Cherrystone, Slater help fill VC void in R.I., more needed

STARTUP  SUCCESS: From left, Luna Pharmaceuticals staff: Jamie Schapiro, chief marketing officer; Megan Bell, marketing and sales manager; and Dan Aziz, CEO and founder. Started in 2011 by Aziz, Luna is a Providence startup success story. / PBN PHOTO/ RUPERT WHITELEY
STARTUP SUCCESS: From left, Luna Pharmaceuticals staff: Jamie Schapiro, chief marketing officer; Megan Bell, marketing and sales manager; and Dan Aziz, CEO and founder. Started in 2011 by Aziz, Luna is a Providence startup success story. / PBN PHOTO/ RUPERT WHITELEY

The fact there are no private venture-capital firms in Rhode Island may not mean much to the business community at-large, but it’s important for startups – where ideas live and die with access to early-stage funding.

“If you want to create a company, you go where the money is,” said M. Cary Collins, Michael A. Ruane endowed chair and professor of finance at Providence College.

Venture-capital firms throughout the country tend to congregate in specific areas where new business ideas are bountiful. At the same time, aspiring entrepreneurs with big ideas tend to migrate toward the money.

The symbiotic relationship creates entrepreneurial hubs, which are most notably in Silicon Valley, New York City, Boston, parts of Texas and the Research Triangle Region in North Carolina.

- Advertisement -

“Where you see venture-capital firms, you see a density of companies,” said Jennifer S. Rousseau, executive director at Cherrystone Angel Group in Providence. “Look at where the funds are located and you’ll see they are in very rich entrepreneurial ecosystems.”

Despite having several educational institutions in such a small place, Rhode Island is not an entrepreneurial hub.

“We are just economically too small to carry startups the whole way,” Collins said.

Gov. Gina M. Raimondo, a former venture capitalist, co-founded the state’s first and last private venture capital firm, Point Judith Capital, before she ran for public office. The company, however, later left Rhode Island and moved to Boston, this year rebranding as PJC. A company representative did not respond to a request for comment.

Despite the lack of private firms, however, Rhode Island isn’t completely devoid of resources. The state-backed Slater Technology Fund for years has provided financial support for various startups in the Ocean State. Likewise, Cherrystone – which Slater helped grow – has a portfolio comprising many Rhode Island-based companies.

Thorne Sparkman, managing partner at Slater, also points out that while capital is important to starting a business, it requires a lot more than the money.

“All things being equal, locating your company where there is a lot more venture-capital activity is a factor, but I think it’s less important than the ability to locate co-founders, engineers and technologists in the forefront of their field,” Sparkman said. “The stars have to align to get five great founders at the same place in life focused on the same idea with the same ability to risk their times and careers on ventures that are truly going to move the needle.”

Collins also sees a lot of value in starting a business here, as Rhode Island’s size allows entrepreneurs to stand out and be noticed in a way that could be more difficult in a place such as New York or Boston. The state also benefits financially because it’s so close to Boston and New York, where venture capital is abundant. This is important considering other such hubs are much more spread out across the country.

“We are between two East Coast hubs for venture capital,” Collins said. “I don’t know there’s a way to change that.”

The proximity, Collins adds, should encourage entrepreneurs to start a business in Rhode Island and make people feel proud when a company does well enough to move to Boston or New York and scale.

“When a Triple-A company develops here and then chooses to move to Boston and New York for its next home, it’s fairly logical, and it doesn’t have to come with pain,” he said. “If a Triple-A player from the PawSox [Pawtucket Red Sox] goes on to play in the majors in Boston, we seem to be thrilled.”

Dan Aziz, founder and president of Luna Pharmaceuticals Inc. in Providence, has been largely successful in starting and growing a company here. But it hasn’t come without a number of hurdles for the maker of Premama products.

Aziz started the company in 2011 when he won the Rhode Island Business Plan Competition, which came with some seed money. The capital kept him in Rhode Island, he said, and gave him enough to get the company off the ground. But the pressure of trying to raise capital beyond seed rounds and before a big Series A or Series B is challenging and requires a lot of legwork traveling around New England and New York.

“Starting a company is much easier here because the cost is so much lower. To be right downtown and pay what we do is amazing, so you just can’t do that in Boston and New York,” Aziz said. “But I think Rhode Island is missing out on this early-stage, more risky funds resulting in a lot of companies leaving for where those firms are.”

That amount, he added, is between the $300,000 and $2 million range.

Aziz, who doesn’t see himself leaving Rhode Island, says he thinks the state could do a better job of letting startups know what resources are available to them. Rousseau, whose angel group led an early-stage round for Aziz’s company, agrees, saying she’s hopeful venture-capital firms in the future will look to locate in Rhode Island.

“We need more investors,” she said pointedly. “Whether they’re angel groups or venture capitalists, we need more people in the state because Cherrystone and Slater can’t carry it all.” •

No posts to display

1 COMMENT

  1. With all due respect to Mr. Collins I disagree with with his assessment. As the CEO of a healthy and growing Tech Startup based in Providence and a veteran from within the Silicon Valley startup environment, the city and state offer several advantages to being in the big hubs. While we do have an issue in not having enough access to funding, specifically pre-revenue funding, as he point our the smaller metro does allow you to attract talent, PR and a number of other strategic advantages that get lost in wash of a larger tech hub. And while the pre-revenue funding is a large hurdle it can and has been overcome and access to later stage funding is less location driven. But as we are seeing with GE, Virgin Pulse and later today perhaps another Fortune 500 as well with long time anchors like CVS and Hasbro Providence and Rhode Island do not need to be seen as a AAA player. Often we are our own worst enemy when we view ourselves in that light. Businesses can be grown and sustained in the state for the long haul and I look forward to keeping my business here for years to come.