Capital and expertise for R.I.’s promising startups

By David Ortiz

If innovation is the engine that powers Rhode Island’s burgeoning knowledge economy, you might say the Slater Technology Fund is that engine’s fuel.

Since it was created in 1997 by then-Gov. Lincoln Almond and the General Assembly, to stimulate the creation of new information technology and life science companies in Rhode Island, the Slater Technology Fund has committed to investing $15 million in early-stage capital to finance the births of more than 90 local companies.

The seed funding provided by Slater has enabled many of those startup companies to bring their innovative technologies and products out of the lab and to market, creating local high-paying jobs and helping to develop Rhode Island’s technology and life sciences sectors.

At the core of the Slater Fund’s mission is the belief that big ideas usually start small and need to be nurtured by the right people. Given critical support, innovators in Rhode Island can grow companies that provide a powerful stimulus to the entire Rhode Island economy. “Our aim is to make a significant contribution to developing an innovation-based economy here in Rhode Island,” said Richard G. Horan, senior managing director of the fund. “We focus on entrepreneurs as a strategy of choice in that regard.”

Slater’s work has earned it recognition as the state’s top Innovation Champion in the 2006 Rhode Island Innovation Awards, co-sponsored by Providence Business News and the R.I. Economic Development Corporation.

The Slater Fund is financed by the General Assembly, which provides it with up to $3 million a year in public money.

Horan said Slater is highly selective when choosing startup companies in which to invest. Slater-backed startups must demonstrate that they have a new, sustainable, technology-based advantage and must have outstanding management teams led by entrepreneurs who are committed to growing their companies in Rhode Island.

Additionally, the Slater Fund seeks companies that stand a very good chance of attracting further private investments, either from institutional investors or from strategic partners. Companies founded with Slater support have gone on to raise more than $174 million of their own capital.

In practice, the majority of the ventures Slater finances are based on technology originally developed in academic and government research labs.

One example of the typical Slater-backed startup is Cyberkinetics, a neurotechnology company founded in 2001 by John Donoghue, chairman of neuroscience at Brown University, which has developed a medical device that enables quadriplegics to operate a computer with their thoughts.

The Slater Fund provided $75,000 in early-stage capital to help launch the company in 2002. Cyberkinetics has since gone on to become publicly traded, and has secured a total of $30 million in financing. Now, the findings of its pilot clinical trial are being featured on the cover of the latest issue of the journal Nature, released Wednesday, as a major advance in neuroscience.

The Slater Fund provides the ventures it chooses to support with more than capital. Slater uses its deep industry knowledge and network of strategic partnerships to guide the companies from inception to maturity.

In 2000, former Brown University faculty member Jason Harry needed help launching Afferent Corp., to market a medical device that enhances the limited sensation that stroke victims, diabetics and the elderly often have in their hands and feet.

In addition to investing in the venture, Slater guided Harry through the process of forming a business plan and later attracting further private investments.

“We worked very closely with Jason Harry and his colleagues through that process, and continue to stay actively involved as an observer on [Afferent’s] board of directors,” Horan said.

Last year, the state reorganized the Slater Fund, merging its five separate entities under a single management team and board of directors. The reorganization has enabled Slater to reduce its overhead and commit a greater percentage of its resources directly to the companies it supports.

Today, Slater is managed by three partners, each with respective expertise in the life science, information technology and ocean/energy/environmental sectors.

In contrast to past practice, Slater is now looking to concentrate larger amounts of funding in a smaller number of companies that show the greatest potential to become significant players in Rhode Island’s technology and life science sectors.

This year, the Slater Fund made one of the largest single investments in its history, when it committed $500,000 in seed capital to RightPath Payments Inc., the developer of a Web-based business-to-business payment and trade finance system.

“If you’re a buyer and I’m a seller, normally I send you goods and an invoice and you kind of sit on the invoice for 60 days, so I end up unwillingly being your bank,” Slater Managing Director Thorne Sparkman said, explaining RightPath Payments’ innovative software solution to the problem of trade credit.

“It’s a trillion-dollar problem, and what this technology does is allow the buyer and seller to do this transaction together online,” Sparkman said. “The seller gets paid, immediately, 97 percent of what he invoiced, and the buyer now owes the bank.”