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High Tech’s ‘Meet’ Market
At Crossroads, angels don't fear to tread to find investment-worthy entrepreneurs
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Business New Haven
4/29/2002
By: Lisa Micali
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The race for big bucks is on.
Scores of venture capitalists (VCs) and entrepreneurs from around New England will converge in the Elm City May 14 to share emerging business ideas, explore partnership opportunities and seek solutions to capital challenges at the ninth annual Crossroad Venture Fair.
The fair, considered one of the largest technology-networking events in the Northeast, is back at the Omni New Haven Hotel downtown after last year's signal success. Attendees will have the opportunity to meet the people, see the products and learn about the latest technologies that will shape the market in the years ahead.
Presented by the Connecticut Venture Group (CVG), the event is being sponsored by Connecticut Innovations Inc. (CII) and hosted by Yale University and the city of New Haven.
“It's a very important event for entrepreneurial companies,” says Lise Dondy, managing director of investments for CII, the quasi-public organization that provides risk capital to technology-based companies. “Because of the difficult [capital raising] environment, I believe the fair is needed more than ever.”
Crossroads will feature 65 emerging companies - from early stage development to pre-IPO firms in the hottest high-growth industries - strutting their stuff over two days. It will offer numerous networking events, industry panel discussions and of course, the much anticipated three minutes of fame - presentations by entrepreneurs seeking an infusion of capital.
Other highlights include: two cutting-edge panels in bioscience and software, a repeat of last year's successful “pub crawl” up and down Chapel and Temple streets, as well as a gala VC-only reception at the Yale Center for British Art.
Frank Marco, Crossroads' chairman and managing partner of Mintz, Levin's New Haven law office, is upbeat about this year's fair. “We don't count success by the number of people who show up; we count it by the quality of the companies and the quality of the attendees. Based on the applications we've had to date, we're very optimistic [for this year's fair.] We've seen some very high-profile companies.”
Connecticut is still considered fertile turf for start-ups, a state that has a lot of things going for it: brains, supported by good universities that churn out a high-quality labor force; investment cash, a decent allotment of venture capitalists and angels; and startup-friendly government programs. In this environment, a new generation of fast-growing firms has become the key to greater New Haven's economic growth.
Consider the $435 million in VC investment made in the state last year according to the PricewaterhouseCoopers, Venture Economics and National Venture Capital Association MoneyTree year-end survey. A fair share of that money went to emerging firms in the New Haven region where, as CVG Director Mike Roer puts it: “New Haven is a boom town for entrepreneurs. It's very entrepreneurial. At last week's AceNet business-plan competition, four out of the five early-stage [non-collegiate] finalists were from New Haven.
“The mathematical odds of that are one in a million,” Roer says. “There's something about New Haven. It must be in the water or something.”
The MoneyTree survey also reports that more than 62 deals were hatched in Connecticut in 2001 - down from 2000's banner year of 113 reported deals.
Additionally, the New Haven metro area is home to more than 45,000 well-educated students who are making an impact on the region: Students are staying in the region because of the proliferation of high-tech jobs in the area.
“There are now more than 2,000 software companies,” says Roer, “and more than 20 biotech and big pharma companies in the state. That's a big draw.”
Marco, a technology attorney and fair chairman, believes New Haven is widely perceived as a hot spot of investment led by the bioscience companies. He's of the opinion that New Haven is the perfect place to have the fair - and a great opportunity to showcase the city.
“When we moved to New Haven, we changed it over to a regional fair and changed the name to Crossroads,” Marco says. “It's midway between New York and Boston - another good reason to have it here.”
CVG expects a diverse group of high-caliber entrepreneurs and investors. Fair attendees typically include entrepreneurs, venture capitalists, angel investors, commercial and investment bankers, private lenders, pension fund managers, business brokers, attorneys, accountants and other service providers. Last year's Crossroads attracted more than 700 attendees and in excess of 150 investors with $5 billion under management from across the U.S. More of the same is expected this year.
Approximately 200 applications from companies throughout the Northeast were received last year. And applications are up four percent this year, notes Roer. The fair's Web site and online application, new last year, makes it easier for companies to apply online.
“At this point, all the numbers and leading indicators suggest that the same types of companies, industries and investors at the same levels will be participating this year as last year,” says Roer. “VCs pay to be [at Crossroads]. They are not idle curiosity-seekers. They are there to seriously look for new investments and see what's on the horizon.”
James Ashman, executive vice president at Albany's TechOne Capital Group based in Fairfield, says last year's fair was characterized by a strong turnout of venture capitalists and companies. “It's a great place to network and see what's happening in the minds of entrepreneurs,” he says.
This year, Ashman hopes one or two of his portfolio companies will be able to present. “We're hoping to find additional venture capitalists who can participate in their funding. And we certainly will be reviewing other opportunities for potential investments.”
