too!”
What, this reporter asks, does he look for in private-equity/venture-capital discards?
“I want a firm that has been around the track a few times, and will stick with you in a ‘down round,’” a term that refers to a financing provided to a company when its valuation has fallen from its salad days, or even its soup-and-sandwich days. “Some of these young kids have yet to go through a recession, when the only deal toys you have to hand out are useless Lucite paperweights.”
“Could I possibly get any cooler? Let me get back to you on that.”
For the investment firms that, like their clients, are looking for an “exit strategy”–a sale to a bigger player that will make them richer than they already are, the risks of “downstream swag” are high. “Let’s say an executive from a big investment bank is walking along with waterfront and sees a Gabby Hayes look-alike wearing your branded sweater vest,” says Carruthers. “He may get the impression that one of your managing partners got drunk on cheap ‘bum’ wine, instead of a nice Malbec with a hint of blackberry and a decidedly jammy finish.”
So this morning finds junior associate Aaron Kreslow from Carrion Partners patrolling Christopher Columbus Park here, a wallet full of cash in his back pocket, looking for homeless men who in their efforts to ward off the cold breeze from the Atlantic, are wearing the firm’s distinctive logo, a vulture swooping down on roadkill along Route 128, “America’s Technology Highway.”
“Excuse, me,” Kreslow says as he taps a sleeping man on the shoulder.
“I ain’t drunk,” the man says as he wakes and turns warily to face the young man. “You got nothin’ on me.”
“No, it’s nothing like that,” Kreslow says. “I noticed you’re wearing the cool half-zip from Carrion Partners Foreign Institutional Fund IV.”
The man looks down at the white stitching on his blue fleece pullover. “What if I am?”
“They really hit a home run with that one–eye-popping returns!” Kreslow says.
“Thanks,” says the homeless man. “I played a very minor role in it.”
“I was wondering if you’d be willing to sell it?”
“It’s kinda cold–I need it.”
“That’s okay, I have a bland, non-descript windbreaker lined with sheepskin that’s even better. I’ll give you $60 plus that for your Carrion pullover.”
The homeless man considers the offer. “What did you say their gross internal rate of return was?”
Taken aback, Kreslow fumbles in his pocket for his phone and checks. “Let’s see, for Fund IV it was . . . 38%.”
The homeless man rubs his chin as he does some quick calculations in his head. “I don’t know,” he says finally. “With that kind of money burning a hole in your pocket, I can’t let this thing go for anything less than $65.”