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Rochester ED $5 million fund supports start-up companies 

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October 18-20, 2023 / Tucson, AZ
The annual summit for research institution gap fund and accelerator programs, including proof of concept programs, startup accelerators, and university venture funds

The Story

For the past five years, the Rochester Economic Development Fund has been striving to create new local jobs by financing business start-ups, like GoRout and Vyraid.

The fund, financed with $5 million of local-option sales-tax dollars, has doled out more than $2.5 million in loans, investments and grants to 15 early stage companies and business incubators.

It is managed by Rochester Area Economic Development Inc. with oversight by the Rochester City Council. Any investment of $75,000 or more much be approved by the city council.

RAEDI President Gary Smith was one of the advocates for the creation of the fund in 2010. At that time, Mayo Clinic’s Office of Intellectual Property had launched 42 companies based on Mayo-created technology and none of them was based in Rochester.

The goal of the fund was create to create a “sticky factor” to keep start-up companies here.

“It’s hard to deny that we’ve put a dent in that,” Smith said. “I think it (the fund) has exceeded our expectations.”

In 2017, the fund provided $240,000 for four companies: Vyriad, $125,000 ; Craniovation, $50,000; Smart LabHood Solutions,$15,000 and SparkDJ, $50,000.

Some of the investments in the past five years have paid off.

ReGen Theranostics and LiquidCool Solutions have each created 12 new jobs. The fund invested $165,000 in ReGen and $80,000 in LiquidCool. Ambient Clinical Analytics, which has reportedly created 10 jobs, received $250,000.

‘It will take a little while’

However, the fund has not yet launched the hoped-for hot company that needs dozens or hundreds of local employees.

“We have to be patient on the job creation. We’re investing sometimes at the ‘Proof of Concept’ stage. Often we’re some of the first money a company gets,” Smith said. “The job growth will come, but it will take a little while.”

Some of the companies have created jobs, but not all of the jobs are local. GoRout, which has paid off its short-term “convertible loan” $74,950 loan from the fund, added 10 jobs. However, only five are in Rochester.

The owners of Xcede Technologies, which received $200,000 from the fund, recently reported to RAEDI that it is moving to Seattle, Wash. Xcede had created only one job, but it had leased 25,120-square-feet in Rochester.

“This (relocation) is unfortunately one risk we can’t mitigate. We could covenant automatic repayment in these cases, but that would likely break the company,” explained Xaiver ‎Frigola, RAEDI’s director of entrepreneurial programs and a manager of the fund. “Instances like this are minimal and the worst case is that while we lose the company having a presence here we still have the opportunity to realize a financial return.” 

SparkDJ, a music app firm which received $50,000, is currently participating in the 2018 music class at the TechStars incubator in Los Angeles. Depending on the experience of the founders of the three firm, SparkDJ might come back to Rochester or it might not.

Frigola says the fund does not want to put too many limitations on the companies, because they want them to be successful. That means allowing them to move out of the area.

However, Smith is clear that the goal is for the start-ups to benefit the Rochester area economy.

“We invest in these companies, because we expect that they will stay here and grow here,” he said.

Just 1 of 15 recipients has folded

Only one of the 15 firms financed by the development fund has folded. HunHu Healthcare, which was given $12,500 in 2016, has closed up shop.

“The only loss we’ve had was the smallest investment we have made,” Smith said. “That’s because we knew it was risky. That will be written off this year.”

In contrast, two other companies — Imanis Life Sciences and Lagen Laboratories — have paid off their loans from the fund. Lagen had a $100,000 loan and Imanis had a $50,000 one. Both medical technology firms are now based in northwest Rochester. Lagen has three employees and Imanis has eight.

Another story of the fund getting a positive return is Smart Labhood Solutions, which was given $15,000. The business, owned by Samuel Prabhakar, has a letter of intent from the University of Kansas for 81 units of its Ecodenser product. SLS has five employees on staff.

The development fund also issued grants to help launch the Mayo Clinic Business Accelerator and the Advanced Product Incubator, which is part of the Mayo Clinic Center for Regenerative Medicine.

The fund provided $100,000 to help open the Mayo Clinic Business Accelerator on the third floor of the Minnesota Biobusiness Center in 2013. Mayo Clinic provided another $100,000. Several young companies have “graduated” from the accelerator including Resoundant, Imanis and GoRout.

Another $600,000 was provided to build out the Advanced Product Incubator in 3,000 square feet of laboratory and office space on the third floor of Biobusiness Center.

The Advanced Product Incubator has spun off one bio-tech company called Rion. Created by Mayo Clinic’s Dr. Atta Behfar and Dr. Andre Terzic, Rion has taken over the lease of a 2,000-square-foot office on the skyway level of the Minnesota BioBusiness Center. Both doctors are leaders of the Mayo Clinic Center for Regenerative Medicine. Terzic is the director of the center and Behfar is the deputy director.

Looking at what the fund’s investments and grants have spurred, Smith says it is on track to be what he envisioned so many years ago.

“Overall, we are really pleased where we are to date,” he said. “And I think it will only get better.”

Source: Creating a ‘sticky factor’: $5 million fund supports start-up companies | Local News | postbulletin.com

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