CC025: impact investing and reversing demographic trends // a Coffee Chat with Robert Zulkoski (Vermont Works)

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Robert Zulkoski 0:00
Vermont does not show up on the radar of a lot of venture capital practitioners and, and as such not only do our entrepreneurs lack access to capital, but they lack access to mentorship who can provide lessons learned best practices and also to connectivity to ecosystems outside our own.

Jay Clouse 0:26
The startup investment landscape is changing. and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to upside.

Jay Clouse 0:53
Hello, hello, hello, and welcome to the upside podcast, the first podcast finding upside outside of Silicon Valley. I’m Jay Clouse, and I’m accompanied by my co host, Mr. Visiting every US state himself, Eric Hornung.

Eric Hornung 1:06
Jay, I am getting dangerously close to failing my mission. My goal of hitting all 50 states before I turned 30, I’m 13 short. And, you know, we can go through and list them if we want. We don’t have to. But I’ve been supplementing my travel with international travel lately, as opposed to American travel. And on the eve of my 29th birthday. That’s, that’s not great.

Jay Clouse 1:29
Are you turning 29 tomorrow?

Eric Hornung 1:30
No, I just, it’s like, you know, a metaphor, I think.

Jay Clouse 1:33
Okay, bigger speech. I’ll call your bluff. Yeah, let’s try to name all 13 new states that you haven’t got yet.

Eric Hornung 1:38
Man, I thought you’re going to go down this road. Let’s see. North Dakota, South Dakota, Kansas, Oklahoma, Arkansas, Delaware, which is I think the only one Oh, besides Louisiana, that’s east of the Mississippi, Mississippi, I really should have went in some sort of order here. Alaska, Wyoming, Montana, Idaho, and Iowa.

Jay Clouse 2:02
All right, that’s 13. I have no way of checking to know if those are actually 13? Or if you also know that I don’t know the states you went to so you just named 13 states. What about US territories? Does that count?

Eric Hornung 2:13
I don’t count them. There’s a lot of them, first of all. And, you know, I think the closest one to becoming a state is Puerto Rico. And I’ve been there. So if, for some reason Puerto Rico becomes a state before I turn 30. Look, I already checked that box.

Jay Clouse 2:29
And if you’re going to visit one of these states, What counts is a visit? Can you drive through? Can you pass through?

Eric Hornung 2:33
Nope, super simple one overnight stay. Not a lot of gray area there. Yeah, I’m sure you could come up with some sort of scenario where you know, I get in at 11:59pm and sleep in a tent or something and then pack up and move out. But that hasn’t happened yet. I don’t foresee that happening with the states that I have left, because they are so big. Also, I have this goal. So I’d like to get somewhere and experience the state for at least 24 or so hours.

Jay Clouse 2:59
At one point you shared with me a spreadsheet, that was a literal log of the number of days you spent in different cities this year. And you’ve spent more days in a couple of international cities and you have in Columbus, Ohio. So why not? Why not just make like a little road trip out of it and knock out? five of those. What’s the word when the states are all close together?

Eric Hornung 3:20
Contiguous?

Jay Clouse 3:21
Contiguous, why not knock out like five contiguous states next month?

Eric Hornung 3:25
Well, you know, I got vacation time that you got to figure in, you know, I got a full time job over here, Jay, we don’t all we don’t all live the self employed lifestyle. But I think that my goal for the Wyoming, Montana and Idaho would be to knock out those three at once. The rest aren’t really that contiguous like Alaska, can’t be contiguous anything. Delaware, it is its own little cluster surrounded by states I’ve been to Iowa is the same way and Oklahoma same way. So I also have kind of a little thing where I don’t like to just go to the store, like want to go there for something. So we went to Nebraska to see the Berkshire conference. And that was my way to get to the Nebraska. Every other place I’ve gone I’ve gone for a reason whether it’s specific skiing, or snowboarding or mountain biking, or some sort of conference or some sort of event or fall foliage in the north east or Crater Lake in Oregon, or whatever it is there’s there’s an event happening there. And a lot of these states are a little harder to have a like marquee moment and

Jay Clouse 4:31
Were there any states you were expected to be underwhelmed by that you were surprised by?

Eric Hornung 4:36
I think the entire northeast. I was expecting to be a little underwhelmed by I know that people like Bar Harbor. But outside of that in Maine, you don’t really hear much about you hear it’s beautiful, but there’s nothing there. I just I thought it was a really beautiful being able to drive all the way up. We drove from Portland, Maine, which is really cool city, little hipster vibe, great seafood, all the way up to Canada. And we were the first people to see the sunrise, the United States, because where the eastern most point in the United States is called called Quoddy Head or Quoddy Head, or I don’t really know how to say it. But it’s a lighthouse. And it is just like a beautiful sunrise. And we’re the first people to see it. And whatever day that was, the Maine was really cool driving down in New Hampshire in the White Mountains. And we ended in Burlington.

Jay Clouse 5:21
Well, speaking of ending in Burlington, let’s end this intro on that note and dive into today’s guest who is Robert Zulkoski, the chairman and managing partner of Vermont Works. Vermont Works is an independent alternative investment firm supporting Vermont’s job and economic development, which is based in Burlington, Vermont.

