Hartford Business Journal

14 Hartford Business Journal • April 9, 2018 • www.HartfordBusiness.com By Matt Pilon mpilon@HartfordBusiness.com L ike a gambler confident in his long-term strategy, Connecticut Innovations doesn't sweat a bad bet. Losing — as much as $5 million on a single company in one in- stance — is part of the venture capital investment game. It's a process that can feel like a slog, particularly in the seven- to 15-year investment cycles that early stage investors like CI focus on, but every so often a year comes along that justifies the strategy. A white-hot mergers and acquisi- tions market in 2017, for example, helped Connecticut Innovations reap its highest annual returns ever. Spurred by several significant acquisitions of companies within its portfolio, CI cashed out $27 million from various investments in 2017, more than doubling the $11.5 million it had originally staked in those firms. It was also CI's most profitable year since the dot-com boom of the late 1990s, as measured by its return on investment, officials said. The quasi-public agency, which has about 160 companies in its portfolio, will reinvest the money in other Con- necticut-based technology, software and IT companies. More importantly, CI's leaders hope last year's performance turns some heads, attracting more outside invest- ment partners to Connecticut-based deals. "Everybody wants to be a part of winning and success," said CI Board Chairman Michael Cantor, co-man- aging partner of Hartford intellectual property law firm Cantor Colburn. Though CI's mission is different than most other venture capital firms — it has a dual mandate to generate both economic develop- ment and returns and can only make in-state invest- ments — it in- creasingly wants to be seen by VCs as a savvy investor partner. "They're calling me and saying 'I want to look at more of your deals, I want to look at more of your pipeline,' " said David Wurzer, CI's chief invest- ment officer. "That's a big deal, to bring that capital into the state." CI CEO Matthew McCooe said mar- ket conditions helped last year's perfor- mance, with more than 50,000 global mergers and acquisitions announced in 2017, according to Thomson Reuters, the third year in a row to hit that mark. Wurzer admits 2017 was a bit of an outlier — CI has averaged about $10 million in annual invest- ment returns since 2005 — but he's hoping for repeat performances in the coming years. CI's biggest flop By Matt Pilon mpilon@HartfordBusiness.com For Connecticut Innovations, 2017 had many positives. But in the venture capital busi- ness, investors will typically stake more losers than winners. CI CEO Matthew McCooe said he assumes 80 percent of investments won't yield a positive return. But what's been CI's biggest flop in recent years? A $5 million investment in New Haven Pharmaceuticals Inc. stands out in his mind. The company won Food & Drug Administration approval in 2015 for its extended time-release aspirin, had raised over $25 million and was headed into its first year with a com- mercial product. CI knew the management team and previously made money with them. McCooe recalls telling his board of directors something that he now views as a jinx. "We went to the board and said 'New Haven Pharma is going to be one of the top three or four best-per- forming companies in our portfolio,' " McCooe said. "We thought it was going to be a screamer." But just months after the drug launched, it wasn't selling as well as hoped; the company ceased opera- tions in 2017. Lenders were calling the company's loans and VCs didn't want to invest more money and get stuck in line behind them. The lesson McCooe took away from the experience is to be cau- tious about taking on too much debt, which he said New Haven Pharmaceu- ticals did. "I was sort of shocked and ap- palled by the whole thing because I felt that with a different capi- tal structure and more time, the product certainly could have been successful," he said. Active Investor CT Innovations hopes its record 2017 returns woo more venture investment Economic Value Between 1995 and fiscal year 2017, the state authorized $188 million in bonding for Connecti- cut Innovations, which has produced $309 million in investment returns over that time period, according to CI. Connecticut Innovations posted a record year in 2017, which was Matt McCooe's second full year as CEO. PHOTOS | STEVE LASCHEVER

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