Connecticut must leverage the research achievements from its knowledge corridor into entrepreneurial ventures, especially by spurring private individuals and organizations to invest in these start-ups.
That was the message from the head of Connecticut state investment fund after a senior official from the Obama Administration came to Windsor on Nov. 1 looking for ways to bolster America’s development of breakthrough research.
“The reality is you need to get money in the hands of the entrepreneurs,” said Peter Longo, president and executive director of Connecticut Innovations, the quasi-public state investment fund.
At the Northeast Technology Exchange Conference in Windsor, Longo and several other members from the state business and investment community sat on a panel hosted by Ginger Lew — the White House’s senior counselor on technology transfer — where she decried the nation’s problems in taking groundbreaking research and turning it into profitable business ventures.
While the nation’s research is second-to-none, the transfer of that technology into viable businesses is lagging, Lew said. America’s competitiveness with the rest of the world hinges on quicker technology transfer.
“America has become the research lab for other nations,” Lew said.
The consensus of the tech transfer panel on Nov. 1 was facilitating private investment is paramount to success. Despite the federal government’s large pockets, the bureaucracy and time delays that come with government money make it very difficult for start-ups to traverse the valley of death, where solid research and innovative ideas come to their end for lack of business viability.
When Stratford helicopter manufacturer Sikorsky wanted to develop a faster helicopter, the company completely funded its $50-million X2 program on its own, even though the U.S. government could be the only potential customer, said Christopher Van Buiten, director of Sikorsky Innovations.
Sikorsky wanted to avoid the conditions and delays associated with federal funding, and the development of X2 was speedier as a result, Van Buiten said. But not many companies have the deep pockets like Sikorsky to take that type of chance on innovative ideas.
“It changes the risk assessment when you are developing new technology,” Van Buiten said. “But to not keep moving forward is complete paralysis.”
To spur investment in small start-ups, a better solution, Longo said, is the federal government creating a national angel investor tax credit where private individuals can make income deduction for contributions made to innovative businesses. Connecticut started its own angel investor tax credit program this summer.
The federal government could also create a block grant program where it gives money to agencies such as Connecticut Innovations to distribute to start-ups. While this move involves the government, it uses existing investment infrastructure instead of relying on the federal government to break new ground, Longo said.
“Frequently, we get calls from other states asking how we do what we do,” Longo said.
Started in 1972, Connecticut Innovations first received bond funds from the state to invest in new start-ups. In 1995, the agency stopped receiving bond funds and relies solely on its investment returns. Its internal rate of return is 20 percent, and it currently manages a portfolio of $82 million in assets, down from $87 million last year.
But Connecticut Innovations only gets the ball rolling on small businesses and seeks to find other investors after the initial stages. Often, the agency will try to co-invest in companies with angels and venture capitalists.
Private investment, though, is hard to find in this economy.
In 2009, venture capital investments in New England and around the nation hit their lowest levels of dollars invested and total investments since 1996. This year appears to be rebounding, as New England investments are up 17 percent over 2009 and total dollars investment is up 37 percent; but is still below the levels from 2003-2008, according to the National Venture Capital Association.
With the private sector lagging behind, the federal government — although slow — is often the only viable option for initial investment, especially in expensive areas like life sciences where returns on investment take longer to develop, said Susan Keyes, director of business development for Nemucore Medical Innovations, Inc. in Massachusetts, who sat on the Nov. 1 panel.
The government’s role should be to take the risk out of early stage development for start-up businesses, Keyes said. The federal government’s Small Business Innovative Research is a good example of a program that works for investment.
Rather than the federal government, start-up businesses should look to angel investors to help traverse the valley of death in the early stages, said Mark Heesen, president of the National Venture Capital Association.
And when it comes time for businesses to move beyond those initial phases into the venture capital level, they should look locally as many venture capital firms want to be in close proximity to their investments, Heesen said.
New England is second only to Silicon Valley in venture capital investments, bolstered mostly by Massachusetts and its many investments in life sciences. Connecticut is second in New England, though, capturing 13 percent of the region’s venture money.
Connecticut’s innovative strength lies mostly in the information technology and bioscience fields, Longo said. To create a healthy and diverse business community in the state, those fields need to be developed, especially in technology coming out of the knowledge centers such as Yale University and the University of Connecticut.
“Connecticut has very good tools in the toolbox,” Longo said.
