Hartford Business Journal

8 Hartford Business Journal • February 22, 2016 www.HartfordBusiness.com FOCUS BANKING & FINANCE Tax credit shift boosts 2015 venture investment Karen Sackowitz Special to the Hartford Business Journal C onnecticut had another strong year in venture capital funding in 2015, although deal volume was down from a year earlier. Venture capitalists injected $446.7 million in Connecticut companies last year, down from $563.9 million in 2014. Even still, 2015 represented the fifth highest annual investment total in the last 21 years. Overall, 57 Connecticut com- panies received funding during the year, compared to 56 in 2014, according to the latest Mon- eyTree report, a joint effort of PricewaterhouseCoopers and the National Venture Capital Association (NVCA), using data from Thomson Reuters. Nationally, venture invest- ment hit $58.8 billion in 2015, the second highest annual invest- ment total in the last 20 years. Eric Kogan, a partner and chair of the business transac- tion group at law firm Robinson + Cole, which has offices in Hart- ford, New London and Stamford, said many of the Connecticut deals are fueling startup ventures. "Companies benefitting most from VC activity are those in technology, software and healthcare technology [industries]," said Kogan, who added that Connecticut Inno - vations, the state's quasi-public venture capital arm, was the most active investor dur- ing the year. Last year's venture capital activity, Kogan said, was helped partly by changes to the state's Connecticut Insur- ance Reinvestment Fund, which was renamed the Invest CT Fund. It provides tax credits to insurers that invest in Connecticut businesses through approved fund managers. In 2015, state lawmakers boosted the aggregate amount of reinvest- ment tax credits available to $350 million from $200 million, with the majority of funding desig- nated for companies with fewer than 250 employees and less than $10 million in revenue. According to Kogan, the extra funding was completely drawn down. "Some VC groups that are highly active in this fund include Advantage Ironwood, Stonehend- ge Capital and Enhanced Capi- tal," Kogan said. "Most partici- pating companies are early stage, with some later stage, focused on areas like emerging innovation and green technology." Products to market Farmington-based Avitus Orthopaedics Inc. raised at least $350,000 in three separate venture deals last year. In 2016, the company plans to launch technology that will allow surgeons to harvest autologous bone graft (autograft) using a minimally invasive approach. Autograft is the soft bone found within the hard white outer shell of most bones, that surgeons often use in another part of the body that requires fusion or healing. "In a medical device environment, often there are large upfront costs to get a product to market," said Maxim Budyansky, Avitus' chief technology officer and co-founder. "We needed to survive to get to that point using VC funds and grants. For early stage companies it's critical to get to the point of a viable business model." Avitus was founded in 2011 and is "finally able to launch [its product] and see the impact we can have on patients," Budyansky said. Another company launching new technology with the help of VC funding is Manchester-based Woven Orthopedic Technologies. The medical device firm will be introduc- ing a product designed to help orthopedic screws better adhere to bones. In 2015, the company raised $6.6 million in capital from a con- sortium of investors, which has been used to invest in product development and meet strin- gent regulatory requirements needed to bring their product to market, said Brandon Bendes, Woven's vice president of strat- egy and finance. The company has raised addi- tional funds this year. Woven is now preparing to launch its product in Europe in late 2016, and in the U.S. in 2017. Its plastic woven tube, which sits between a screw and hole in the bone, aims to reduce the human and economic costs of complications caused by inadequate screw fixation. Kogan said the continued VC-backed growth in Con- necticut is helping the state attract more startups. "We have the makings of a robust emerging companies investor ecosystem right here in Connecticut," he said. "Between Connecticut Innovations and other state inno- vation programs, it's a good place to be." n Q&A Tips for a successful crowdsourcing campaign Q&A talks with Dave Benoit, co-founder of Hartford startup Wearsafe Labs, which is developing wearable safety products. He will be a featured speaker at a Feb. 24th crowdfunding event at the Town and County Club in Hartford, hosted by LootScout. Q: You're perceived as an expert on crowdsourc- ing for business. Let's begin by having you explain what crowdsourcing is and why it's gaining popularity. A: Crowdsourcing isn't really a new or novel concept at