Category: From the Deal Team (page 1 of 10)

Entrepreneurs—Wary of Dilution? A Perspective to Consider

David Wurzer PhotoDavid Wurzer
Executive Vice President and Chief Investment Officer

Most entrepreneurs are loath to give up equity—anyone who has ever watched Shark Tank knows that. And it makes sense. After all, it’s your breakthrough idea, your money (and sometimes your family’s and friends’ money), your sleepless nights and your hard work. When you’re pouring all that into a venture, you should be the one to call the shots and reap the spoils. It stands to reason that the more equity you take—in other words, the more ownership you give away—the less control you have over your business. And of course, you stand to make less money upon exiting, right? Continue reading

Connecting the Dots: Why I Attended the New York Venture Summit

Douglas Roth
Senior Investment Associate
Connecticut Innovations

Connecticut Innovations sponsored and attended the recent New York Venture Summit, hosted by youngStartup Ventures. This was the 13th annual event and attracted nearly 600 attendees across three main technology tracks: life sciences, high technology and clean technology. I find these events to be invaluable. I did not go to New York expecting to meet my next portfolio company, though. While the quality of ventures presenting at the event is excellent and CI has, in fact, invested in entrepreneurial teams met at previous youngStartup venture summits, I mainly attend these events for another important reason: to connect the dots.

To connect the dots is to understand the relationship between different ideas, to recognize opportunities where value can be created by linking different individuals or entities, and to anticipate where markets are headed. Connecting the dots is a critical role of investors in and advisers to early-stage companies.

During the New York Venture Summit last week, I met many professional service providers – lawyers, accountants, management consultants etc. They can be a valuable source of deal flow for early-stage investors. Attorneys, for instance, have introduced many entrepreneurial ventures to CI. Before a company seeks funding, the company’s law firm usually helps an early-stage venture file its articles of incorporation or apply for its first patent. CI routinely brings in professional service providers to brief the investment team on the latest legal or accounting issues, share trends on where technologies and markets are headed, and provide insights on the environment for M&A transactions. Professional service providers can also support our portfolio companies directly and be hired by CI to provide due diligence expertise.

Venture capital firms, representatives from corporate venture capital departments, angel investors and other sources of capital participated in various panel discussions, acted as coaches during practice pitch sessions, judged the seven-minute pitches and roamed the halls exchanging business cards. Building an investor network is critical to CI’s success. We assemble investment syndicates for most of our deals, and having a wide variety of investors to contact greatly increases our ability to identify the right partners to bring in. These relationships have also resulted in introductions to companies that other VC firms have invested in. With respect to our investment interests, CI is more geographically focused than technology focused, which is generally the converse of most VC firms. Building close relationships with diverse investors allows us to share deal flow with experts in a particular space to get a quick first read on an opportunity and their perspective on the business model, competitive landscape and any key issues that should be the focus of further due diligence.

There were numerous entrepreneurs at the New York Venture Summit, representing Belgium, Israel, France, the Netherlands, the United Kingdom, Canada and the United States. I find it valuable to meet as many entrepreneurs as possible and learn what their companies are working on. Not only could one of these companies potentially be an attractive investment opportunity for CI, but any one of them could be a valuable partner (supplier, customer or otherwise) to a CI portfolio company. Learning what a company does (and why) and how a company sees the market growing and evolving is helpful competitive business intelligence. I personally find it intellectually fascinating to learn what problems companies are trying to solve and how they are trying to solve them.

Connecting the dots can be reaching into your network and connecting a contact with a key open management position, or introducing a portfolio company to a potential partner, or learning what a company is developing and anticipating how the market may or may not need that solution in the future. To connect the dots, one must establish relationships, gather information and learn about companies that haven’t yet hit the mainstream. Seeing the potential of a young startup, advising early-stage businesses as a board member, building business development relationships and positioning portfolio companies for successful exits is all about connecting the dots. The recent New York Venture Summit – with the contacts I made and things I learned – was invaluable in helping me connect the dots.

