After struggling through legal battles with some of its investment companies, other investments made by the Norfolk-based publicly traded small business investment company around the same time are finally maturing, a sign that more revenue should be flowing in. Its long-stagnant stock price has responded favorably to the activity, increasing more than 70 cents per share over the last month.

Waterside’s relationship with AnswerNet began in 1999, through an investment of a loan worth $550,000. A second investment worth $700,000 was made in February 2000. Martin Speroni, Waterside’s president, said AnswerNet paid back the initial $1.25 million and an additional $5 million.

“We have all the cash that these people said they would pay us,” Speroni said.

As part of its business model as an SBIC, Waterside not only loans money to its investment companies, it also takes an ownership in each, shares of which are known as warrants. If all goes as planned, the loans Waterside makes to the company will spur its long-term growth, ultimately increasing the value of its warrants.

In March 2003, AnswerNet began to buy itself out of the relationship by purchasing the warrants back from Waterside.

AnswerNet bought back its warrants using an additional loan from Waterside, Speroni said. AnswerNet was then able to refinance its loan from Waterside at lower interest rates, as SBIC rates tend to be substantially higher than typical lenders.

Gary Pudles, president of AnswerNet, said the company used the loans to rapidly expand through a number of acquisitions. The company now operates 55 call centers in 23 states and Canada. The money from Waterside helped jump-start the acquisitions of half of those call centers, Pudles said.

Waterside recently received payment from the exit of another of its investment companies, Speroni said, and it expected to be paid off by yet another on June 29.

“It’s becoming time in our life cycle with our clients that these should be rolling in,” said Lin Earley, Waterside’s CEO.

Upon taking the helm of Waterside in April, Earley said many of the company’s investments were made within close proximity of each other, a time line that is cause for droughts in its income and sudden streams like it says it is now experiencing.

Waterside’s stock price remained in a holding pattern around $4 per share up until June 1, when it jumped to $4.25, its highest level in more than a year. The stock has since peaked at $4.73 a share and closed on June 27 at $4.70.

“There are only two directions it can go,” Earley said of the upward trend.

Commenting on the $5 million profit, Speroni said the AnswerNet deal was a textbook case of how the SBIC model can benefit both lender and borrower.

“We did all right,” Speroni said. “The entrepreneurs did wonderful.”

Pudles commented on the pros and cons of dealing with venture capital firms and SBICs and why he went that route in the first place.

The reason Pudles chose to get a loan through an SBIC or VC, he said, was “speed.”

“We had the opportunity to buy a very large company that was distressed,” Pudles said. “We were able to close the deal with Waterside in six weeks.”

But he warned that SBIC and VC loan terms are not favorable for every small business.

“It’s a very expensive way for an entrepreneur to grow,” Pudles said. “The best advice I can give anybody is to understand the personality of the firm you are going to be dealing with because you are going to be with them for a long time.”

Speroni said the same is true for the investor.

“I think the main problem with all VCs is finding the right entrepreneurs to invest in,” he said.

“We’re talking about human beings so there are different personalities,” that must be sorted out along the way, Speroni said.

Waterside is currently involved in litigation with New Dominion Pictures, a Suffolk-based television production company in which it invested approximately $3 million. Upon attempting to exit its investment in New Dominion, disputes over the true value of the company arose. The lawsuit is ongoing in Norfolk Circuit Court. 
IB