Companies will be handpicked after April 17. Participants will not be released to the public before the fair starts, but Marco notes there is a broad mix of companies who have already applied.
Connecticut companies comprised 50 percent of the presenting firms seeking capital last year, and Roer expects about the same split this time. Forty percent of the companies that participated last year attracted some sort of funding. That's an astonishing success rate by any measure.
A Return to Normalcy?
Despite a weak market, the venture capital industry is showing promising signs of stabilizing. “Investors pulled back into their shells during the last quarter of last year,” says CVG director Mike Roer.
“A lot of people were holding their breath after September 11 not knowing how their world would be changed,” he adds. “Gradually, over the first quarter of this year, they have started to regain confidence in their judgment and the economy. VCs are moving back to records of investment - not to the levels of the heyday of the Internet but more normal levels.”
Investors agree there is money available for good projects.
“Many VC firms are sitting on a pile of money that needs to go somewhere,” says CII's Lise Dondy. “This may be good news to the hundreds of small companies looking for financing to secure their futures.” And a sign that investors may be willing to ramp up their spending this spring after months of dwindling VC deals.
James Ashman agrees that the time may be ripe to start spending again and that the market may have hit bottom. “This a perfect time to examine promising companies that have survived the market shake-out,” says Ashman, executive vice president at Albany-based TechOne Capital Group. “A good idea with a solid, experienced team can get funded. That hasn't changed.”
Favored industries and business models include software, infrastructure and biotech, industries where Connecticut and the New Haven region have shown strength.
“Biotech shows the greatest growth potential,” explains Roer. “The strides it has made over the years is great news for our economy. The stronger the industry becomes, the more entrepreneurs and investors it attracts to our state. Software, too, is very strong here and growing. You don't notice them because they don't have big belching smokestacks.”
In evaluating proposals, VCs find that a bulletproof business plan is critical to entrepreneurs looking for capital. Besides that, they must have all the ingredients that encourage investors to part with their money.
That's not always easy.
“Within 30 seconds,” adds Ashman, “we know if we want to invest in a concept.”
Some companies, still in the idea stage of business development such as New Haven-based OneTrace Inc., are considered too pre-VC and won't be at this year's fair. The firm, launched by several Yale College undergraduates and the winner of CVG's 2001 annual collegiate business plan competition, was at Crossroads last year but will not attend this year's fair.
Craig Pace, OneTrace's president and CEO, says his company is in the middle of finalizing a round of financing right now. “We're not at the right stage of development [for Crossroads],” explains Pace. The company is currently working on its prototype for a real-time tracking device for motor vehicles. “Hopefully, we'll be there next year,” he adds.
Three Minutes of Fame
The schedule of this year's Crossroads remains largely unchanged from last year. Starting on Tuesday morning May 15th, 20 “Quantum” companies will pitch their three-minute business proposals in a thumbnail sketch to leading VCs, corporate investors, analysts, investment bankers, accountants, and attorneys. Another 20 will finish up the next day. (“Quantum” companies are those who have already received at least one round of financing, or have revenues and are profitable or close to achieving profitability, and are seeking more than $5 million in financing.)
In those three minutes, companies must get across a quick, effective summary of their business plan. This year, “Quantum” companies will also have an opportunity to tell their stories in a breakout room. This gives entrepreneurs and investors intimate time together to demonstrate their technologies, many of which are complicated high technologies, and to answer in-depth questions and answers from investors.
Simultaneously, 25 “Ignite” companies - emerging start-ups seeking first-round financing of under $5 million from early-stage to pre-growth - will exhibit only, and pitch their ideas to booth and breakout room visitors. Both “Quantum” and “Ignite” companies will represent a wide-range of high-growth industries including firms from the biosciences, health care, communications, information technology, e-commerce/Internet, software, financial services and diversified industries.
The goal of the networking events and panel discussions, CVG head Mike Roer says, is to promote and enhance the success of new ventures, emerging businesses and the growth of entrepreneurship in Connecticut and the Northeast.
Along with presenting their business and financial plans, participating companies will join venture professionals at industry panels. The panels (yet to be finalized) allow attendees to gain insight into the latest breaking trends in hot industries. It can help formulate future strategies toward successful alliances, chart product and financial strategies and perhaps, affect growth plans.
Many of the start-ups at this year's fair have survived punishing market conditions of last year and will need fresh capital infusions soon. VCs for their part have been inwardly focused.
“We've been spending our time building our portfolio companies,” explains financier James Ashman. “I think right now, we're starting to get back to normal after a couple of very abnormal years. Nobody's getting the quick IPO flips anymore, which is back to normal. In terms of a liquidity event, we're looking at three- to five-year horizons. That's back to normal.”
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