all. When you need to get some- thing done, naturally one of your first instincts is to reach out to people that might be able to help. What's really changed is the method of seeking that help. Twenty years ago your crowdsourcing effort was to pick up the phone and call someone you knew. Today, online plat - forms like Kickstarter give you access to a near limitless audi- ence of people who are willing and able to help if they feel con- nected to your idea. Q: What are some of your top tips when it comes to crowdsourcing? A: Know what you're hoping to gain from your crowdsourcing effort. It may seem too obvious to mention, but I've seen campaigns flounder when they lack focus. Startups always have a plethora of needs but a crowdsourcing cam- paign won't solve them all. Know what you need the most and focus the campaign around that. Maybe it is just a dollar amount, market exposure, proof of concept, etc. Q: You raised over $100,000 on Kickstarter (along with $4 million from angel investors) to begin Wearsafe Labs, which is developing wearable safety products, including an emer- gency alert button. What made you choose Kickstarter as your crowdfunding source? A: Kickstarter was an obvious first choice, mainly due to their popularity and loyal community. That said, we spent a consider- able amount of time researching other platforms before choosing Kickstarter. In terms of using them again, it would depend on the product and campaign goals. There are a lot of good platforms out there today. Q: What were some of the things you did right and some of the things you did wrong in the process of raising $100,000? A: One of the best things we did was not to underestimate the amount of work the campaign would entail. Crowdsourcing is not free money. To put together a professional campaign that will resonate with potential backers takes an insane amount of time, energy and capital. We hired a crowdsourcing con- sultant, professional video produc- ers, and PR help. We had a full-time creative director working on the campaign and my co- founder, Phill Giancar- lo, and I were involved on a daily basis as well. One of the things we could have done better was to start preparation earlier. If you're thinking of doing a crowdsourc - ing campaign, you can never get started too early. To do it right, plan on at least six months of prepa- ration, or longer. Q: Is crowdsourcing a pana- cea for startups having finan- cial problems? Can they expect an easier time funding from a variety of small sources? A: Not at all. Statistically speak- ing, there are very few six-figure campaigns and even fewer million- dollar campaigns. Unfortunately, those are the ones that garner most of the press and publicity, but the truth is, most campaigns don't come close to reaching that level of success. A successful crowdsourcing campaign will actually bring about many challenges. For most suc- cessful campaigns, you've prom- ised a product to your backers and now you have to finish engineering the product, manufacture it, fulfill and distribute it to your backers and then support it, all while try- ing to create a real company that can survive once the crowdsourc- ing fulfillment is complete. Q: Are there certain kinds of businesses that shouldn't attempt crowdsourcing? A: I wouldn't say there are businesses that shouldn't attempt crowdsourcing, but certain types of businesses will have more challenges than others. The benefit of these online platforms is their enormous glob- al reach, so if you have a product that can appeal to anyone, any- where, you're poised to capitalize on that reach. Even if you have a niche product, that global reach enables you to find a larger por- tion of that niche than you could on your own. n DAVE BENOIT Co-founder, Wearsafe Labs CT Venture Capital Investment Totals Amount Invested Quarter 2014 2015 1Q 196,924,800 57,646,100 2Q 154,344,000 116,709,900 3Q 69,943,800 97,234,000 4Q 142,672,200 175,077,100 Total 563,884,800 446,667,100 S O U R C E : M O N E Y T R E E R E P O R T , A J O I N T E F F O R T O F P R I C E W A T E R H O U S E C O O P E R S A N D T H E N A T I O N A L V E N T U R E C A P I T A L A S S O C I A T I O N ( N V C A ) , U S I N G D A T A F R O M T H O M S O N R E U T E R S . Eric Kogan, partner and chair, business transaction group, Robinson + Cole Maxim Budyansky, chief technology officer and co-founder, Avitus Orthopaedics Inc. Brandon Bendes, vice president of strategy and finance, Woven Orthopedic Technologies Woven Orthopedic's woven plastic tube (shown above) helps orthopedic screws better adhere to bones. I M A G E | C O N T R I B U T E D ▶ ▶ ' Companies benefitting most from VC activity are those in technology, software and healthcare technology [industries].' Eric Kogan, partner and chair, business transaction group, Robinson + Cole

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