Eric Hornung 5:41
You know, it’s not based in Burlington, Vermont, but it’s very close. Ben and Jerry’s, and man, it was really cool getting to go to their plant and just eating Ben and Jerry’s like fresh from the line. Do you like ice cream or an ice cream guy?

Jay Clouse 5:54
Love ice cream. It’s actually one of the reasons why I am probably 8 to 10 pounds head happier than I’d like to be right now. I love a good 10 o’clock ice cream before going to bed.

Eric Hornung 6:04
That’s good. You here’s the thing you said like a couple weeks ago that you were 15 pounds heavier. So if you’ve been losing weight, or have your goal of your goals just changed.

Jay Clouse 6:12
I would love for that to be the case. And I I let’s say yes, yes, indeed. We got introduced to Bob through a cold email about Vermont Works. And we said yeah, that’s definitely within the realm of who we like to talk to on this show. Let’s bring him on. And so here he is an interview with Bob Zulkoski of Vermont Works.

Jay Clouse 6:36
Bob, welcome to show.

Robert Zulkoski 6:37
Gentlemen, good afternoon.

Eric Hornung 6:39
Bob, on upside, we like to start with the background of the guests. Can you tell us about the history of Bob?

Robert Zulkoski 6:47
Well, I’m going to limit it to my professional career because prior to that, it was quite salacious and would wanna keep that off the air. But I not too long ago finished a 35 year career and in private equity, starting in the early 1980s, during the Gordon Gekko years on Wall Street, throughout that career was heavily involved in creating new investment products and entering new markets have built several private equity platforms around the world spent 30 plus years living outside of the state of the United States. And since retiring, I’ve moved back to the beautiful state of Vermont, where I spend half of my time trying to do good things for others, and the other half the time trying to have fun.

Jay Clouse 7:42
You mentioned 30 years outside of the United States. Where was that?

Robert Zulkoski 7:46
Principally in Asia. 20 years living in Singapore, and currently have in addition to business interests in Asia, also involved in platform and in the UK, and one in South Africa as well.

Eric Hornung 8:04
Besides the rebranding from leveraged buyouts to private equity, what changed the most in your 35 years in the space?

Robert Zulkoski 8:10
You know, I would say that the the proper probably the biggest shift has happened in the last 10 to 15 years, where I’ve gone from the sharp end of private equity and venture capital to ever increasing dedication to the expanding world of social impact investing during that transition went from all those things that define private equity in terms of competitiveness, and aggressiveness and new to moving into social impact where one of the great noble parts of it is the level of collaboration amongst the various constituents.

Eric Hornung 8:51
How do you define impact investing or social impact investing?

Robert Zulkoski 8:54
The simple answers people like to say, well, it’s the ability to do well, while doing good. making investments, where there is an equal balance between generating appropriate risk adjusted financial returns, along with some element of of social wellness be doing something good for people are doing something good for the planet, you’ll also hear it referred to as double bottom line investing.

Eric Hornung 9:26
On the theme of the first bottom line, I feel like the data is kind of out on this is their alpha to be generated by focusing on social impact investing, or you just kind of mirroring market returns while also having this do good benefit?

Robert Zulkoski 9:41
You know, in in the public markets? ESG investing environmental, social and governance investing? I think there’s enough data out there and enough analysis of that data that has shown that there is some alpha available for ESG investing. And I think, you know, a principal driver behind that is increasingly consumers around the world are making choices, consumer choices based on on some of their social values. And I think big companies like Unilever have, has recognized that and, you know, has tried to push the SG values throughout their their organizations in the private market social impact investing, even though it’s a rapidly growing and a fairly sizable market right now, I think the data is still a bit murky. And I think what makes the the the data murky goes to the basis of your question of what is social impact investing, there seems to be a pretty wide continuum of definitions of social impact investing will be investors on one end of that continuum who put a greater emphasis on the the social good and and we will be just happy to get their money back, maybe with a small return, you often hear that called slow money or venture philanthropy. At the other end of the spectrum is our investors who say that we don’t really want to give up any financial return in exchange for doing good, but we still want to do good. And so often you hear a debate within, you know, this investment sector as to what’s the definition of social impact and and also have is one measure social impact.

Jay Clouse 11:34
What was the activating event for you to go from this aggressive, hard charging private equity stance into impact investing?

Robert Zulkoski 11:44
It still remains one of the most clear moments in my life, certainly one of the most transformative, my family and I were living in Singapore, and I was running a Pan Asian investment business, reaching from China and Japan down to Australia out to India. So spending a fair amount of, of time in the air chasing, chasing deals. And when I came back to Singapore, one of my local friends who was also in the industry invited me to join a little private investment club made up of four other private equity individuals who are pooling, you know, some of their money to invest in this area called social impact. And I had, I had never heard of the concept before, or at least different, but in terms of an investment sector, and this little club would meet, and they would hear proposals from third parties seeking either small amounts of investment or grants to support, you know, social entrepreneurship. And we in addition to making investments in grants, we would also assign one or two of the partners to work with us those groups to, to help affect their plan. And the first transaction I worked on was working with a group of five parents of young autistic adults who on their own dime had engaged a medical study to determine what kind of jobs that these young adults could do. based on where they were on the spectrum and make a long story short, we help them set up a mushroom farm. And I was the partner responsible for this I helped them apply for grant applications to Singapore government, help them find a mushroom farmer mentor and helped negotiate a lease and get that business up and running and to see the the happiness on behalf of these young adults who are working there and their parents, market inflection point in my life. It opened my eyes that these possibilities existed.

