Nurturing Seedling Companies Two funds show early promise at cultivating home-grown startups JAMES T. MADORE BY [email protected]Two Long Island investment funds took a chance in 2014-15 on 10 technology startups, giv- ing them a total of $1 million. Since then, the startups have raised $24 million from venture capitalists, government agen- cies and other businesses. That ability to attract capital is an encouraging sign that com- panies can be built from inven- tions created at the Island’s big research laboratories. Still, finance experts cau- tioned the startups face daunting challenges. They could spend years and millions of dollars de- veloping products that never pro- duce a financial windfall. The Accelerate Long Island Seed Fund and the Long Island Emerging Technologies Fund started separately several years apart and then formed an al- liance to back new companies. These businesses are in health care, energy and advanced mate- rials — industries where Cold Spring Harbor Laboratory, Brookhaven National Labora- tory and others conduct re- search. The funds have “done a nice job of attracting seed-level funding to a market that has great potential for startup devel- opment but does not have an ecosystem that naturally at- tracts that type of funding,” said David Silverman, a partner at PricewaterhouseCoopers. “The funds have helped to fill that funding void.” The increased focus on creat- ing companies from local re- search projects comes as busi- ness executives and politicians seek to replace the well-paying jobs lost at defense contractors such as Northrop Grumman See STARTUPS on A38 NEWSDAY PHOTO ILLUSTRATION NED LEVINE LI Business TECH REVIEW SKI APPS CAN HELP YOU ON THE SLOPES A41 REAL ESTATE See what’s selling on the Island newsday.com/business A37 LI BUSINESS newsday.com NEWSDAY, SUNDAY, DECEMBER 17, 2017
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Nurturing Seedling CompaniesTwo funds show early promise at cultivating home-grown startups
Two Long Island investmentfunds took a chance in 2014-15on 10 technology startups, giv-ing them a total of $1 million.
Since then, the startups haveraised $24 million from venturecapitalists, government agen-cies and other businesses.
That ability to attract capitalis an encouraging sign that com-panies can be built from inven-tions created at the Island’s bigresearch laboratories.
Still, finance experts cau-tioned the startups face dauntingchallenges. They could spendyears and millions of dollars de-velopingproducts that neverpro-duce a financial windfall.
The Accelerate Long IslandSeed Fund and the Long IslandEmerging Technologies Fundstarted separately several yearsapart and then formed an al-liance to back new companies.These businesses are in healthcare, energy and advancedmate-rials — industries where ColdSpring Harbor Laboratory,Brookhaven National Labora-
tory and others conduct re-search.
The funds have “done a nicejob of attracting seed-levelfunding to a market that hasgreat potential for startup devel-opment but does not have anecosystem that naturally at-tracts that type of funding,”said David Silverman, a partnerat PricewaterhouseCoopers.
“The funds have helped to fillthat funding void.”
The increased focus on creat-ing companies from local re-search projects comes as busi-ness executives and politiciansseek to replace the well-payingjobs lost at defense contractorssuch as Northrop Grumman
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Corp. and at Wall Street bro-kerages.
For startups to have a mea-surable effect, many more ofthem need to be established,because only a few will live toadolescence, according to Sil-verman and other experts.
The Accelerate Long IslandSeed Fund consisted of$500,000 fromEmpire StateDe-velopment, the state’s primarybusiness-aid agency. TheEmerging Technologies Fundwas made up of $250,000 eachfrom venture capital firms JoveEquity Partners in Setauket andTopspin in RoslynHeights.
By the end of 2015, the fundshad put $100,000 into each ofthe 10 startups.
Codagenix Inc., a vaccine de-veloper in Farmingdale, has at-tracted the most additionalcapital: $11.6 million from ven-ture capitalists and the federalgovernment.
However, those investmentdollars wouldn’t have come toCodagenix had it not first re-ceived backing from the Accel-erate Long Island and Emerg-ing Technologies funds.
“They provided critical fund-ing to do an expensive study ofour flu vaccine in animals,” re-called J. Robert Coleman, thecompany’s chief operating offi-cer and co-founder. “The re-sults from this study providedproof of concept that encour-
aged the future investments.”Codagenix uses technology
from Stony Brook University.Traverse Biosciences Inc. in
Stony Brook has raised $2.5million, the third most amongthe startups in the AccelerateLong Island/Emerging Tech-nologies portfolio.
Key timingThe funds’ investment “came
at a pivotal time for my com-pany and others, whenwewereat the earliest stage of life . . .Without their investments,these companies would notexist,” said Joseph Scaduto, Tra-verse CEO and co-founder.
His business is using chemi-cal compounds licensed fromStony Brook University to de-velop a drug to treat gum dis-ease in dogs. It also is workingon an anti-aging skin creamand a drug to treat acute respi-ratory distress syndrome.
Scaduto started Traverse in2013 after 13 years at the uni-versity’s Center for Biotechnol-ogy, where his duties includedhelping researchers becomeentrepreneurs.
“I became increasingly frus-trated with the lack of startupcompanies emerging fromStony Brook, and I thought, ‘I’mgoing to start a company,’ ” herecalled.
A similar frustration ledMark Lesko, then-BrookhavenTown supervisor, to proposeAccelerate Long Island Inc.,
an organization designed tohelp finance startups with tiesto local research labs, and toeducate aspiring tech en-trepreneurs.
