A primer on angels

New York City is a powerhouse of venture capital funding. According to The MoneyTree Report, companies based in the New York metropolitan area attracted $1.2 billion of investment dollars in the fourth quarter of 2013, second only to the Silicon Valley.

For entrepreneurs upstate, New York City might as well be a million miles away. “Everybody knows there’s no money upstate,” said Brian Model, managing partner of Stonehenge Growth Equity Partners and president of UVANY, or Upstate Venture Association of New York, which is working with regional networks across the state to boost business development through investment in small businesses. “The area north of the Tappan Zee Bridge is invisible.”

To help change that investment picture, UVANY, in partnership with Hudson Valley Economic Development Corporation (HVEDC), held an event on angel investors at the Newburgh Brewing Company on February 4. The venue, a capacious, rustic-style hall filled with enormous wooden tables reminiscent of an Amsterdam beer hall, was packed to the gills. Enterprising entrepreneurs had a chance to hear from some venture-capital folks how they can best attract the capital they need to get started or expand.

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The Newburgh Brewing Company is a regional economic sector that lately has actually been attracting private capital investment. Hudson River Ventures (HRV), a Kingston-based investment group founded by Sean Eldridge in 2011, has targeted the artisanal food and beverage industry as one of the most promising in which to invest. For sure, this blast of activity initiated by a man under the age of 30 and with access to a portion of a social-media fortune — he’s married to Facebook co-founder Chris Hughes — breathes the air of new possibilities and perhaps even portends a turning of the tide for capable small business owners who’ve had trouble attracting funds.

Mike Oates, former director of the HVEDC who is now CEO of Hudson River Ventures, was one of four individuals participating on the angel-investor panel. The panel provided an overview of what private investment firms are seeking when they invest in a start-up or small business, what form the investment takes, how long the relationship lasts, and what they provide besides money.

Panel member Nasir Ali, CEO of StartFast Venture Accelerator, said his program provides $25,000 plus an optional loan up to $75,000 to early-stage software companies who relocate to its Syracuse base for the summer. The entrepreneurs meet with various mentors, including experts based at area universities, and other contacts. They also get assistance in raising more funds.

Jo Ann Corkran, managing director of New York City-based Golden Seeds, said her group runs two venture funds and has invested $60 million in 60 companies over the last eight years. “We invest in companies with diverse management,” she said. “You got to have a woman and she’s got to have a real voice.”

Golden Seeds seeks companies “we think can grow to a very large size” in a sector worth at least a billion dollars, such as commerce-assisted technology, media, and medical devices and diagnostics. To help a company hopefully multiple its investment of one or two million dollars tenfold, Golden Seeds is very involved. “We try to give companies help with sourcing talent, strategic advice,” said Corkran. “Every company in our portfolio speaks to at least two bankers.”

In contrast Dick Richardson, a partner in Eastern New York Angels, said his group usually invests in companies in the very early stages, before they’re earning money. “We look for great ideas we can scale up,” which have a high risk factor, he acknowledged. Eastern New York typically invests between $50,000 and $250,000 in a series of phased-in payments as certain milestones are achieved. “Our goal is to get a company launched and running.” Most leads come through the group’s website, with five individuals screened on average every two weeks, followed by a full consultation for those who make the cut.

The people involved are a key element Korkran’s group focuses on when considering an investment. “Can they deal with stress? Are they flexible? Can they take mentorship? Can they attract good people? Are they a leader?” asked Corkran. “We do due diligence on every company we invest in, and one reason is not just to learn about the company, but also to learn about the person. You are marrying that entrepreneur.”

Added Ali: “Eight years is the norm for our relationship with the company. That’s longer than the average American marriage.”

Startups and established companies

Of the four panel members, only Hudson River Ventures specifically targets the Hudson Valley. Oates said the group focuses mainly on the food and beverage, agricultural, and tourism sectors. It also helped launched the advanced-manufacturing 3D printing initiative at SUNY New Paltz. “We’re looking for startups and emerging and established companies,” he explained, “which should have a sound business plan, personal skin in the game, a knowledge and passion of the industry, an understanding of the challenges they have on a competitive basis, and their ability to use the capital we’d provide.”