Jay Clouse 14:04
So that was when you were in Singapore. That experience kind of kicked off what brought you to Vermont in retirement.

Robert Zulkoski 14:11
So I like to tell people I became a Vermonter in 1980 when I came up here with my then college roommate chasing his girlfriend. When my family and I moved overseas, we wanted to keep a home in the US. So our children have one foot in each each world and for lots of reasons we decided to to buy a home here in Vermont. And for the many years we were overseas, my family would come back spend the entire summer we would also come back for Christmas and New Years. And it was my wife’s desire that when we retired, we would retire back here. So when our last child was off to university it was it was time to move back. We had a confluence of events including becoming empty nesters and and my wife did an amazing job of repopulating her life with volunteer work and philanthropy and really sort of set the stage for me to emulate her and trying to figure out how to give back to this state that we that drew us in and and we became to we came to love.

Eric Hornung 15:28
Where are you from originally?

Robert Zulkoski 15:30
Born and raised in New Haven, Connecticut.

Jay Clouse 15:33
What type of experience and exposure did you have invert to Vermont before that 1980 trip with your roommate?

Robert Zulkoski 15:40
Yeah, because Connecticut in Vermont are so close geographically came up here quite often when I was young to go skiing, but as as usually as when you’re that young you really weren’t paying much attention to the drive or the scenery or or any of the the the awesomeness that makes you Vermont a unique location.

Jay Clouse 16:01
I’ve never been to Vermont. Why should I have been to Vermont by now.

Robert Zulkoski 16:06
Certainly given your interests in emerging innovation, ecosystems and entrepreneurism, Vermont should be on your on your map, you know, in a number of areas, we punch above our way, we’re amongst the top three per capita in terms of number of unicorns, which is not saying much given that we have very few people but companies like Ben and Jerry’s, Keurig Green Mountain, Dealer.com, Seventh Generation. The other is we are also known as an epicenter for social entrepreneurship. Again, with the companies like Ben and Jerry’s and Seventh Generation, we’ve got the number one according to Princeton Review number one green MBA program in the country number five worldwide. And we are you know, constantly on the top of the list of places with amazing craft beers, craft spirits farm to table for many years, we I think still we have the number one rated beer in the country. So if you like beer and you like I outdoors any season, it’s a good place to be like to hang with people who are entrepreneurial, and innovative, also great place.

Eric Hornung 17:26
So your wife populates her life with charitable and philanthropic activities. And that inspires you what’s iteration one of you getting involved in the in the state from that perspective?

Robert Zulkoski 17:38
Yeah, now, I mean, I I jumped right into the deep end of the pool, that fluids didn’t really have a warm up. As I mentioned, I’m involved with a number of social impact investment platforms around the world, including the Conduit in London and Tawana, asset management in South Africa. And I had just returned from a trip to South Africa in February of 2016. And I was comfortably seated next to my neighbor’s fire pit with a solo cup of bourbon, enjoying a beautiful evening, but I was winching about how my back hurt from the long flight. And so my neighbor now one of my partners in Vermont Works, asked me well, geez, what are you doing? And I miss the stuck the the nature of the question. And I went on my riff about social impact investing, and he said, No, I get all that. But why are you doing it so far away? Why not do something here in Vermont? And after a little bit of a pause, I responded, I said, Hey, Vermont Works. And that’s where the, that was where Vermont Works was born. Now the name Vermont Works means many other things. But at that moment, it was like, hey, why not Vermont, and my founding partner, Frank, who is our my next door neighbor, he to spent his career in fiduciary Investment Management. And we talked about well, what can we do here in the state that taps into our unique skill sets our networks and our interests, he and I then embarked on a six month road trip through Vermont, meeting legislators, academia, business people, entrepreneurs trying to understand the relationship between capital and job formation in our state. Because early on, we had decided that while there are many social challenges in a rural state like Vermont, what we felt was the the beginning point, or the the motherhood issue that that the state struggles with really is a job issue associated with a poor demographic curve. Vermont is ranked number two in the country in terms of how quickly our population is shrinking and aging, we’re losing our young people, because we haven’t been able to either provide them jobs within the state or to what we’re trying to address, create an ecosystem that reliably supports innovation and entrepreneurship.

