Small business: How to attract venture capital
Last year, Long Island companies snagged more than $45 million in venture capital. This year, experts expect incremental improvement but are hopeful that perhaps Long Island can build on that momentum.
"What we saw in 2011 was actually encouraging," says David Silverman, managing partner of PricewaterhouseCoopers' NY-metro emerging-company practice in Melville and Manhattan. "Every quarter had at least one investment, and in the last two quarters we saw some larger deals in excess of $15 million."
This wasn't the case in previous quarters, says Silverman; at times Long Island had zero investment, including in the third and fourth quarters of 2010.
Still, there's uncertainty surrounding the funding environment here for 2012, he says, with "question marks" for venture capitalists, including the cost of doing business here and the ability to find the talent necessary to staff the kinds of technical start-ups most likely to get funded.
"Long Island does have a talent pool," says Silverman. "It's a matter of being able to tap into that talent pool."
Return on investment: And what makes a company attractive to VCs?
"First thing we look for: Is there a real market for the product, and can they cost-effectively sell to that market?" says Bob Brill, managing partner of Newlight Management in Jericho, which manages $150 million in technology investments.
Other selling points include the strength of the management mix, the technology's ability to withstand competition, and return on investment, says Brill. "We're in business to make money for our investors."
The companies attracting venture capital continue to be mainly in the technology and biotech sector, Silverman notes, and are in later-stage development or expansion mode, as opposed to start-ups.
"We haven't seen a significant amount of early-stage investment," he says.
This has posed a challenge for companies like SPD Control Systems Corp. in Stony Brook, which has been seeking VC funds for a couple of years, says CEO John Petraglia. SPD, which wants to raise $2.4 million, makes electronic controls to adjust the tinting of window glass.
Find another source: "It's almost impossible to get VC funds as an early-stage company," he notes, adding the 5-year-old start-up has switched gears from VCs to target groups of independent investors, strategic partners and government funding. SPD has gotten some government money from the NYS Energy Research and Development Authority.
Angels, or high-net-worth individuals, are a good source of funding for early-stage companies, say experts. Angels generally invest smaller amounts than VCs, typically under $500,000.
"Angel investing is generating more and more traction on Long Island," says Michael Faltischek, chairman of the Long Island Angel Network, which invests in early-stage companies. Companies that made presentations before the network snagged about $2.5 million last year, he notes.
Still, there are opportunities to be had, says Jeffrey Bass, chairman of the Long Island Capital Alliance, which holds quarterly forums where companies can pitch to VCs and investors. The region is working hard to grow the kinds of companies VCs will find attractive, he says, pointing to collaborative efforts such as Accelerate Long Island, a regional effort to commercialize innovations at the Island's big research institutions.
Joseph Mallia, business development manager for SiCore Technologies in Bethpage, which is developing a new cyber-security technology for large enterprises and the defense industry, will be making a pitch at the forum for $1 million to $2 million. Mallia notes the VCs "I do speak to are very interested in having further discussions."