Hartford Business Journal

14 Hartford Business Journal • May 28, 2018 • www.HartfordBusiness.com By John Stearns jstearns@HartfordBusiness.com M ore investors need to open their checkbooks to help Hartford-area and other Connecticut startups advance if the state wants to grow its entrepreneurial ecosystem, startup proponents say. "Investors that care about the state ... have to step up and say, 'If I don't invest locally, then there won't be startups and if there's no startups, there's no eco- system and if there's no ecosystem, the city is stuck," said Shana Schlossberg, founder and CEO of Upward Hartford, the sprawling coworking, incubator and accelerator space that opened last year inside downtown Hartford's Stilts building. Schlossberg said Hartford and the state overall need a much more seri- ous angel investor network to pitch wealthy business executives to con- tribute annually to build the funding network. For example, a first-level in- vestor might be asked to give $25,000 to $100,000 per year, which "should cover almost every executive we know," she said. A second level might include $100,000 to $500,000. The investment need is a sentiment shared by Ojala Naeem, managing director of Hartford's reSET, another organization that works to grow start- ups with mentoring programs and has an annual accelerator. "You're seeing activity pick up, but we have a long way to go," Naeem said. "Especially on the angel investor community, if we don't get that off the ground, it's going to be tough — that's why companies leave." That could mean losing a company and innovations hatched in Connecti- cut to places like Boston or New York, where many large, active angel net- works thrive and can wave money car- rots in return for relocation, she said. The funding issue, including later-stage venture capital (VC), is pronounced in a state known for its wealth, sources say. Connecticut ranks far behind Massa- chusetts and New York in terms of ven- ture capital investment. Massachusetts investments were 31 times greater than Connecticut's in 2017 and New York's were 50 times greater. Rhode Island had almost as much invested in VC-backed startups as Connecticut last year, $190.3 million vs. $223 million, ac- cording to a PwC/CB Insights Money- Tree report. Lack of investors and the challenge of raising money is the region's big- gest "pain point" that Schlossberg said she and Naeem have identified. That challenge is not lost on Matthew McCooe, CEO of Connecticut Innova- tions (CI), the state's quasi-public agency that invests in state-based startups. It has about 165 companies in its portfolio. He acknowledged there are far more startups emerging from the entrepre- neurial pipeline than funders available to advance them to the next stage. "It's not even close, it's a total mismatch," McCooe said. "A lot of big rounds are getting done and they're out-of-state funders." That risks, he said, opening the door for Connecticut- based companies that have developed technology here to move, similar to Alexion's decision to relocate its New Haven headquarters to Boston. "We want to make sure that doesn't happen," McCooe said. The state needs more investors willing to participate in the angel networks, he said, encouraging individuals with means to lead the charge, with CI acting as the "invisible hand" behind the scenes. A healthy angel network is not led by the state, he said, but CI can lend support and tout its companies. One thing Mc- Cooe has heard from angels is a concern about whether there are enough good companies in Connecticut in which to invest. To counter that and show why the state is attractive for investors, Mc- Cooe in early May held an event in Stamford with the Angel Investor Forum and Crossroads Venture Group, introducing investors to the state's most promising tech companies, five of which made pitches. He also educated investors about Connecticut's angel investor tax credit program, which CI administers. "Earn a tax voucher for 25 percent of your angel investment dollars up to $1 million," said the email inviting investors. "Cut your taxes and jump into the deep end of Connecticut's innovation pool." The invitation to the event noted com- panies such as Datto, Biohaven and Blue Buffalo, all Connecticut-based startups, which sold or went public for more than $1 billion in recent years. Aside from the five pitch companies, executives and founders from seven other Connecticut companies also attended the event. McCooe plans to hold a similar event in Hartford sometime in the future. He also noted that lawmakers this year allocated $10 million for CI to invest in much-needed VC firms com- ing to or already in Connecticut and another $10 million to get more early stage companies up and running with so-called proof-of-concept funding for investments up to $100,000. The awards, to come from CI and/ or its subsidiary, CTNext, could be in the form of grants or loans, the latter to regenerate the funding for other in- vestments, he said. Funding would be available for concepts emerging from university research, too. Angels look for right fit Joe DeMartino, managing direc- tor of the Angel Investor Forum in Connecticut and an active angel in the state, said AIF members prefer to invest in Connecticut companies be- cause of the angel investor tax credit. If a company is a good investment, Connecticut-based and fits AIF's in- vestment profile (typically life sciences and technology companies that can grow quickly and from which AIF can exit in about four to six years), "that is an immediate advantage that they have because we're all looking for that tax cred- it," said DeMar- tino, who looks for two to three deals a year in the state, but also is active throughout the New York-to- Boston region. In fiscal 2017, angel investors parked about $7 million into Con- necticut compa- nies, according to data from the state Department of Economic and Community De- velopment. Since the tax credit's inception, angels have invested $60.1 million through 669 investments, DECD data shows. Companies also need to know what investors want and the kinds of busi- nesses they invest in, what the fund- ing process is and what the sources of funding are, DiMartino said. Some companies AIF might be interested in have never applied for funding and don't know about AIF,"and conversely, we've never heard of them," he said. "I think that there's just not as robust an ecosystem for getting the word out Help Wanted Region's entrepreneur boosters say more local investment is needed to grow state's startups, economy Project Ray CEO Boaz Zilberman, whose startup makes smartphones and apps accessible to the visually impaired, and David O'Leary, a Springfield angel investor, talk at reSET's recent 2018 Venture Showcase at Dunkin' Donuts Park. State-By-State Venture Funding Comparison In 2017, venture capital investors injected $20.3 billion into startup and later-stage companies in the U.S., according to the PwC/CB Insights MoneyTree Report. Here is a breakdown of how much was invested in companies in Connecticut and nearby states in recent years. The numbers show Connecticut pales in comparison to its neighbors in terms of attracting venture capital. TOTAL VC INVESTMENT Conn. Mass. New York 2013 $253.7M $3.7B $3.7B 2014 $689.8M $5B $4.9B 2015 $343.9M $6.9B $7.6B 2016 $188.8M $6.2B $7.8B 2017 $222.9M $6.9B $11.2B Source: PwC/CB Insights MoneyTree Report HBJ PHOTOS | STEVE LASCHEVER

• Cover