Eric Hornung 20:35
So I think this is a good time to kind of ask, what is Vermont Works now,

Robert Zulkoski 20:40
you know, Vermont Works is a movement, we started out with a vision or a belief that what was missing from our ecosystem was the access to empathetic capital, especially growth stage equity capital, but as we’ve moved forward, we like a lot of practitioners of place based investing have come to realize that that not surprisingly, capital by itself is not is not the only answer. Vermont for the same reason you were suggesting you’ve not been been here before. You know, Vermont does not show up on the radar of a lot of venture capital practitioners. And, and as such, not only do our entrepreneurs lack access to capital, but they lack access to mentorship, who can provide lessons learned best practices, and also to connectivity to ecosystems outside our own. And so over the last year and a half, we’ve expanded our strategy to go beyond just providing capital but also to create epicenters of professional structured mentorship, everywhere else and other geographies that we want to emulate. You hear about incubation and acceleration maker spaces, etc. We say we have all those but you know, our incubator, our group who claims to be an incubator is really just a co working space our acceleration is, is ad hoc, in in whatever location it could be formed at that at that time. And maker space, we do have, we do have solid base and maker space, but incubation and acceleration was missing in spades. And so we’ve taken it upon ourselves to build a purpose built location for incubation and acceleration take place and that’s called the Vermont innovation commons. In addition to that, we have become an active player in trying to reimagine a number of other facilities around the state in a creation of a hub and spoke network for mentorship. One of the the negative trends that you see going on across the United States right now is the closing or struggling of a lot of small liberal arts colleges, especially here in the northeast, just this year alone, we’ve had three small liberal arts colleges, here in Vermont announced that they were closing after in one case, well over a 100 years of operation. And so we’re working with the state, federal government, local key stakeholders and partners around the world to reimagine the use of some of those, those campuses, all in the context of creating structured mentorship around social entrepreneurship. And then the final thing that we’re doing this is this is prevalent both on the mentorship side and how we’ve gone about raising our capital, we want to be able to connect our companies to capital sources outside of Vermont as as well as as such 85 to 90% of the $50 million fund that we’re raising will be raised from outside of the state of Vermont.

Eric Hornung 24:25
How did you decide on a fund size of $50 million?

Robert Zulkoski 24:29
You know, it’s a confluence of factors. Yes, certainly, it has to start with the belief that during the investment period of the fund, that we’d have ample investable opportunity to invest that capital. The second thing is, you know, second or third thing is really based on the many years of experience that I have in raising private equity funds, the types of investors that we’re trying to appeal to have certain governance requirements, often you’ll hear them you’ll you’ll hear things like minimum and maximum, some of the institutional investors will only make a minimum of investment of 5 million, but that can be only be a maximum of 10% of the fund. So using those metrics, we back into 250 million. The third part of it really has to be has to do with building a world class Investment Management Team $50 million sounds like a lot of money as relates to a dedicated Vermont fund. But in the world of private equity fund management, it’s it’s quite a small fund, you know, we have to build a team that is going to identify, underwrite, and manage the investments for the small fee that that fund will generate. So the fund had to be a certain size to make the platform viable.

Eric Hornung 25:56
One thing we hear from founders outside of the capital Epicenters is that it’s really hard to find a lead, is this fund going to be leading rounds or kind of follow on capital?

Robert Zulkoski 26:07
Yeah, that that that’s a great, that’s a great question. And I actually there’s there’s two dimensions to answer that they’ll lead into the the portfolio companies and also the lead investor into the font. Let me start with with that, first, as I mentioned, we’re raising $50 million 85 to 90% of that is coming from outside of the state. So as I said earlier, it’s you know, Vermont is not on the radar of a lot of institutional investors, even though my partners and I have long histories as fiduciary managers for institutional capital, that only opens the door, we have to we have to convince people, you know, why, why Vermont, if you will. And so to do that, we by structuring ourselves as a social impact fund, or able to approach an investor audience that’s more apt to be interested in things like Rural Economic Development, or identifying, you know, markets where their alpha because the is not too much money chasing too few deals, the whole Rise of the rest concept, it still doesn’t, the fact that you can change audiences or pick an audience doesn’t change the fact that you really need to knock over that first domino. And so we’ve been able to do two things. One, last year, we submitted an application to the US Department of Agriculture, USDA, to be an approved manager under the rural business investment program, our VIP, which would allow us to become a RBIC, rural business investment Corp. There’s a number of significant benefits of that that designation, in addition to the value institutional validation, it also is one of the few exemptions under Dodd Frank legislation that prohibits community banks, or commercial banks from investing in alternative assets. And as you know, many of the banks and rural markets have pots of community investment dollars is this designation unlocks those. The other approach that we’ve taken in terms of an anchor investor, is we have focused on identifying the most progressive foundations across the United States who have investment strategies and supportive entrepreneurship. And we focused our efforts on on evangelizing our story to those groups as being the most empathetic potential first investors in terms of the anchor investor in in companies. That’s one of the roles that we want to play my partners and I believe that, you know, we have the investment pedigree to give most institutional and venture capital investors comfort in terms of our, our investment processes, diligence and value add. And so by acting as an anchor investor in some of these local companies, it gives the out of state investors some some conference, for example, one of our portfolio companies packet ties to energy, which is a company that’s been incubated within the University of Vermont and focuses on distributed energy resource management, we were the lead investor in their angel and their seed round. And we’re leading their a round investment as well. And we recently brought them to London and put them in front of a 100 different investors in the UK, looking at their, their product and their opportunity. So it was because of our our anchor investors that we were a or us being the anchor investor, that we were allowed to be able to showcase that company. We did the same thing recently with another company we invested in called Seed Sheets. So part of our purpose is really to be the early commitment to whether it’s an early round or a growth stage round, but to be the early validation of a company’s possibilities.

