A new CEO isn’t often brought in to a company on the verge of a major merger.
But that’s the position Claire Leonardi, the new head of Connecticut Innovations, finds herself in.
Just one month into her newly created role, Leonardi is taking over the state’s 23-year-old quasi-public agency responsible for technology investment at a time of major change.
State lawmakers are likely to pass a bill that merges Connecticut Innovations with the Connecticut Development Authority, forcing a marriage between an equity investor and bank lender.
While both organizations are ultimately responsible for economic development in the state, their business models aren’t the same.
Meanwhile, CI is getting a $125 million cash injection over the next five years, as the organization is tasked with taking on a much larger role in growing start-up companies in Connecticut. That means CI will be shouldering much more risk, as it prepares to raise its annual investment threshold from about $15 million to $50 million.
Leonardi, a long-time investment and business development guru who holds an MBA from The Wharton School at the University of Pennsylvania, will oversee all of it.
So far, Leonardi said, most of her time has been spent making early preparations for the merger and connecting with key players in the technology, innovation and venture capital community. Those groups are the key to growing CI’s stature, she said.
“It’s not about developing opportunities, it’s about developing relationships,” Leonardi said. “CI has been in the marketplace for a long time and is a very established seed and early stage investor. Now we are looking to bring it to the next level.”
Leonardi, whose husband Thomas Leonardi is the commissioner of the Connecticut Insurance Department, has a deep background in both finance and the public sector, which attracted her to the CI job.
Leonardi said, however, she did not seek out the position herself. She was recruited by Department of Economic and Community Development Commissioner Catherine Smith, whose initial choice for the job — Matthew Nemerson from the Connecticut Technology Council — didn’t gain full support from CI’s board.
Leonardi has held senior positions in several financial firms including Crossroads Capital and Fairview Capital, both in Farmington. She also held a business development and strategic investment role at Phoenix Home Life in Hartford.
Most recently, Leonardi had been working with start-up companies and nonprofits in upstate New York, advising them on capital structure and funding, strategic planning and performance improvement.
DECD’s Smith, who pushed the aggressive plans to boost CI’s funding and role in the state, said she chose Leonardi because of her strong leadership skills and ability to motivate people. Her finance background was also attractive.
“Those are the strengths she brings to the table,” Smith said.
Leonardi also has strong connections to the University of Connecticut, which is important because of the school’s growing role in tech transfer. She has served as chair of the University of Connecticut Health Center Board of Directors and vice chair of the University of Connecticut Board of Trustees.
Universities, like UConn and Yale, are a major source of tech start-ups, something the state needs to leverage more, said Leonardi.
Her top priority in the short-term, she said, will be overseeing the merger of CI and CDA. Lawmakers are debating a bill that would combine both organizations, something that has been considered in the past, but never came to fruition. This year, a merger is likely as it is being pushed by the Malloy Administration.
The challenge, Leonardi said, will be combining two entities that exist on different parts of the investment spectrum. CI invests venture capital in early stage companies, while CDA runs a bank loan guarantee program.
The logic behind a merger, Leonardi said, is to create a one-stop financing house in the state that, officials say, will increase deal flow and spur more job creation.
“The joint objective is that they can recruit more, healthy companies,” Leonardi said. “A merged entity will provide more tools in the tool kit to get that done.”
CI and CDA have about 30 employees each, and, once a merger is approved, they will occupy office space held by CI in Rocky Hill.
It’s not clear if there will be further personnel changes, but CI has been adding positions recently, rather than shrinking in preparation for a merger.
Leonardi’s CEO position, for example, is new. CI’s former top executive, Peter Longo, remains with the organization as its chief investment officer.
Although CI is an established entity in the state, it is taking on a major expanded role in economic development. In October, state lawmakers passed a Jobs Bill that included $125 million in new funding for CI, which, in recent years financed its own operations as state aid dried up. That has limited its investment ability.
Now, the plan calls for CI to spend $50 million each of the next five years to promote in-state start-ups with high growth potential, as well as recruiting similar firms from outside the state to relocate here.
Leonardi said CI is already doing more deals with a continued focus on investing in high-tech industries such as energy, biotechnology, information technology and photonics. But reaching that $50 million threshold likely won’t happen right away.
And, even though CI is now flush with cash, she said, it won’t shift away from its core mission of making pre-seed and seed stage investments in start-up firms ranging from $25,000 to up to a few million dollars.
“The new funding helps us to attack our core mission,” Leonardi said. “We are not changing; we are just doing more of what we do.”
As CI makes more bets on start-ups, however, it also increases the risk in its portfolio, putting tax dollars at stake.
Leonardi said investment criteria won’t change for the most part, although expanded funding for pre-seed investments will create more risk.
The key will be maintaining investment discipline, she said.
“There will be more losses,” Leonardi said. “That’s the nature of that investment sector. You will have big winners, but more losers.”
Building the state’s venture capital base is also a priority, Leonardi said. Although the state is home to many equity investment firms, their dollars aren’t being invested in Connecticut-based companies as much as they are in firms outside the state.
“We are a very wealthy state,” Leonardi said. “We need to make sure that people who want to invest in private companies are aware of what their options are here in Connecticut. It’s a connecting role that we must play.”
Part of the connecting role is making CI more customer friendly, Leonardi says. There needs to be a clearer path so companies and investors know where to go and how to access state programs.
Nemerson, of the Technology Council, said building that investor base is necessary if Connecticut is going to compete with the tech centers in Boston and New York.
Nemerson said he supports the choice of Leonardi as CI’s CEO, especially with her finance background. He said the main challenge now is using all the available resources in a coordinated effort to create momentum that reaches a tipping point.
“With all the support CI has financially, I think the biggest challenge all of us have in Connecticut is competing and finding a role that is special about Connecticut in juxtaposition to New York and Boston,” Nemerson said. “We have to become a top-tier technology destination quickly.”
