SYRACUSE — Representatives from Upstate Venture Connect have been meeting with groups from around New York State in an effort to spark the formation of more seed funds.
Both the Seed Capital Fund of CNY (SCF), which formed in Syracuse in 2007, and the Cayuga Venture Fund of Ithaca, which served as the model for SCF, have been successful in making investments in a number of early-stage companies over the years, says Upstate Venture Connect (UVC) CEO Nasir Ali, who also serves as SCF executive director. There’s no reason similar groups can’t launch elsewhere in the state or even in communities where seed funds are now operating.
“We have room in our communities for a lot more people to be angels,” Ali says.
UVC is a nonprofit group formed in 2010 to encourage the development of more small, innovative companies in upstate New York.
Organized funds like Cayuga and SCF have some key advantages over more loosely organized angel networks, Ali notes. Such networks in upstate New York often include individuals who made their money in traditional industries.
But the investment opportunities they’re presented with are often in cutting-edge, highly technical sectors.
“They’re being asked to make investments in things that they have limited knowledge of,” Ali says.
So frequently, a couple of angels in the network who do understand a business wind up on the hook for large sums. The problem is magnified if a young company runs into challenges.
Those couple of angels could then be asked to put up even more money. It’s a cycle that can easily result in a startup not making it through a rough patch, Ali says.
Using a fund model, where all investors contribute to a pool of capital, spreads out the risk. And it allows members of the fund to take advantage of each other’s knowledge, Ali says.
“At the end of the day, it’s possible to make up a $150,000 to $200,000 investment not in terms of three or [four] people writing $50,000 checks, but maybe 40 people participating by writing $5,000 checks,” he says.
Ali has met with groups in Rochester and Buffalo about starting seed funds in those cities. And he offered guidance to the organizers of Eastern New York Angels (ENYA), which launched in 2010.
The fund made its first investment in October, says Richard Frederick, a founding member of the fund and member of its management committee. It committed $150,000 to Ener-G-Rotors of Rotterdam.
The company is commercializing a technology that captures waste heat in industrial settings and elsewhere and converts it into electricity.
In January, the group made a $200,000 investment in Paper Battery Co. of Troy, which is developing a thin, flexible power source with applications in fields like defense, health care, and consumer electronics.
ENYA adopted nearly the entire model used at SCF and Cayuga, Frederick says. It allows the group to work faster than an angel network. With a network, companies would come in, pitch, and then negotiate separate deals with interested investors, he notes.
“Generally, you’re not getting the kind of money you’re looking for,” Frederick says. “Now, a group comes in and you’re actually in the position of being able to write a check right away.”