HRV invests $50,000 to $100,000 usually in the form of five-year loans, although there have been a few equity deals. “Beyond the term of investment, we want to get a fair return so we can treat the fund like a revolving loan fund,” Oates said. He estimated HRV funds one out of every hundred projects that are pitched. “A lot of businesses are just unrealistic,” said Oates. “They might put out a business plan and say it’s a $3-billion industry and year two will bring in $500 million in sales when they don’t even have a product yet.” In such cases, “we try to connect them to the resources that could help them.”

HRV has invested in Continental Organics, based in Orange County. Part of the draw was the company’s commitment to the community and policy of hiring military veterans, Oates said. After the panel discussion, founder Mike Finnegan gave a brief presentation on the startup company, which has devised a closed-loop system to grow food that conserves water, has minimal waste, and captures CO2 emissions. One product is fish raised in a tank whose wastewater is used in a hydroponic greenhouse for growing organic vegetables, the second product. The small amount of leftover waste is sold as fertilizer. The company, which has converted a dairy barn for its operations, has received funding from local banks, the HVEDC, and other sources besides HRV.

Bread Alone Bakery is another beneficiary of HRV. Following Finnegan’s talk, vice president Nels Leader explained how the HRV loans as well as financing from a local bank and assistance from local and state economic development agencies enabled it to expand to a former manufacturing facility in Lake Katrine. Founded in 1983 by Nels’ father, Dan, Bread Alone had reached the maximum capacity of its facility in 2011.

Since investing in new technology in 2007, the bakery had been growing 20 percent annually. It now has 100 full-time employees, up from 80 in 2011. Bread Alone now has two facilities, three retail stores — with a fourth scheduled to open in the spring — and twelve company owned vehicles. It plans to “deepen its penetration of the markets in New York and the Hudson Valley, including Albany,” said Leader, noting that the bakery also will be offering more organic breads.

Bread Alone is one of the region’s most visible success stories, and Sean Eldridge hopes the funds from his organization can replicate that success tenfold. So far HRV has invested in over a dozen companies, most of which represent “the existing, low-hanging fruit,” he said in a phone call following the angel investors’ event. “It makes sense to invest in our strengths. Food and beverage and agriculture are certainly growing and poised for a lot more growth in the region.”

As partners

HRV has invested in a number of micro breweries, an online marketplace called Farmers Web that connects local farmers to wholesale buyers, and Hudson Chocolate, a startup in Poughkeepsie whose products were recently picked up by upscale food retailer Dean & DeLuca. “Mike and I help by leveraging our connections,” Eldridge said. “We try to be there as a partner.”

Hudson Seed Library, which has built an inventory of heritage seeds and is known for its artist-designed seed packs, got a boost with HRV money for an expanded brochure and a new building on its farm in Accord. Roscoe-based Prohibition Brewery is an example of a company that has a tie-in to tourism: fishermen and other visitors flock to its tasting room, Eldridge said. Yet another company HRV invested in, Hops Farm, in Orange County’s Black Dirt region, sells its hops to Yonkers Brewery, also a recipient of HRV investment money. “Connecting those strengths has really been working,” said Eldridge.

Eldridge, who owns a house in Shokan with Hughes and is running as the Democratic candidate in the 19th Congressional District, said he’s most excited about the advanced manufacturing center at SUNY New Paltz, which has just attracted its first partner company, Brooklyn-based MakerBot.

The mission of HRV perfectly dovetails with the “buy local” and “eat local” movements, Eldridge added. “When we started in 2011, not a lot of other people were investing locally. But now there are a number of potential partners, including private investors, banks and nonprofits, who are coming to us saying, This is an exciting model. The potential is much greater. We have a pool as other investors join us. The idea of investing locally is taking off.”

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