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Business Incubator Process Gets Boost
Venture Fund Backed by N. Y. State Provides Fledgling Firms with Opportunities to Grow
By Matt Glynn
September 28, 2010
A new venture fund supported by a $15 million allocation from the state Common Retirement Fund aims to help fill that gap by bolstering early-and seed-stage companies.
State Comptroller Thomas P. Di- Napoli announced the High Peaks Seed Venture Fund on Monday during a visit to Buffalo. The fund will help ensure that ideas generated within the state can come to fruition here, he said.
“The seed venture fund will help New York state-based university researchers and other entrepreneurs transform their ideas into commercial products,” DiNapoli said.
The fund will be administered by High Peaks Venture Partners. The managing director, Bela L. Musits, said he expects that additional commitments from the outside will bring the fund’s total size to $25 million to $30 million.
Last year, DiNapoli held a series of events across the state to call attention to the Common Retirement Fund as a potential source of investment for companies. A recurring message from participants, he said, was the need for investment capital for early-and seed-stage companies.
“We heard this repeatedly, that especially in Western New York, Central New York, the desire was for earlier stage investment opportunities, smaller [investments] of money than we were used to giving out as part of our in-state private equity program,” DiNapoli said.
DiNapoli serves as the trustee of the Common Retirement Fund. He stressed that the new fund, under the Appleseed Initiative, is “not a grant program or a loan.” And he reiterated that his primary objective is to maximize the return on the fund’s investments.
“But we always like to have the opportunity to do well for the fund, but to do good for New York State, as well,” he said.
DiNapoli made the announcement at the University at Buffalo’s New York State Center of Excellence in Bioinformatics and Life Sciences. The center and other parts of the Buffalo Niagara Medical Campus showcase the type of assets that the Buffalo area has to help launch ventures, DiNapoli
“We would like to see even more of the great ideas that are out there, the great ideas being born in Buffalo, become a reality,” he said.
Musits said his firm, High Peaks Venture Partners, has been involved in early-stage investing in New York for about six years. The firm looks at about 250 companies a year for potential investment.
“About half of that, we’ve had to say ‘no’ to, because they’ve been too early for our early-stage fund,” Musits said. “So this is really exciting to be able to establish a seed-stage fund that will be looking at companies that are typically pre-revenue companies.”
Musits said he travels to Buffalo frequently and sees “a significant amount of energy about starting businesses. And now we have an opportunity to put some money to work, help grow those businesses and make them successful.”
Companies at this stage of development are “clearly riskier investments,” Musits said. “The earlier you invest in a company, typically the more risky it is, so venture capitalists typically look for a larger potential return.”
The new fund will likely pour $100,000 to $500,000 into a company as an initial investment. Musits said a likely scenario is that initial investments will be made in 25 companies; about two-thirds of them will probably hit their milestones and receive a second round of financing.
“We anticipate putting anywhere from a $1 million to a $1.5 million total investment into these companies,” Musits said. “And oftentimes our investment will be alongside other venture capitalists.”
Lyn M. Dyster, co-founder and vice president of research operations for Kinex Pharmaceuticals in Buffalo, said that Kinex is aiming to raise about $30 million over the next six months and that the new seed fund could help the company achieve its goal. “This is a good thing for us, having that fund available,” she said.
Monday’s schedule also included meetings and networking opportunities for fund managers, investors, companies seeking investment and university representatives. Dyster said that it was useful having that collective expertise in one place.
Marnie LaVigne, director of business development at the Center of Excellence, credited the State Comptroller’s Office with bringing fund managers to the region “who have not really had exposure to our investment opportunities.”
The new seed fund, she said, will play a vital role in nurturing companies’ growth.
Companies can often obtain funding for early-stage development of technology, LaVigne said, “but then the companies have nowhere to go to fund the next stage of commercialization, and the opportunity can just die on the vine at that time.
“And that’s what the community is missing,” she added. “We’re missing that opportunity to accelerate this new product development, and that’s what these early-stage funds are all about.”
Apart from the newly announced fund, DiNapoli said that the Common Retirement Fund’s in-state private equity investment program still has nearly $500 million available to invest in New York state companies.
To date, about $480 million has been invested in 155 companies through the program. Of that total, about $41 million has been invested in 11 companies in Erie and Niagara counties.