When then president JosÈ MarÌa Figueres needed an example of Costa Rica's entrepreneurial spirit for his 1997 State of the Union address, he turned to a young engineer named Guillermo Pereira.
Pereira's company, Fortech QuÌmica, embodied everything Costa Rica was pursuing in its business promotion policies: private initiative and innovation, government support for research and exports, and collaboration between local and multinational industry.
It was also a great example of the benefits of equity financing.
Fortech is one of eight investments made since 1996 by the CorporaciÛn Financiera Ambiental (CFA), the first venture capital fund in Central America and still the only one that invests exclusively in small-scale environmental companies. The IDB-administered Multilateral Investment Fund has a $4.85 million stake in CFA.
"We're out to show with concrete examples that there is no conflict between the desire to make a profit and a project that will help the environment," explains CFA Director Leonardo RamÌrez.
The $300,000 in equity and loans CFA has invested in Fortech are key to the company's promising future. Pereira started Fortech in 1994 using facilities provided under a government program to encourage research and development. Working with the Motorola Company plant in San JosÈ, he invented an environmentally safe solvent to polish quartz crystals used in cellular telephones, leading Motorola to stop using a more expensive and toxic imported chemical solution. Motorola estimates that the new solvent has saved it $2 million over the past two years.
"We realized immediately that having a local supplier would save us time in ordering materials and in adjusting the product later as our systems evolve," explained AndrÈs Montes de Oca, Motorola materials manager in San JosÈ. "Even so, it was a little risky for a multinational to entrust something of this magnitude to someone who had never sold us anything before."
By 1997 Fortech was selling 10,000 liters a month of its biodegradable solvent to Motorola, earning annual sales of more than $1 million, up 50 percent over the previous year. With a new product line on the way and increasing export demands from countries such as Venezuela and China, Pereira needed working capital and a new plant. After several banks said no, he turned to CFA.
"The problem is that our principal activity is know-how. To get a loan through a bank you need real collateral," said Pereira.
As a shareholder and partner, CFA has helped Fortech to reorganize its administrative and accounting procedures, strengthen its international contacts, and obtain a U.S patent for Biotech, the product it sells to Motorola.
The opening of Fortech's new plant will coincide with its departure from the Enterprise Incubation Center, the government-sponsored R&D industrial park in the province of Cartago. As President Figueres told to the nation, Fortech was the first company to "graduate."
"My dream is to become a company of international scale," says Pereira. "The investment came along just at the right time."