Eric Hornung 30:33
One follow up question on this RBIC credential or designation? I haven’t heard about this idea before. It sounds fascinating. I’m curious, because you referenced Dodd Frank, and this is a rural type designation. Does anything change with the 2019 farm bill? Anything for the better or worse with RBIC?

Robert Zulkoski 30:53
Yeah, it’s gotten better. So under the prior farm bill, if you so so as an RBIC amongst the commercial banks that can now invest in you are the Farm Credit associations around the United States, and is there’s that there’s actually a requirement for RBIC that a minimum of 10% of your equity come from one or more Farm Credit associations Farm Credit Institute’s, but there’s no cap on how much of your capital you could raise from the Farm Credit institutions. But if you go over 25%, your fund has to be a dedicated agriculture fund we had because we are our our investment mandate is broader than just agriculture, albeit we are focusing on ag ag tech, because Vermont does have, you know, an active ag tech community, you know, we were going to keep the Farm Credit Institute capital to 24.9%. In the 2019, or the latest farm bill, that cap has been moved to 50%. So we could take up to 50% of our capital, from Farm Credit institutions without triggering the necessity to be a dedicated agricultural fund.

Jay Clouse 32:23
I’m going to go a little bit of a different direction here, you mentioned that a theme or a core part of your strategy is to connect entrepreneurs in Vermont to funding outside of Vermont. So if I’m an investor that you’re speaking to, let’s even just say from the valley, and you convince me to get off the plane in Vermont, from the time I get off the plane to the time that I leave in a day or two, where do I need to be stopping to get the best view and experience of Vermont as a destination for my capital?

Robert Zulkoski 32:52
Yeah, well, that question. So we started this conversation talking about Burlington, Burlington is the the largest city in the state. It’s within the the largest county of the state, Chittenden County. I forgot the exact statistic, but probably 60% of the state’s GDP originates within Chittenden County. All that being said, we’re not Burlington works or Chittenden county works where Vermont Works. Our focus is across the state. And one of ways that we have built the infrastructure to be able to access entrepreneurship and interesting opportunities across the state and support it is through a strategic relationship that we’ve created with an entity called the SECU, which stands for the Vermont State Employees credit union. And I never thought I’d say this in my my career, but the most progressive financial institution around is this credit union, they’re very mission aligned with us. And they have nine offices around the state that were able to access all the opportunity. That being said, that doesn’t answer your question. Your question is like, what if you’re going to go somewhere where you’re going to go and yeah, today fly into Burlington and you’d stay in and around the Burlington area, maybe go down to Middlebury, which is an Addison County, part of what we’re trying to do at Vermont Works is to you know, in a, in a rural market, like Vermont, whatever ecosystem that we have is fragmented. And so the various efforts in support of innovation and entrepreneurship tend to be fragmented, we are trying to act as a fulcrum to to bring that ecosystem back together for greater efficiencies, build a delivering, you know, that mentorship that’s so important, but also delivering access to capital. And hence the the approach that we’ve taken to develop the Vermont innovation Commons were completed with the building in three years, it will be the first of its type in the United States, it will be the first purpose build co work and combination co working, co living education and digital entertainment facility in the United States. And by providing that co living element, we’re able to bring entrepreneurs from the other three corners of the state into the facility and keep them house during incubation or acceleration or an MBA boot camp or coding Academy, or any of these mentorship programs. And one of the things that we’ve learned over the decades is that mentorship and and the collision of ideas continues past any kind of structured day. And so if we have you know, a young you know, entrepreneurs coming in from Brattleboro which is on the south east corner, the state coming up to Burlington, and they’re there, they’re sending a, you know, a month on site, they’re still building knowledge and and connections as they’re rolling out pizza dough at the end of the day with the rest of the people in the Co living facility. So we purposely approach the programming of the Vermont innovation Commons to address your question, because one of the the personal challenges I gave to the head of our programming and events team, is that within the first year of opening the comments, we want to have the rise of the rest bus trip visit here. And they’re going to want to have one place where they can see and touch everything.

Jay Clouse 36:55
Are there any vocal community leaders who may be startup founders or people we’re just dedicating time pulling meetups together in Vermont, or Burlington?

Robert Zulkoski 37:04
Yeah know, I mentioned there’s there’s a lot of great efforts going on across the state, but they tend to be fragmented. And so what we’ve tried to do this by supporting them financially, and by supporting them with a dedicated place to hold those events, or seeing that the the number, the quality of the size of those events really kick up. There’s a great program called Excel VT, which is a joint venture between the sustainable jobs Fund and the flexible Capital Fund, here in Vermont that are doing spoke acceleration around specific themes. One of the events that I mentioned earlier that we started two years ago, the Vermont investor summit is a big event that we’re now in, we now get about 500 people a year to where people come in, they meet the legislators who are talking about why Vermont, if they’re talking to a successful entrepreneurs are talking about why Vermont now. And we tend to have some great out of state speakers talking about things that are relevant to to our ecosystem. And then we cap it off with a combination, speed dating of some local companies and an expo of local companies. So you could actually see things going on all in one evening, all of the cocktail in your hand, looking over the sunset on the lake.

