Cherry Tree Companies, LLC, made a remarkably good decision in 1991, when it invested $3 million in a start-up launched by Steve Shank and gave him a tiny chunk of office space to work in. Cherry Tree also showed remarkable patience. Most of the payoff didn’t come until 15 years later.
Today, Capella Education Company (Nasdaq: CPLA) is one of Minnesota’s highest-profile corporations. It went public in November 2006. On January 8 this year, it had a market capitalization of $936 million.
Minnetonka-based Cherry Tree benefited mightily. The firm’s fourth venture fund closed its books in 2007 as its most successful, thanks largely to its stake in Capella. The fund distributed $140.5 million to investors. They put up $16.2 million.
What’s more, Capella was just the beginning of a rare hat trick that Cherry Tree pulled off over a 13-month stretch of 2006–2007. Three of its portfolio companies slipped through that narrow window of opportunity in this decade’s lackluster market for initial public offerings: Capella, based in Minneapolis, Dolan Media (NYSE: DM), also in Minneapolis, and Titan Machinery (Nasdaq: TITN), in Fargo.
That’s a strong piece of the action for Cherry Tree. Consider that only 15 Minnesota companies had gone public in the six years before Capella did.
In each case, Cherry Tree and its investors put about $3 million into the company and cofounded it with management. Tony Christianson, Cherry Tree’s chairman, and Gordon Stofer, CEO, won’t disclose their firm’s internal rates of return on the investments. Still, they make it clear that all three have been big winners for Cherry Tree. Capella and Dolan, just two of 15 companies in Cherry Tree IV’s portfolio, accounted for 80 percent of the $140.5 million distributed by that fund.
But the hat trick isn’t “the real story” about Cherry Tree, Christianson says. What sustained the firm and made the investment strategy work, he says, was the 50/50 partnership that he and Stofer have preserved since they founded their company in 1980. That, and a still-morphing business model. What began as a venture capital firm has become a diversified operation that includes investment banking and investment management, and now plans to take shorter routes to public markets with shell-company and special-acquisition transactions.
A Partnership Forged
To their partnership, Stofer and Christianson bring similar styles and backgrounds, but complementary skills. Stofer, 61, directs operations. Christianson, 56, is the strategist.
“Tony Christianson is a guy who sees around three or four corners,” Steve Shank says.
