ROCKY HILL _ The state’s venture capital fund, prodded by investors suggesting a new direction, is scouting for high-tech funds where it can invest public money to broaden its network of technology-based startups.
Connecticut Innovations, which invests in startup bioscience, medical equipment and other high-tech companies, is responding to entrepreneurs, investors and others urging a different tack to spur business expansion and job growth.
“One of the biggest things that Connecticut in general can do is increase the venture capital presence and sources of financing,” said Sal Syed, chief executive officer and co-founder of Arccos, a Stamford-based startup that designs analytics to track and analyze a golfer’s game. “Connecticut has a lot of wealth. There should be more investing happening.”
By investing in venture capital funds, CI is looking to recruit investment funds from Boston, California, New Jersey, New York and elsewhere. Fund managers would be committed to invest state money in Connecticut businesses and open an office in the state.
“What we want to do is get on the map of some West Coast and New York firms that are not aware of the great companies that are getting going here,” said Catherine Smith, commissioner of the state Department of Economic and Community Development.
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Business owners such as Syed, investors and others attended dinners early this year in Hartford, New Haven and Stamford organized by CI soliciting their views. One proposal: Invest in what’s known as a fund of funds, an investment strategy in which a venture capital fund invests in other funds to broaden its reach.
“We’re trying get venture capital firms to invest and carry the water with us,” said Matthew McCooe, chief executive officer of Connecticut Innovations.
CI officials responded to a “consistent call from entrepreneurs” for new investment approaches tapping into a growing community of high-tech venture capital firms seeking cash to expand their investments in business startups, he said.
CI plans to invest between $2 million and $5 million in each of four to six venture capital funds over a decade, McCooe said.
It’s a different direction for CI, which during the state budget year that ended June 30, invested $24.5 million in 62 companies, with 26 that were first-time investments.
The new strategy is intended to broaden CI’s network of venture capitalists and entrepreneurs to increase the odds of startup business success. Successful startups stoked by investment _ from the state or private sector _ benefit tremendously when bought by a larger company or going public by selling shares.
CI’s effort to broaden its web of entrepreneurs and businesses included its work with more than 100 venture capitalists organizing and judging a competition in October among startup businesses for a $5 million prize in the form of state investment.
Venture capital funds and the startups they help finance offer the promise over the long term of sparking growth in lucrative industries and well-paid jobs in research, engineering and finance. And the startups “tend to grow much faster than the economy as a whole,” she said.
The companies in which the funds invest in Connecticut could raise $50 million or more in additional outside private capital, with CI’s investment a small portion of the total capital.
Connecticut needs experienced investors who can provide “expertise, contacts and cash” that will eventually lead to job creation and business growth, McCooe said.
Ryan Smith, an adviser to CI who is vetting prospective funds for investment potential, said the state is “casting a wider net” that includes several partners rather than one entrepreneur affiliated with a startup company.
Research will consider a fund’s financial performance, sectors in which they best operate, the fund manager’s ability and whether partners in the fund will work in Connecticut to provide “eyes and ears for opportunities,” he said.
Funds being considered are in areas such as life sciences, biotechnology, internet technlogies, medical equipment and other high-tech work.
Craig M. Crews, a professor of medicine at Yale University and co-founder of Proteolix Inc., a biotechnology company, said McCooe asked startup business owners, investors and others at the dinner he attended in Stamford “what has worked, what has not worked” in the state’s venture capital efforts.
State investment in a fund of funds is “providing the carrot” to lure venture capital funds to invest in Connecticut, he said.
“As the state continues to lose jobs in larger pharmaceutical companies, we still have a very deep and talented pool of drug developers in the state,” Crews said. “We need to find ways to engage them.”
Source: State Investing to Make Connecticut More Attractive to Tech Startups – Hartford Courant