Eric Hornung 38:39
I’m curious what Vermont Works considers more of a win. Obviously, you want growth of jobs. That’s how you kind of started this idea. But let’s say in a hypothetical scenario, you had a company that was successful, created 100 Jobs had the same valuation in the same timeframe. Would you rather see that be someone who lives Vermont weather is that southeast city who creates that job, someone who is from Vermont, and boomerangs back, or someone who’s not related to Vermont at all, maybe they work in Silicon Valley, and they’re looking for a new place to start a company, you can only pick one of the three,

Robert Zulkoski 39:17
I wouldn’t pick one of the three. All of those are equally important because what our what our real, our mission is, is to retain and attract youth and innovation to the state of Vermont, with the desire to bend our demographic curve in a more promising direction. So if we can keep young Vermonters here, that’s great, I’ll be it through my own mentorship of of, you know, some of the higher ed students here I urge them to go away and and learn and experience and bring those experiences back. Some of the companies that we have invested in, you know, Vermont farm table, Stonecutter spirits are companies that were founded by individuals from out of state who came here with the desire to start a business here. And and a scale that up. And so we we’ve supported those, and were many of the programs that we’re involved in, is trying to work with the people in higher ed, the students of higher education here, who chose to come to Vermont to go to school. And from our experience, and many would like to stay I sit on the board of directors of the University of Vermont sustainable innovation MBA program. And it’s an amazing program. But it’s it’s even more amazing if we can provide the graduates of those programs, an opportunity there to to to find position here in a company in Vermont or to, you know, start a viable company here in Vermont that will will employ other people as well.

Jay Clouse 41:02
startup founders and startup employees are a small percentage of the population. Why aren’t there more young people in Vermont?

Robert Zulkoski 41:11
Yeah, you know, one, I think quite frankly, we’re we’re late to the game. And as far as being a community that recognize the changing demographics and and you know what young people were interested in and focusing on at a time where millennials have thankfully dialed lifestyle back into their decisions. You were one of the most incredible states to live. And we’re constantly jockeying back and forth with places like Colorado, as you know, the healthiest states in the United States. So we we also have other foundation elements that places like a boulder or Chattanooga or Portland have and the fact that we have gigabit fiber optic connectivity, we have ranked institutions of higher education, I mentioned you VM center program number one in the world, we have two colleges that are not nationally ranked in cyber security one in gaming, we have the number one environmental law school in the country. And we have an amazing doorstep Ivy League school in Middlebury College, on a per capita basis, we’re amongst the highest in terms of a number of students in higher education. And against a little bit of a of a false number, because we have so few people in the state, but we have all these raw materials that allow us to emulate again, those places like a boulder or Chattanooga, what we’re trying to do in Vermont Works is provide the missing pieces, which is capital mentorship, and connectivity.

Jay Clouse 42:54
In January, or I guess I should say, in late December, it was announced that Vermont has this $10,000 remote worker grant to move to Vermont, one of the stipulations that I thought I read was you must be a full time employee of a company headquartered outside of Vermont. Does that work for somebody like me, who is self employed?

Robert Zulkoski 43:15
It does, it’s specifically been been tweaked and designed to be able to attract remote workers. You know, as I said, with with giga speed, fiber optic connectivity, and lifestyle, we all like to think Vermont is a is a good destination for remote working. So yes, it does. I will go on the record, because I have in some of my columns published articles. I’m not a big fan of that program. It has been tremendously successful when it was first announced there was over 4 million hits on the State’s website promoting the program. My issue with that program is not its intentions, its its approach. And you know, specifically, I would like to see the state spend its limited resources on people development rather than people acquisition.

Eric Hornung 44:17
You mentioned earlier, having the rise of the rest bus come by would be a tangible metric of success for Vermont Works. What other tangible metrics of success do you guys have? Are you looking for over the next however many years you’re planning.

Robert Zulkoski 44:32
As a social impact fund, our investors expect us to report at least once a year, our impact measurements, and we have actually co defied what our impact measurements are we publish them in our online data rom, our investors when doing due diligence, you know, look at those and understand the baselines to which they’re measured against that it’s a comprehensive list of measurements, but they’re all job related number of jobs, location of jobs, salaries of jobs, that with benefits without benefits, gender equality, things along those lines. So those are the minimum, if you will, of how we’re going to measure our success above and beyond what the financial return that we still expect. But as I said before, our mission is to retain and the track used in innovation to and to bend the demographic curve. And those are, those are some things that obviously, if we’re doing our job, or goodness is going to start to manifest itself. The other thing that we’re trying to do is we’re trying to lead by example, rural markets, Vermont included, have got to come to use to punching downwards rather than upwards. Too often I heard early in the journey, well, we don’t do that, or we can’t do that. Or we don’t have the money for doing that. You know, we’re trying to, to show by taking this mission on that hard things can be done here. unique things could be done here. And actually, I’ll take that back. I don’t even have to say unique things. Part of my evangelizing our story locally, is listen, we’re not the smartest bulbs and the brightest bulbs in the lamp, we’re not creating all this, what we’re really doing is emulating successful strategies that have been employed. elsewhere around the globe. We didn’t invent incubation, we didn’t invent acceleration. We’re not building the first Innovation Hub. We’re doing all of that here. And we’re but we’re we’re doing it by doing the research to look at what has worked elsewhere, and how best to do how best to deploy it here in in our market. So I would measure the intangibles is whether we also create an uplift that ups the game for all the other participants in this ecosystem. And when I start reading articles, or participate in nationwide podcasts about Vermont, and start sharing, yes, spreading the word, if you will.