Two Heads Are Better than One

Douglas Roth
Senior Investment Associate
Connecticut Innovations

Teamwork is critical to the success of venture capital investing. The VC perspective on teamwork, however, is perhaps more diverse than one might imagine. In any entrepreneurial venture that a VC is considering investing in, there must be a management team. Even the brightest scientific mind or most successful serial entrepreneur must be surrounded by a diverse group of professionals that complement each other in experience and other important character traits. They must also work together as a team – pulling together when challenges arise, aligning interests, and being willing to both offer and accept the ideas, suggestions and criticisms of teammates. I am rarely interested in backing an entrepreneurial venture of one.

But there are other areas of teamwork that are just as critical to the success of a VC firm. Within the firm itself, the investment professionals must work together. The Deal Team at Connecticut Innovations, for example, meets weekly to discuss both prospects and portfolio companies. By sharing the concerns we uncover during our due diligence or the issues discussed at recent portfolio company board meetings, we benefit from the experience and perspective of our colleagues. At times, we have even asked other members of the Deal Team to meet with the prospect or portfolio companies we are responsible for, in an effort to bring another set of eyes and a complementary skill set to the table to assist these companies.

Yet another area requiring teamwork is with VC co-investors. A syndicate of investors can do so much more to ensure the success of an early-stage company than any one investor on its own. Investors share deal flow and help each other with due diligence. Multiple investors working together offer a broader perspective in the portfolio company’s board room and bring to bear a larger network of valuable contacts.

Peter Longo, Chris Penner, who is CI’s newest Deal Team member, and I recently traveled to Boston. While in town, we attended a networking reception hosted by the law firm Goodwin Procter, the New England Venture Capital Association’s breakfast presentation by Facebook COO Sheryl Sandberg, and three separate meetings with Boston-based venture capital firms. Events like this are great opportunities to catch up with old friends and make new contacts, and the meetings with VCs allow us to solidify relationships and exchange investment prospects.

The entrepreneurial environment in the greater New England area, and Connecticut in particular, is thriving. Nevertheless, it is very difficult and can take a considerable amount of risk capital to successfully launch a profitable, sustainable business. CI can support companies only so much, but working together with others, we can accomplish far more. Co-investors can provide part of the capital necessary to bridge a company throughout the inevitable challenging times. Co-investors can suggest management candidates to fill unexpected gaps in the entrepreneurial team.  Co-investors can make business development introductions that contribute to the growth of the company. Of course, teamwork among co-investors is more than simply pooling capital. By working together toward a common objective, multiple investors can validate the cliché “two heads are better than one.” Generally, that common goal is to launch and grow a business such that investors can exit in a reasonable timeframe and earn returns commensurate with the investment risk. As an evergreen fund investor, CI relies on liquidity events from previous investments to recycle its capital, fund its operations and invest in future entrepreneurs.

To date, CI has invested alongside more than 60 other VC firms. With the kinds of productive discussions we had during our recent trip to Boston, Peter, Chris and I hope to increase this number, boost our ability to leverage CI’s investments with capital from other firms, and further support promising entrepreneurial companies here in Connecticut.

Skystream Markets Launches Pioneering Platform for REC Trading

Sometimes innovations at the edges of clean tech (such as software) make more of an impact than those at the center (such as generation technologies). One example of this is the recently launched innovation RECstream, an over-the-counter transaction platform for renewable energy credits (RECs) developed by Skystream Markets, a Connecticut Innovations portfolio company. This platform creates a verifiable market price for RECs that traders can act on without moving the market. This feature was missing from the market until now, and is key for institutions that need to accurately value their REC portfolio.

Being able to accurately price RECs  is important because entities such as banks have to routinely evaluate their assets (mark to market), to ensure they are within their risk allocation limits for various securities. When these institutions can accurately price their REC assets, their risk is reduced and institutions will be willing to hold more RECs, thereby increasing the scope and scale of the REC market. Because RECs are a key part of any renewable generation project’s pro forma, anything that helps strengthen the REC market will improve the economics of clean generation and, in the end, enable more clean generation projects to get funded.

Read more about the RECstream platform in Skystream Markets’ recent press release.

Patrick O’Neill
Director, Investments
Connecticut Innovations

CI Reaches Out Beyond Connecticut Borders

While Connecticut Innovations’ risk capital/equity investment team focuses primarily on assisting homegrown technology entrepreneurs and startups, we are stepping up efforts to reach out to and recruit entrepreneurial ventures residing beyond our borders – in the U.S. and other countries. We have been active in recruiting and relocating new ventures for many years, so we will build on that experience in the months ahead. In the past five years, we have recruited 19 companies from six states and four foreign countries. Last year alone, we recruited six companies to Connecticut.

