- An ultrasound device made by ZetrOZ Inc., a company supported by Connecticut Innovations.
Connecticut Innovations, the state”™s quasi-public venture capital and lending arm, said that its requests for state bonds ranging from $25 million to $50 million have been placed on hold multiple times in the past five months, resulting in a major funding shortage.
One of the primary ways that Connecticut Innovations has supported its early stage startups and maturing companies is through funding from the State Bond Commission. Without the bond commission”™s approval to administer funding, CI”™s newest venture program – CTNext – which lends up to $150,000 in pre-seed money for companies that are too young to join its seed program, has been deeply impacted.
“It”™s been difficult to get funding this year,” said Lauren Carmody, CI”™s director of public relations. “The longer we go without money, and the more meetings we go without receiving funds, we have to increase the amount we”™re requesting.”
The rescheduling of several bond commission meetings caused CI to close the valve of its main lending mechanism. Gov. Dannel Malloy in 2011 had approved a jobs bill , which provides $125 million in bond funding to be distributed over a five-year timeframe. To draw those funds, CI must go before the bond commissions for approval.
To date, CI has drawn $20 million of the $125 million from the jobs bill. Most recently, it had requested $25 million in May, $25 million in July and $50 million in September. After the most recent meeting was canceled last month, it reapplied for bonds. The next bond commission meeting to review its application is Oct. 31, when CI will request $50 million again.
“We see this as a temporary delay that we”™d like to get back to the business of investing in companies and helping them grow and invest in the development of new programs and fine-tuning what we have,” Carmody said. “We felt like we gained a lot of momentum, and we”™re hoping the slight delay doesn”™t affect them.”
CI has invested nearly $60 million in early-stage companies from January 2012 until now, while partnering venture capitalists and investors have provided an additional $135 million to early stage companies in the same period.
From 2011 to 2012, the agency grew its investments from $9.5 million to $24.6 million. From 2012 to 2013, its investments dipped to $21.2 million. This year, investments are on an upswing, growing to more than $21.8 million.
CI distributes funds from the bond commission and investors in three categories: lending, equity and small-business innovation programs.
On the loans and lending side, it provides an injection of capital for more mature companies that can guarantee loan repayments. Funding for the loans and lending operation comes in part from the State Bond Commission. Funding from fees and interest contributes to reinvesting into companies.
“On the venture side, when we invest, we purchase a percentage of the company and realize returns when the company is acquired or goes through an IPO,” Carmody said. “Typically when we invest, we don”™t go in alone. We can help companies attract additional dollars. We help companies attract venture capitalists firms.”
On the lending side, funding can also come from divestitures when a business that CI invests in either sells its company or makes an initial public offering. Other ways CI can generate cash is it decides to cash in on a company”™s stocks.
“We”™re seeing the return on our investments,” Carmody said. “We”™re not out of money. We”™re being much more strategic based on the availability of funds. What we make through our operations income does cover part of that gap in funding. We considered that in our projections, but overall, we”™ve been investing at a rate much higher due to the jobs bill and due to the money we get from the bond commission.”
On the equity or venture side, the process of receiving funding takes longer because CI is vigorously conducting due diligence with its startup and early stage investment candidates. Usually it takes four to six months before companies can get a round of seed funding because CI conducts due diligence on the company, its products, its projects, its managers and boards. Funding is often provided by partnering venture capitalists and investors.
The third category of funding is through CI”™s small business innovation, or SBI, program. This program offers a variety of services from small grants to coaching and guidance. CTNext, a resource for entrepreneurs, falls under this category.
Through CI, companies have grown their capital investments in the millions in only a year. In Trumbull, Bryant Guffey, CEO and co-founder of ZetrOZ Inc., an ultrasound technology company, raised $3 million this year alone.
- Bryant Guffey
“Connecticut Innovations supported us ever since we moved to Connecticut,” Guffey said. “They invested money in us, connected us with the community and matched our grants with a number of investors that were part of the seed round this past June.”
Guffey, who started his business in March 2009, said when his company moved to Trumbull in January 2013, it brought 12 jobs. Since then, jobs have doubled.
As ZetrOZ builds its presence in Fairfield County, it brings a huge research aspect surrounding healing and therapy. The product, which has been primarily tested on animals at veterinaries, was recently launched in the human market. Guffey said the company did a soft launch by releasing it to clinics for physicians and physical therapists to use. Now, the company plans to make the ultrasound device available as a prescription.
“An ultrasound can penetrate deeply to tendons, joints and muscles,” Guffey said. “With this system, you allow nutrients from your bloodstream to get through the tissue much faster, resulting in faster healing and recovery. We”™re starting to push into chronic back conditions and arthritis and expanding the product to people with moderate conditions.”
Although funding for young businesses has dried up for the remainder of this year, CI believes there is value in companies bootstrapping.
“If you”™re willing to put skin in the game, it”™s a testament of character,” Carmody said. “Businesses that start on their own and try to figure things out are pretty attractive to and highly considered by our deal team, which is made up of our investment professionals.”
Editor’s Note: In an earlier version of this article, CEO Bryant Guffey’s last name was misspelled.Â
