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[Stamford Advocate] Venture Capital Funding on Fumes

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Heading into Startup Weekend Stamford, filings for venture capital and other growth-stage funding were abnormally low in the first quarter. Pictured is the team for my MyStuDebt, which won the inaugural Startup Weekend Stamford in 2012 but did not create a company from the idea. Photo: Lindsay Niegelberg

by Alexander Soule

In the first quarter of 2015, Connecticut companies reported their lowest level of growth funding and venture capital in 2½ years, a pause that observers say is likely an aberration when contrasted against the level of activity they are seeing.

Just a dozen Connecticut product and service companies notified the Securities and Exchange Commission they raised funding during the first quarter of 2015, taking in a scant $33.7 million in the aggregate.

That was 80 percent below the total venture funding received by Connecticut companies in the first quarter of 2014, and 70 percent below the average quarterly total of the previous two years.

The muted funding activity occurred even as a number of entrepreneurship hubs have blossomed in Fairfield County the past few years. This weekend, entrepreneurs from throughout the Northeast are expected to descend on Startup Weekend Stamford to attempt building their companies with the help of ad-hoc teams formed on the spot. The winner Sunday night receives six months of free space at the Stamford Innovation Center, along with mentoring and other professional assistance.

The low first-quarter financing filings is a surprise, according to David Schaffer, a partner in the Stamford office of Wiggin & Dana and a board member of the Crossroads Venture Group.

“Within our firm, our experience is that the fundraising environment in Connecticut remains robust,” Schaffer said. “We’ve been involved in a number of seed and early stage rounds this past quarter, with many clients accessing institutional venture capital as well as angel funds.”

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Participants listen to speakers during Startup Weekend at Old Town Hall in Stamford on Saturday, March 31, 2012. Photo: Lindsay Niegelberg

Hearst monitors SEC filings and amendments that companies make to comply with Regulation D, an exemption to sell securities without having to make a more extensive filing required of publicly traded companies. In addition to sales of equity in a business, the Regulation D filings also cover other instruments like stock options or loans that can be converted into equity after specified milestones.

In the first quarter, two product companies accounted for 60 percent of the venture funding tracked by Hearst in the first quarter. SurgiQuest reported $10 million in funding and is seeking an equal amount more, as the Milford company sells its AirSeal system that helps maintain an even pressure within the abdomen during laparoscopic and robotic surgery, also ventilating smoke that can accumulate and obscure a surgeon’s vision.

Canton-based iDevices amended a $5 million round of funding it reported last August to $15 million, as it readies to begin selling Switch, an app-controlled device to allow homeowners to control lights, locks, appliances and other items remotely using an iPhone.

Presidium USA, which established a satellite office in Stamford last year in addition to its main office in London, Ontario, Canada, reported $5.8 million in funding as it repurposes tire components into high-strength composites for use in products for the military, consumers and other sectors.

The current funding environment is positive and active, according to Paul LeBlanc, executive vice president of Presidium and the company’s lead executive in the United States.

After Presidium, Darien-based Cytogel Pharma reported the next highest local total at $2.7 million, with the company working on pain medication using technology licensed from Tulane University. Meanwhile, Aponia Laboratories disclosed funding totaling $1.2 million as it develops a topical treatment for muscle soreness, with the company listing a Greenwich address.

Connecticut is coming off two years of strong venture capital totals, as calculated both by Hearst and separately by PricewaterhouseCoopers.

“I hope it is an aberration,” said Bruce Carlson, CEO of the Connecticut Technology Council, adding last year “was very strong for venture funding in Connecticut, the best year since early in the 2000s, and certainly (the) best year since 2008-9 … From my ear to the ground, I think we will see 2015 remain strong.”

The coming year could also see major changes in how startups solicit and report funding, as the SEC finalizes rules for the Jumpstart Our Business Startups Act of 2012, with the JOBS Act, or Jumpstart Our Business Startups, intended to ease the reporting requirements on companies reporting up to $50 million in funding. The SEC published in late March a 450-page final ruling detailing new rules for startups raising funding.

Schaffer expressed skepticism that Connecticut’s first-quarter funding hiccup had anything to do with the pending changes.

“I don’t think that any company that is need of capital — or any investor that is interested in a particular investment opportunity — is waiting out (the) final ruling on the JOBS Act,” Schaffer said.

Read the original article here.

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