The good news is that Connecticut is awash in groups looking to create these sorts of operations, including the Connecticut Technology Council’s own Innovation Pipeline Accelerator which is cataloging and working with start-ups. The new models emphasize investments of small levels of working capital – $50,000 to $250,000 – after just a few weeks of review, and usually without personal liability on the part of the management team. With the investment comes a commitment to smother the fledgling company with help, often hands-on management assistance and careful monitoring of performance levels. The goal is to package the idea for serious amounts of venture capital more quickly. Take a look at this organization in California which does nothing but network ideas, money and talent. It is another take on the model we would like to see here in this state.
Around the country states and organizations are setting up funds to dole out these very early stage investments. Some come from investors who made millions and now want to build a new generation of local entrepreneurs. Some investments, called “sidecars” spring from established VC funds that partner with Angel groups (these tend not to be geographically focused) and match them 1 or 2 to 1 in new deals. This allows the Angels to get into more deals and have a built in exit strategy with the VCs more traditional funds. Many new funds are the result of state appropriations being used to goose the local economy working through incubators, tech councils, state innovation agencies and hybrids like our own CCAT.
The challenges will be to first convince private money that geographical preference makes sense, because we do want these companies to remain in Connecticut. Some investors, however, will insist that you move to Silicon Valley if you want their help. Second, there will be a lot of work and education needed to keep governors and legislators comfortable with the realities of government money going into lots of small, high risk early stage investments. The old model of lots of due diligence and a few multi-million dollar investments a year guaranteed enough success to maintain support. Many small investments can work well, but we need to realize some years everyone could strike out.
This new model requires a belief that even in failure you are building serial entrepreneurs and innovation teams to rely on next time around.
Some groups, both for and not-for-profits, are getting control of multiple product concepts from universities or corporation and allowing a common management team to develop them, spinning off successful ideas to grow and can walk on their own.
A recent article from the Kauffman Foundation lays out the new paradigm nicely.
Positioned along the northeast innovation corridor not from Boston, New York or Philadelphia, but still small enough to give attention as needed, Connecticut could actually create a very attractive opportunity for high potential entrepreneurs and company founders to relocate here.
One thing we still lack in Connecticut is sufficient very early stage money. So, the Council will be rallying support for another go at creating the Connecticut Angel Investment Tax Credit in 2008. We will also be working with the new management team at Connecticut Innovations to help them continue to make their investments quicker and smaller and with funds to employ consultants and folks like us to help their early stage portfolio firms. Matthew Nemerson President & CEO Connecticut Technology Council mnemerson@ct.org
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