Yesterday we announced our investment in one of these companies, Advent Technologies Inc. (Advent), which is in the process of relocating its headquarters from Athens, Greece, to East Hartford, Connecticut. The company also plans to establish R&D and manufacturing operations here in Connecticut.

We welcome Advent, a developer of innovative renewable energy technologies, to Connecticut and look forward to assisting the company as it settles into its new home in East Hartford.

To learn more about Advent, see our CI press release and the Advent website.

Russell E. Tweeddale
Managing Director, Investments
Connecticut Innovations

CI and Portfolio Companies Participate in Stamford Event

Patrick O’Neill, director of investments for Connecticut Innovations, is pictured third from left on the venture capital panel.

There were entrepreneurs from more than 60 companies seeking various stages of funding and networking at the recent FundingPost event held at the Stamford Innovation Center on September 6. Two of Connecticut Innovations’ portfolio companies, deets Inc. and Medical Device Logistics LLC (MDL), were among those present. It was apparent that entrepreneurship is thriving in Connecticut, and there was no shortage of seasoned entrepreneurs and angel and VC investors willing to guide and share their insights, and ultimately perhaps invest.

After welcoming remarks by Joe Rubin, executive director of FundingPost, Greg Slamowitz, founder and co-CEO of Ambrose Employer Group LLC, took the stage and delivered the keynote presentation. He enthusiastically shared his experience on the importance of building a business that is client oriented and with leaders and employees who are “engaged, aligned, empowered and on fire.”

The event also included two panel discussions. The first was on crowd funding, wherein industry experts shared their views on pros and cons of crowd funding. There was no doubt that entrepreneurs who traditionally have had a difficult time raising capital could benefit from crowd funding. However, it certainly was not a solution for every business model.

Before the second panel discussion, on venture capital, a time was set aside for startups to offer pitches. Entrepreneurs from more than 10 companies, mostly IT and software-related, pitched their business plans to investors.

One of the speakers on the venture capital panel was CI’s own Patrick O’Neill, director of investments. Angel and VC investors shared their thoughts and advice on the dos and don’ts of getting a startup funded.

The event ended with a networking reception for entrepreneurs and investors. Events like this bring startups and investors together, giving entrepreneurs a chance to network with investors and investors an opportunity to learn about startups, in a less formal setting. Overall, it was a win-win combination.

Lillian Mu
Investment Associate

What Startups and Space Exploration Have in Common

I recently met with Rich Mavrogeanes, founder, president and CTO of Discover Video, at his new Wallingford offices. Rich recently moved the company out of his basement, and it now occupies a facility that includes offices, lab space and room to grow. He has also been able to expand the team with much-needed sales talent. It was truly satisfying to see the early results of CI’s recent investment in the company and to shake the hands of those new employees whose jobs we helped make possible.

Rich and I are both enthusiasts of NASA and space exploration, and it was a coincidence that we met just a couple of days prior to the landing of Curiosity, the Mars rover. It struck me that there are many similarities between the high-risk, high-reward business of launching a successful startup and successfully landing a spacecraft on Mars.

There always seem to be more things that can go wrong, that will cause you to crash and burn, than can go right. As a serial entrepreneur, Rich has learned through his previous experiences, such as starting and leading VBrick, how to overcome the many challenges an early-stage company will face. Tenacity and a positive attitude are what keep every entrepreneur working doggedly toward success. The “failure is not an option” mentality holds true equally at NASA as it does at Discover Video.

The size, weight and power requirements of Curiosity drove many of the design decisions.  When you are planning to land a self-sustaining vehicle several million miles away, there are many constraints to deal with. Similarly, Discover Video launched and built its business with limited resources – capital, employees, etc. By listening to their customers, Rich and his team have been able to focus on developing products that the market needs. This discipline and focus have allowed the company to develop a broad portfolio of streaming video solutions that are affordable and easy to use, all within the constraints of a young company.