Eric Hornung 47:29
You mentioned this bending the demographic curve. I’m curious to dig a little bit deeper into that and how you think about it, because the base rate is increasing. So I think the base rate of the United States is like 38 years old right now. But it’s increasing rapidly, Vermont something at like 43. And I think the youngest is Utah or Alaska or something like 30. So are you measuring yourself against that moving median? Or if you stay at 43? For forever, and the median catches up to you? Like how do you kind of think about what’s a win for bending that demographic curve?

Robert Zulkoski 48:04
You know, I hadn’t really thought of that. So I appreciate you asking the question. I think that the expectation is that we would bend it that 43 downwards, because it’s it’s the trajectory of that 43. Mike Schirling, the Secretary of the Department of Commerce here in the state of Vermont, mentioned to me last year, not just to me, but that expressed at a presentation that within the next three years, the state of Vermont is likely to be upside down on its pension obligations. And that’s a frightening number. I don’t know what the national averages, but it’s I don’t think it’s it’s that short of a period of time. And so by bringing in younger people, we’re not only just bending that number for the sake of bending it, we’re starting to address the fiscal problem that the state and like most other rural markets is experiencing.

Jay Clouse 49:10
Well, Bob, this has been awesome. Kept you a little long here. So I appreciate you sticking with us. If people want to learn more about you, or the work that you do at Vermont works after the show, where should they go?

Robert Zulkoski 49:20
So Vermont Works. Vermontworks.co is our website. And I invite you also to visit me on LinkedIn. Robert Zulkoski, in addition to lots of great information on Vermont Works, you will see a number of the columns and articles that I’ve written that pertain to to our mission and our strategy and our unique approach.

Eric Hornung 49:50
All right, Jay, we just spoke with Bob from Vermont Works. What do you think?

Jay Clouse 49:54
I really liked the energy Bob brought to this interview. And not necessarily because it was is super high energy. But because it was just a good cozy, Burlington, Vermont vibe that, you know, between that and what he talked about with the state itself being a beautiful place to come spend time and the breweries and the the pace of life there. It all sounds very welcoming and enjoyable. You’ve been there? Did it line up with your experience of Burlington or Vermont? Generally?

Eric Hornung 50:24
Yeah. Afterwards, Bob was like, Hey, you got to come out here. You gotta just have some drinks overlooking Lake Champlain. And I was just thinking back to my experience there riding a bike along Lake Champlain. It’s such a chill relax town. It’s only 40,000 people or something like that, which is crazy, because it’s the capital of Vermont, but it is beautiful. The culture is kind. Yeah, I think that you hit the nail on the head there with the the culture of Burlington,

Jay Clouse 50:52
it’s very interesting to me to think about cities like this, that have such a difficult time attracting young people. You know, wouldn’t it be strange to spend time in a city where there weren’t a bunch of other young people, it’s such a catch 22 chicken and egg type of problem? I’m not sure how you solve it. You know, they’re trying a couple things between the. Hank, we’re recording come on. With a couple things between the $10,000 relocation grant and programs like Vermont works that are trying to make it more attractive to entrepreneurs, and specifically social entrepreneurs. So I don’t know there’s I haven’t spent a lot of time personally, as a young professional thinking about places like Vermont as a potential place for me to live and grow a career.

Eric Hornung 51:38
Yeah, it’s interesting, because like Cleveland, where I’m from, has the same kind of brain drain problem. But the difference with Cleveland is there’s so many people that are born there. in Burlington, if you only have a population of 40,000, you’re not having that many like aggregate offspring that could Boomerang back, there is no like that conversion rate is going to no matter how high it is, is still going to feel small.

Jay Clouse 52:04
It also seems like a lot of the population has transplanted their post retirement, which is not when you’re having children, which means it’s kind of further continuing to that problem. But yeah, you know, our thesis here is looking at cities outside of Silicon Valley as entrepreneurial hubs. And not every city is going to be that, you know, what we’re really learning is you have to celebrate the city for what it is and what it offers and what it can be for what type of person and Burlington may never be a booming tech hub. But it can really carve out a an attractive place for a particular type of individual who wants a certain lifestyle, and wants to also be a business owner in, you know, a geographic location in like the Northeast.

