Recent exits by VDOs nurturing innovation cycles
Billion dollar acquisitions and IPOs of young startups capture a lot of media attention, but they are not the norm for the market by any means. Exits do not need to be measured in the billions of dollars to have significant economic development benefit for the states and regions that make sustained investments into startup innovation firms. An SSTI analysis of the Pitchbook and Crunchbase investment databases reveals a number of recent exits by venture development organizations (VDOs) that may provide funding to re-invest in even more innovation-based startups in their regions. Our analysis reveals that many of the acquired companies appear to be maintaining their local operations as they use the acquisition funds to scale. Several examples from the past quarter alone demonstrate the value of the VDO approach to supporting regional prosperity.
VDOs by definition are nonprofit initiatives committed to starting and scaling innovation companies to encourage higher quality economic opportunity in their regions. (VDOs receive some public funding and manage financial tools – equity, debt and/or revenue-based – as integral parts of their regional innovation strategy and business model.)
Here we focus on recent exits from SSTI-member VDOs:
- Yelp acquired AlphaLab’s accelerator client NoWait for $40 million on March 1. After receiving its initial $25,000 investment from Alphalab in 2010, the Pittsburgh company has grown to employ 51 people and enjoy a post-merger valuation of nearly $50 million, according to Pitchbook. Started in 2008, Alphalab is an initiative of the VDO, Innovation Works, and likely is the nation’s oldest accelerator program with sustained public backing.
- Pittsburgh-based VDO Innovation Works (IW) participated in another exit last month. Online vintage clothing retailer Modcloth was acquired by Jet.com on March 16 for an estimated $62.5 million. Since its initial VC round of $1.06 million in 2008 in which IW was one of seven investors, the company has grown to employ 350 people by the time of the sale.
- On Jan. 4, Crawford & Company announced the $36.13 million acquisition of a majority stake in WeGoLook, an online verification platform company based in Oklahoma City and employing 100 people at the time of the acquisition. Oklahoma’s leading VDO, i2E, had been the lead investor in the company’s initial Series A round in 2014 and participated in its second round of funding as well.
- MassVentures, the oldest VDO in the country, has an enviable record of success among its peers; the fund has exited from 130 deals during the past three decades. Its traditional fund is 38 years old, evergreen and has generated a positive return for the Commonwealth, which made the lead investment creating the fund. Additionally, MassVentures-backed companies have employed more than 7,500 Massachusetts residents with an estimated, aggregated annual payroll of $229 million. Adding to its success, the VDO participated in another exit during the past quarter. On Feb. 9, Sun Seven Stars entered into an acquisition agreement with marketing platform Gravevine Logic for an undisclosed sum, providing MassVentures an exit opportunity. The company intends to use the funds to accelerate product development and expansion to new markets, according to the Pitchbook entry.
- Ornat Technologies acquired Philadelphia-based Viridity Energy for an undisclosed amount on Jan. 3. The purchase includes $35 million initial consideration and two additional contingent payments based on meeting performance milestones. The smart grid software company has 38 employees. In 2011, Ben Franklin Technology Partners of Southeast Pennsylvania participated in the $16 million Series B round of venture capital along with three other investors.
- VDO CincyTech is one of six sellers in the March 28 announced acquisition of Sirrus by Nippon Shokuba for an undisclosed amount. With 15 employees at the time of the acquisition, Sirrus developed a new adhesive, sealant, coating and resin technology for use in manufacturing. In 2010, Cincytech was one of the two first investors into the Loveland, OH, company for an early stage VC investment totaling $1.05 million. Cincytech also participated in the sixth round of VC funding in 2015.
- The economic development windfall for Ohio from the $1.4 billion pending acquisition of CoverMyMeds by McKeeson, announced Jan. 24 and covered in the Digest, will come from the jobs created in the state as the company scales. Additionally, Northeast Ohio’s innovation system will benefit from the yet-to-be determined returns on the $250,000 equity investment made by Jumpstart, Inc. into CoverMyMeds back in 2010.