State's new $4 million seed fund targets upstate tech companies
The state has approved a new seed fund to bolster budding upstate tech companies as they seek to develop prototypes and commercialize products. The $4 million fund, approved Dec. 16, is split between general legislative funds and matching money from upstate universities. Supporters hailed the funds as crucial, given how rocky the economy remains and the trouble entrepreneurs still have tapping credit. "It's been a desert wasteland upstate. There's been a real dearth of seed capital available to high-tech startups in the upstate corridor," said Theresa Mazzullo, CEO of Excell Partners Inc., a seed fund based in Rochester. "It has almost reached a crisis phase," Mazzullo said. The state tapped Excell Partners, an affiliate of the private University of Rochester, to vet business plans and direct investments from the new fund. The fund is geared toward helping pre-seed or seed-stage companies from Buffalo to Albany, particularly those connected with universities or research institutions. "Angel" investors are often the only source of private money willing to step in at such an early stage, and they've made fewer investments amid the sputtering economic recovery, Mazzullo said. That makes it more important for the state to try to bridge the gap now, she said. "This is the most critical stage of a new company's formation, and it is the stage at which risks are the highest, because so much can go wrong with the technology, management and marketing," Mazzullo said. Private investment firms also have targeted early-stage companies. High Peaks Venture Partners in Troy just opened a $25 million seed fund for entrepreneurs in upstate New York. First-round investments will run between $50,000 and $600,000. It's unclear how many companies the new state fund will be able to back. Excell Partners has an average investment of $150,000 per company, plus additional matching funds it often secures from other investors. Outgoing Gov. David Paterson had pushed for a $50 million seed fund as part of his budget proposal early this year, divided between state funds and matching private contributions. The fund was dropped during budget talks, with the state trying to erase a $9.2 billion deficit. The new, smaller seed fund is a pilot, with the hope that it will have proven successes and wind up being expanded in a future state budget. "If it works, it will set the tone to evaluate further funding going forward. The state is behind many other states in this particular category," said Dennis Mullen, chairman of Empire State Development Corp., the state's economic agency. The project will test the state's appetite to make investments in companies, knowing that those firms could flop and bring no returns. "Who we want to help is the person with the idea," Mullen said. "It's truly a much longer process. There won't be instant gratification. But as a state, we need to be able to support that in more meaningful ways."