Five Questions With: Thorne Sparkman

"All of that capital will be used for a single purpose: investing in promising early stage technology companies based in Rhode Island."

Thorne Sparkman, managing director of the Slater Technology Fund, talked with Providence Business News about the fund’s future and the business climate for startups in Rhode Island. He joined Slater in 2000 as executive director of what was then known as the Slater Center for Interactive Technologies, now the Slater Technology Fund, where he invests in software, new media and energy-related technologies. He also is a mentor at startup accelerator Betaspring in Providence.

PBN: Tell me about the new Slater venture capital fund for RI energy sector startups – do you think this is one of the faster-growing industries in Rhode Island and why?
SPARKMAN:
The energy technology sector definitely commands attention. There is a base of established companies, and some really exciting and venture-backed companies like Utilidata and Nanosteel. But what drew me in is the incredible potential concentrated in the seed- and Series A-stage, where the Slater Technology Fund specializes.
I’m astounded by the caliber of the innovation and entrepreneurship I’m seeing in our portfolio companies VCharge, Voltserver and now Enhanced Energy Group, each of which was founded right here in the last few years, and have collectively amassed dozens of employees and millions in revenue.
And I don’t see it letting up either. The carbon capture conference we helped convene in January drew investors, innovators and entrepreneurs from all over the country, but Brown’s Center for the Capture and Conversion of CO2, and several Slater portfolio companies, shined as brightly as any participant. Brown’s ARPA-E award-winning project for generating hydrokinetic energy is also world class.
So, in part, the momentum is research-driven, but there is another factor at work too. Pressing problems attract dynamic entrepreneurs – and huge markets don’t hurt either – so whether it’s reimagining the grid and the utility that runs it, decarbonizing our energy supply or our global stewardship of the planet’s resources in the face of increasing demands, I would be surprised if Rhode Island entrepreneurs were NOT attacking these opportunities with technology.

PBN: The Enhanced Energy Group recently received $100,000 from Slater, after an initial infusion of $150,000 – what made Slater want to reinvest in the company a second time?
SPARKMAN:
Generating electricity with existing engines in novel ways, while aiming not only to solve the world’s carbon problem but to create a new tool for petroleum recovery, is a really big idea — and it was daunting! But helping to realize that kind of ambition is exactly what venture investors should be doing.
Part of what the Enhanced Energy team delivered that has kept Slater and other stakeholders committed was breaking the vision down to constituent parts, and then knocking down the milestones.
In this case, the milestones the company achieved included:

  • Sharpening its focus on exactly which opportunity and go-to-market strategy it would pursue and why, and with what technology;
  • Getting the technology off the white board and into a demonstrable form, which gave investors and customers something very tangible, and answered uncertainty with achievement;
  • Expanding its intellectual property significantly, which is what makes the company such a unique opportunity in the first place.

Now when we talk to customers (and that is what this next phase is all about), we can focus exclusively on demand generation and product-market fit.

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PBN: Slater recently received its second round of federal funding – tell me how that funding will be used.
SPARKMAN:
All of that capital will be used for a single purpose: investing in promising early stage technology companies based in Rhode Island. We devote 100 percent of that capital source to direct investments, and we focus on life science, software and energy technologies.
There will be always co-investment in these transactions, but we still try to make them early-stage investments that can attract significant follow-on capital.

PBN: How many companies has Slater invested in since 1997, how many are operating now, and how much has the Slater technology fund returned on investments?
SPARKMAN:
Since 1997, when our predecessor organizations launched, Slater has invested $28.8 million into 117 companies or projects. Early on, these investments were typically in the form of grants, which could yield economic development returns, but no return of capital. Over time, we transitioned from grants to debt and equity investments.
We count our return in several different ways in order to capture and measure accurately both:
a) our traction against the economic development goals, which are the reason Slater was created, and;
b) our long-term financial results, which ideally complement our economic development goals, and assume more significance when we co-invest.
In terms of economic development returns from Slater’s investments, first and foremost, since we fund high-growth technology companies at the seed stage to drive potentially dramatic employment growth, especially when the growth is fueled by follow-on investment, we track the latter metrics most closely.
According to our latest tally, Slater-backed ventures have:

  • Raised an additional $551 million from investors of all sorts (which is larger than our investment by a factor of 19 times), and;
  • Utilized Slater’s capital, follow-on investments from others, and their own revenues to create 4,131 man-years of employment over the years.

In terms of financial returns, much of Slater’s investment, $11.2 million, is currently in 18 companies, to which we dedicate the bulk of our time and support. These active portfolio companies are living, breathing entities and although the portfolio has some real stars, it is too soon to tell exactly how much financial value they will contribute in the end.
A second cohort of 30 companies has already made a more definitive contribution to both the fiscal and economic development bottom lines. Some have been acquired, some are still operating and others no longer exist, but their contributions to either bottom line have been realized, and for this cohort, our investment of $5.4 million became realized gains of $7.3 million.
The remaining 69 companies, which consumed $12.2 million, either received grants, or were ultimately wound down without making a substantial contribution to either economic development or financial returns.

PBN: How would you describe the start-up community in Rhode Island – is it growing, lagging?
SPARKMAN:
We are excited by the enormous strides the start-up community in Rhode Island has made since Slater began investing in earnest around 2000. The number of venture investments has risen steadily, and in recent years, local investors have had some exciting exits, including when Slater portfolio company Andera was acquired last year. And in addition to the stars in Slater’s active portfolio, there are also high fliers like Swipely, TeeSpring and Utilidata, which suggest that Rhode Island’s run of success will continue.
The more companies that pass through these stages of growth, the more experienced entrepreneurs we produce and the more risk capital we create or attract. This virtuous cycle is as hard to achieve as it is explosively productive, which is why our support of entrepreneurship is so critical.

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