In today’s difficult economic times, it is inspiring to see an individual taking risk to achieve his entrepreneurial goals. Maybe a future Martian rover will stream live video from the surface of the red planet back to earth via a Discover Video Multimedia Encoder…

Doug Roth
Investment Associate

Two Years later: The ‘Gift’ of the Dodd-Frank Act

In July 2010, the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law. It provides for extensive government oversight and regulation of the financial industry in order to protect consumers and avoid future crises in the financial industry. Among other things, the act emphasizes transparency and accountability.

Now, two years later, as a result of the law, many community banks and credit unions are struggling to read, analyze, and interpret the constant additions to regulatory compliance standards. It takes an innovative entrepreneur to see a potential business opportunity in the mire of government regulations… And that is exactly what Continuity Control CEO Andrew Greenawalt did. He and his team at Continuity Control, a CI portfolio company, developed a compliance platform that includes advanced software to help community financial institutions manage the burden of compliance in an ever-changing landscape of regulations. Ironically, the Dodd-Frank Act has been a “gift” that has created opportunities and generated demand for the company’s software-as-a-service platform.

Read more about Continuity Control in CI’s Press Room. Connecticut Innovations recently made a $1 million follow-on investment in the company.

Douglas Roth
Investment Associate

CI Coaches, Scouts Entrepreneurs at the New York Venture Summit

For two days at the end of June, hundreds of VCs, angels, bankers, incubators and startups gathered at the Digital Sandbox in downtown New York for the 2012 New York Venture Summit. The conference, one of the largest of its kind, was orchestrated by youngStartup Ventures to assist growing companies in accessing angel financing and venture capital investments.

Fellow investment associate Douglas Roth and I had an opportunity to attend and participate in group coaching sessions with entrepreneurs. It was a great opportunity to get to know scores of talented entrepreneurs on the East Coast – and beyond – and network with others involved in the funding and growth of early-stage businesses. Also present was CI portfolio company Precipio Diagnostics, a cancer diagnostics lab based in New Haven.

The venue was crowded with a diverse group of entrepreneurs. In attendance were companies from clean tech, IT, biotech and social media. The buzz and enthusiasm around the conference was palpable and reflected a national trend in venture capital investments into innovative startups. Recently, the University of New Hampshire Center for Venture Research in a study that followed angel investing in the U.S. reported that last year over three hundred thousand angels invested over $22 billion into sixty-six thousand companies.

The driving idea behind the summit was getting VCs to coach entrepreneurs on how to effectively pitch their business models to prospective investors in seven minutes or less. The time in between coaching sessions and presentations gave all involved a chance to network and exchange visions and ideas. At the conclusion of the summit, youngStartup Ventures presented awards to recognize the best presenters in each of the three tracks – cleantech, life sciences and tech.

In the past couple of weeks, Doug and I have been following up with some of the most promising investment prospects from the summit. We look forward to continuing our discussions and meetings – and learning more about these exciting companies!

Matthew Storeygard
Investment Associate

CI Supports Web-based Accreditation Solution

Educational institutions have a fiduciary responsibility to monitor learning outcomes and report such assessments to accrediting agencies. With a market of 4,000 universities, 130,000 K-12 schools, and 3,000 institutions with institutional review boards (IRBs) in the United States, the potential market for tools to manage the entire process is in excess of $3.5B.

Axiom Education has developed a web-based SaaS solution called “Mentor” that supports higher education and K-12 accreditation processes. The company’s solution is faster, simpler and cheaper than current alternatives and integrates course management, learning objectives, curricula, assignments and portfolios with assessments for accrediting agencies. Mentor features the only fully integrated course management, e-portfolio and assessment system. Mentor also serves accreditation needs with its Faculty Activity Reporting system, an IRB system and a variety of other features for faculty, students and staff.

Last week we announced that Connecticut Innovations provided Axiom Education with pre-seed funding. Our funds will help the company continue product development, sales support and marketing analyses.

The Mentor platform was developed at Fairfield University (Fairfield, CT) where it currently runs 85% of its courses. Axiom Education owns Mentor under an exclusive global licensing agreement with Fairfield University. Axiom’s chief product officer, Dr. Curt Naser, is the original creator of the Mentor system. He also serves as facilitator for academic assessment and associate professor of Philosophy at Fairfield University.

As a graduate of Fairfield University, I am delighted to monitor and advise Axiom Education on behalf of CI.

Learn more about Axiom Education and CI’s investment in our press release.

David Guerrera
Investment Analyst

Older posts