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Emerging Connecticut Businesses
Real Estate Construction
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Business New Haven
4/14/2003
By: Melissa Nicefaro
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Old Blue Eyes sang, "If I can make it there, I can make it anywhere." Well, this isn't the Big Apple, and Sinatra wasn't singing about emerging biotech firms, but the idea is the same.
This could be one of the best times to start a company or grow an existing company. The economy is at its lowest point in decades. Hands are firmly on wallets. If you start at the bottom, you typically have nowhere to go but up.
Up is exactly where a surprising number of Connecticut companies are going, even in bad financial times. That's one way to look at it: The strong get stronger.
The weak are not being given much of a chance, though. There is clearly a decline in the amounts of capital being invested in early-stage companies, in Connecticut and elsewhere.
According to Tracy Lefteroff, global managing partner of PricewaterhouseCoopers' venture capital practice, the drop-off stems from the combination of fewer companies having the confidence to start or grow in a bad economy, and fewer dollars being invested by venture capitalists.
"There is still plenty of money, but it's a function of venture capitalists to be very cautious," Lefteroff explains. "The bar has been raised on deals. Investors are out there, willing to fund - but they are stretching dollars."
Investments generally slow when initial public offerings (IPOs) and mergers and acquisition activity (M&A) slows. "The VCs' ability to get liquid returns on IPOs and M&As is drying up, so they start slowing on investments," he says.
Lefteroff has said that if the public markets and liquidity opportunities improve in 2003, we could see the return to a more stable venture-capital market. With the state of the world today, though, that's not likely.
Richard Schultz, founder and president of Metaserver Inc., believes this is a "dangerous time for Connecticut."
Legislation was being discussed in Hartford that would reduce seed money available to new companies through Connecticut Innovations Inc., the state's high-tech investment arm.
Says Schultz: "It's like, 'Times are bad now; let's kill the young.' Decisions that are being made now that not only impact today, but also the growth of clusters in the state over the next five to ten years.
"It's kind of questionable, whether you want to sacrifice the young for today," Schultz adds.
He says Connecticut is at a disadvantage relative to other states to start with: "Top-tier VCs generally don't think positively of Connecticut," he says. "There has to be a real compelling reason to come down here as opposed to funding in some place like Boston, where there's a more defined cluster.
"Biotech has gotten stronger here because there is a defined cluster, but Connecticut Innovations has played a role in getting a lot of Connecticut companies off the ground, to get that funding.
"I think [CII has] been instrumental in creating today's generation of leading companies. If you find a company that's doing pretty well, you'll probably find that CII funded them."
Late last year Schultz's company, software developer Metaserver, secured a $10 million venture capital investment. The company is using the money to expand sales and marketing efforts.
Metaserver has raised a total of $41 million in venture capital over four rounds of financing. The company attracted its first round of financing in 1997.
Metaserver's Series D financing came at a time when venture financing is at its lowest ebb in ten years. With this round Metaserver has maintained its valuation from its prior financing in the summer of 2000. Metaserver is a Business Process Integration (BPI) company that develops and sells software solutions to assist with business management, new sources of revenues and new technologies. Metaserver provides mid-market organizations and enterprise departments with software that enables disparate systems to work together and be leveraged for new applications.
Cardium Health of Farmington has been heralded as an emerging company success story. Cardium is a disease and health management organization with about 1.6 million self-insured, corporate and managed-care clients.
The company provides disease and health management services for secondary cardiovascular prevention, diabetes management, primary prevention and smoking cessation as well as relapse prevention.
Cardium's angle? Each of these conditions presents a unique set of challenges for diagnosed individuals and the clinical professionals who treat them. However, these conditions can be effectively managed by adjusting high-risk lifestyle patterns.
Cardium uses behavior modification strategies to encourage individuals diagnosed with one of these chronic diseases to learn how to self-manage their conditions. According to Cardium, effective health maintenance by program participants and the personalized, one-on-one counseling sessions with a Cardium professional reduces the incidence of clients returning to the hospital or developing further complications.
The company further facilitates effective disease and health management through its proprietary clinical pathway ASP application, known as DM Track.
A multidisciplinary team of clinical counselors, including cardiac nurses, exercise physiologists, registered dietitians and diabetes nurse educators, conducts all participant interventions.
Cardium Health's treatment interventions involve the coordinated application of multiple preventive strategies, all proven to be independently effective in managing chronic disease and keeping medical costs lower. Cardium's approach reduces hospital re-admissions and reduces health-care costs for its clients and managed care organizations.
The client list boasts names like Campbell's Soup, Northeast Utilities and the state of South Dakota.
"These are major organizations who have looked at their health-care costs and their disability costs and realized it is these two diseases that are driving up their overall costs," explains Charleen Ernst, Cardium's co-founder and CEO. "What we do is contract with them to go in and reduce the risk factors of individuals diagnosed with those diseases."
Cardium incorporated in 1997 and spent about 18 months developing software. The company commercialized in 1999 with a true rollout of the organization. Connecticut Innovations is Cardium's biggest investor, and the company is in the process of due diligence with another investor. Last year, Cardium presented at the Crossroads Venture Fair in New Haven.
Ernst is one of the few who expresses thanks for skyrocketing health-care costs: "The increase in health-care costs has had a very good impact on our business," she says. "There have been double-digit increases in insurance costs to organizations. They're looking for answers about how to better manage their employees and drive down medical costs from a health-care standpoint."
In November, Cardium released results from a coronary artery disease program it organized with the state of South Dakota Bureau of Personnel.
The state saw first-year net savings of over $700,000 as a direct result of reducing the rate of re-hospitalizations by more than 50 percent. The amount represents a whopping 242-percent return on investment. More than 75 percent of eligible individuals enrolled in the program. In addition to financial results, there was a 20-percent increase in physical activity among program participants and a ten-point drop in total cholesterol in the participant population.
From cardiovascular health to jet plane paint, Connecticut is home to a wide array of emerging companies. Worldwide, nanotechnology (best described as the science of tiny things), is heralded by its proponents as a potential latter-day Industrial Revolution. The National Science Foundation predicts that nanotechnology will be a $1 trillion global market within ten to 15 years.
The Inframat Corp. is one emerging technology company founded in 1996 to develop nanostructured materials to improve performance and extend the life of coated components used throughout the global infrastructure. To date, Inframat has raised more than $8 million, primarily through customer-based financing, a government contract and corporate joint development.
Inframat was recognized by a Deloitte & Touche/Connecticut Technology Council "Fast 50" award for its rapid sales growth. Major product development activities are in the areas of thermal sprayed nanocoatings, magnetic nanocomposites, implantable bio-nanoceramic coatings and environmental applications, including chrome replacement coatings and nanofibrous catalysts.
Inframat, in partnership with UConn, has developed a new nanocoating for jet engines that was projected to demonstrate an exceptional operating life as much as 150 percent greater than the best technologies presently on the market.
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