Regionally focused investors yielding more than ROI

An SSTI analysis of exits occurring during the second quarter by a number of venture development organizations reveals equity investment in innovation companies undertaken as strategic public-private partnerships for regional growth can yield more for their communities than just hitting the return on investment expectations of seed and traditional venture capital. The recent exits highlighted below reveal a variety of economic development impacts resulting from effective innovation investment strategies, including:

• Increased competitiveness and growth of local firms through mergers and acquisition;
• New market entry and new product lines for existing manufacturers;
• Opportunities to broaden wealth generation among wider population;
• Foreign direct investment and company relocation; and of course,
• Wealth generation, tax revenues and job growth within the local community.

Note: this is SSTI’s second look at recent VDO exits; selected first quarter 2017 exits for VDOs are available here.  Second quarter highlights include:

Local acquisition: On May 5, Sylvan Learning acquired Citelighter, a web-based academic research and writing composition developer located in Baltimore. Early investors exiting with the company’s purchase include VDO Maryland TEDCO, the state-backed Maryland Venture Fund, and TEDCO’s place-building VC initiative, Propel Baltimore Fund.  Education giant Sylvan is also Baltimore-based, which may increase the localization of economic development outcomes from the acquisition.

Market expansion through leveraged buyout/acquisition:  Avantor Performance Materials acquired high-purity chemical and custom-blended formulation manufacturer Puritan Products on April 20 for an undisclosed sum. Founded in 1987, Puritan employs 25 people in Bethlehem, Pennsylvania.  In hindsight, a small grant in 2009, from the Ben Franklin Technology Partners of Northeastern Pennsylvania (BFTP NEP), may have been critically influential to the future attractiveness of Puritan for Avantor.  According to the 2009 deal synopsis on Pitchbook, the then-predominately aerospace and defense company used a $32,494 BFTP NEP grant “to acquire a certification that will enable it to expand into the pharmaceutical and biotechnology markets.” 

Acquisition as foreign direct investment gain? U.K.-based, publicly held WPP expanded its Pittsburgh presence with the April 27 acquisition of DeepLogic, a 50+-employee innovation/media studio spun out of Carnegie Mellon University that had received two rounds of seed funding from area VDOs, Innovation Works (2010) and Idea Foundry (2016).  Terms were not disclosed for the deal.

Sharing the wealth through initial public offerings: Biohaven Pharmaceuticals (NYSE: BHVN) raised $183 million with its May 4 IPO. The provider of drugs for neuropsychiatric disorders is based in New Haven, Connecticut. Participating in the round as an early, exiting investor was VDO Connecticut Innovations, established by the state legislature in 1989.

On June 23, Arcimoto announced plans to file a small IPO on the NASDAQ to expand development of its three-wheeled, zero-emission motorcycles. Based in Eugene, OR, the 50-person company is in the Oregon BEST portfolio of energy technology startups.

Acquisition leads to new customer channels: After a yearlong collaboration, Minneapolis-based Ackmann & Dickenson acquired the mobile software product firm, Jestercom for an undisclosed sum on May 11.  Jestercom’s primary customer base has been the marine industry and is located in Bluffton, South Carolina, just west of Hilton Head. Exiting with the acquisition is SCRA Technology Ventures, the VC arm of the South Carolina Research Authority.

Acquisition enabling initial market entry: On June 21, Green EnviroTech Holdings announced its cash and stock acquisition of FWD:Energy, a scrap-tire recycling technology company that received seed capital investment from VDO TechGROWTH Ohio. In the announcement of the acquisition, Rich Sloan, managing director of FWD:Energy said, “We’re very excited to bring our next generation, proprietary end of life tire processing technology to market in concert with the Green EnviroTech team. Combining our resources with GETH’s builds on the strengths of both organizations to reduce risk and maximize value creation. We’re now ready to transition from R&D to commercial operation with an eye toward unique, high value markets for our end of life tire derived products.”

Other second quarter VDO related deals:  On May 8, New Jersey-based IContracts acquired PolicyStats, developers of a Saas based products for health care compliance/quality management. PolicyStats employed 48 people in Carmel, Indiana, at the time of the merger. Terms were not disclosed. Founded in 2006, PolicyStats received a 2008 investment from Elevate Ventures, a statewide VDO supported in part since its founding in 1999 by the state of Indiana.

Germany’s Grünenthal acquired surgical-sealant manufacturer Adesys Medical for an undisclosed sum on April 7. Founded as recently as 2013, the startup employed seven people in Houston at the time of the merger. Exiting early investors include the Texas Medical Center Accelerator (2015), the Houston Technology Center (2015) and MassChallenge (2016),. 

On June 9, Ardina, a telehealth innovation firm based in Central Ohio, became an operating subsidiary of Massachusetts-based HealthPoint Plus.  Exiting in the deal with the only reported outside money is Rev1 Ventures, one of the most active early stage investors in the Midwest.

NYC Seed experienced two exits during the second quarter through the acquisition of FieldLens as an operating subsidiary of WeWork and the leveraged buyout of Tout App by Marketo. NYC Seed is a VDO founded in 2008 through a partnership of ITAC, the Partnership for New York City Fund, NYSTAR and Polytechnic Institute of NYU.