Eric Hornung 52:53
I’ll push back on that a bit. I think that there is nothing that says Burlington can’t be their own kind tech hub. We’ve talked, we talked with the people in Madison with Scott Resnick in Madison at starting block. And he talked about how Madison is this small little community. And it’s bigger than Burlington, granted, but it’s a small little community with its own competitive advantages. And look, it’s never going to be the consumer facing internet catalysts of the world. But they do specific things very well in Madison. And I think Burlington has a similar vibe, except for what they’re focusing on, is what kind of Burlington is becoming known for and Vermont is, has been known for is this sustainable social impact, social good kind of vibe. So if you’re starting a company like that, I mean, Unilever bought Ben and Jerry’s, which is from Waterbury, I believe, and Seventh Generation, which is from Burlington, and I think that you’re going to see a lot more purchases of companies that have this kind of social mission, for the reasons about outline, and for the fear of missing out reasons, as well by corporate execs. But I think that there is a niche that that they can own.

Jay Clouse 54:01
I don’t think we’re saying separate things. I mean, all businesses these days are tech enabled, what I’m saying is, you know, you’re probably not going to have high tech companies in mass, the way you would have, you know, he mentioned craft beer and spirits, and farm to table and social entrepreneurship and sustainable companies. Totally. And those things will probably be tech enabled. But it would be really hard for that town of, I’m not sure what the population was, I think you said at one point 40,000 Burlington, 40,000, it’d be really hard for them to start swinging with even Pittsburgh, you know, like a lot of things have to happen and really accelerate. And is that even the priority for a place like Burlington, where a lot of people who are coming to live there may be coming to live there precisely for the reasons that make it less likely to be a high tech hub. I’m saying I think the same thing that you’re saying maybe with a little bit more of a bite, that all these cities are more leaning into what makes them uniquely them, and don’t need to necessarily aspire to being a smaller version or second coming of Silicon Valley. I would agree with that.

Eric Hornung 55:11
I would agree with that and I don’t think that’s bad for investor returns, either. I think that regardless of what your specification is, there are still going to be billion dollar exits out of places like this.

Jay Clouse 55:23
Something else that came out of this conversation that I have zero experience with, but it’s really interesting, conceptually, is this fact that Vermont as a state is close to being upside down on pension obligations.

Eric Hornung 55:35
That to me, is every state in the United States

Jay Clouse 55:39
in regardless like that is a concept is such a scary, inaccessible thing that I’ve dedicated no mind space to. But it’s similar to the conversation around public utilities and infrastructure. And some people saying, you know, the future of all American cities is Detroit. In some ways. I have no idea what the future of American cities 20 years from now, 30 years or now looks like from a municipality standpoint, with things like pensions that are owned or infrastructure that needs to be replaced. Yeah, anyway, that was just something that I haven’t spent a lot of time talking about won’t come up a lot on this podcast. But I like being exposed to ideas and problems like that.

Eric Hornung 56:18
It’s very rare that on this podcast we talk about, besides maybe like the CareAlert episode, aging populations, and how they have direct impacts, because we’re so focused on growth in the future and new and what’s being built, which usually happens by people, and this is generality, but between their 20s and 40s. So we’re not usually thinking too much about the later years. And what that can mean, when you have a society that’s essentially filled with people who are nearing their retirement years, a lot of people talk about how the emerging markets have so much potential because the average age in emerging markets is something like 23, whereas in America, it’s 37, 38 years old. So youth is definitely a growth factor, a potential growth factor. But youth also doesn’t usually have capital. So Vermont has a unique advantage here in that they likely have a lot of older people who have some sort of retirement savings to invest back in the local ecosystem. Where as some younger cities might not have that.

Jay Clouse 57:18
And yet Bob’s point to us about his $50 million fund is that 85 to 90% of it is coming from outside the state of Vermont. So I wonder if that is a necessity versus kind of the stated mission of Vermont Works of revitalizing the area and taking almost a centrifuge style approach of getting other areas outside of Vermont invested in literally invested in the the ecosystem of Vermont?

Eric Hornung 57:46
My guess is, it’s mostly Bob’s network having been in private equity. He’s probably very well connected to New York, New Yorkers like to go up to Vermont to vacation. And there is a natural, yeah, let’s give some money over here. We know Bob, we trust Bob, he has 35 years in private equity. He knows what he’s doing. But that’s just my guess.

Jay Clouse 58:06
Well, I enjoyed getting outside of our typical circles here and learning about Vermont from Bob, I’m excited to check out the Vermont innovation Commons when it’s complete, and we go on our upside tour. Maybe on our upside tour, we start hitting some of those 13 states, you’ve missed Eric, we need to start talking to people from some of those 13 states. You’re right. Well, guys, we’d love to hear your thoughts on this one. If you have any thoughts for us, or feedback, you can tweet at us as always @upsideFM or email us hello@upside.fm. And we’ll talk to you next week.

Interview begins: 06:34
Debrief begins: 49:48

Robert Zulkoski is the Chairman and Managing Partner of Vermont Works.

Vermont Works is an Independent Alternative Investment Firm Supporting Vermont’s Job & Economic Development.

Vermont Works was founded in 2016 and based in Burlington, Vermont.

We discuss:

  • Social impact investing (8:54)
  • Why should one live in Vermont? (16:06)
  • How is Vermont Works different from other investing firms? (20:40)
  • Experiencing Vermont (32:52)
  • Young people needed in Vermont (41:11)
  • Vermont’s measures of success (44:32)

Learn more about Vermont Works: https://www.vermontworks.co/
Follow upside on Twitter: https://twitter.com/upsidefm