The nonprofit won the stategrant that became the Acceler-ate Long Island Seed Fund.
The organization is sup-ported financially by itsfounders: Hofstra University,Northwell Health, StonyBrook, Cold Spring Harborand Brookhaven National labs,and the Long Island Associa-tion, the region’s largest busi-ness group.
That eight of the 10 compa-nies backed by the AccelerateLong Island and EmergingTechnologies funds haveraisedmore money showsNas-sau and Suffolk counties havestartups worth investing in,Lesko said.
“The most important thingwe have done is prove thatthere are investment-gradecompanies coming out ofLong Island’s research institu-tions. . . . We didn’t have that20 to 25 years ago,” said Lesko,now Hofstra’s vice president
for economic development.Still, he and others cautioned
against declaring victory.Two of the startups haven’t
raised additional money, andone of them has stopped devel-oping its product.
“We need to have a successstory,” Lesko said. “It doesn’thave to be the next Facebook.We just need a good, prof-itable company that’s employ-ing a lot of people to come outof this whole effort.”
Not a success yetVenture capitalists Leo
Guthart and Steve Winick ofTopspin agreed, saying theEmerging Technologies Fund,for which they provided halfthe money, “is not yet a suc-cess because none of thesecompanies, thus far, have hada financial exit” where in-vestors get back their initial in-vestment plus a profit.
“On the other hand, we viewnear-term success as getting vi-able companies going, and thefact that significant additionalmonies have been raised indi-cates to us that there is interestin investing in these companiesbecause of their future poten-tial,” Guthart and Winick saidin an email responding to ques-tions fromNewsday.
The other half of the Emerg-ingTechnologies Fund, JoveEq-uity, is led byDavid L. Calone.
“When I came up with theidea for the fund, the wholepoint was to give these compa-nies, from our research labs,their first burst of capital toget out into the world,” he saidin an interview.
Calone also said he’d like tosee a second Emerging Tech-nologies Fund started, withtens of millions of dollars to in-vest.
The track record of the Ac-
celerate Long Island andEmerging Technologies fundsled New York State last year toprovide $3 million for a newfund, Accelerate New YorkSeed Fund.
The new fund has made twoinvestments so far. Calone,Guthart, Winick and Lesko areparticipating in the fund, tovarying degrees.
“It’s important that we keepdoing this,” said Calone, whosits on the 13-member invest-ment committee for the Accel-erate New York Fund. “Not allof the companies are going tomake it, but we need to get afew of them to grow in rev-enue and employees.”
Accelerate New York hasmore money to invest than itspredecessor funds, $2.4 mil-lion from the state after man-agement fees are deducted,and serves a larger geography,14 counties in downstate NewYork.
Long Island will receive aminimum of $480,000 and amaximum of $1.2 million fromthe fund, according to PeterDonnelly, the fund’s managingdirector and Stony Brook’s di-rector of technology commer-cialization. The fund will in-vest in 20 to 25 startups overthe next few years.
Every $1 from the state ismatched by at least $1 from pri-vate investors.
Donnelly said business exec-utive Anthony Iacovone, wholives in Huntington, has putmoney into one AccelerateNew York deal and has com-mitted to looking at others.Topspin officials also saidthey will consider investingalongside the new fund.
“We want to grow to thenext level in terms of havingan impact” on the economy,Donnelly said.
STARTUPS from A37
Tech roots
$500,000 $500,000
$1M
$24M$24M
Long IslandEmerging
TechnologiesFund
AccelerateLong Island
SeedFund
How $1M became $24M
Each fundinvested$500,000for a total of$1M to support10 tech startups.
Two funds form analliance to backstartups.
The startups raised $24M inadditional funds, and created 20 jobs.
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Accelerate NewYork has in-vested in two startups so far,both in Manhattan: PainQx,which is developing pain-man-agement software, and Bihar-mony Therapeutics Inc.,which is working on an anti-dote to infections caused bymultidrug-resistant bacteria.
The next investment thesebusinesses secure could in-cludemore state dollars.
For instance, software devel-oper Envisagenics Inc. re-ceived its first outside moneyfrom the Accelerate Long Is-
land and Emerging Technolo-gies funds in 2015. The startup,begun in Huntington and nowbased in Manhattan, is creat-ing a tool to help drugmakersbetter analyze genetic informa-tion to treat genetic diseases.The technology was inventedat Cold Spring Harbor Lab.
Envisagenics recently got$500,000 from the $100 millionNewYorkState InnovationVen-ture Capital Fund, alongsideabout $2 million from five ven-ture capital firms.
State money often can serve
as “a catalyst” for private in-vestors to take a chance on astartup, said Brian Keil, manag-ing director of the state innova-tion fund. “We can bringmoney off the sidelines, makeinvestors feel more comfort-able because they aren’t theonly checkbook at the table.”
That’s particularly true withstartups trying to turn biotechinnovations into commercialproducts, “an unattractivearea for venture capitalists be-cause the risk is high, thecosts are great and success is
less certain” compared withsoftware andmobile apps, saidScott Shane, a professor of en-trepreneurial studies at CaseWestern Reserve University inCleveland and an investor.
“The private sector won’tfund biotech and life sciencesstartups alone,” he said. “If thegovernment didn’t fund them,they probably wouldn’t hap-pen.”
SynchroPET Inc. used$100,000 from the AccelerateLong Island and EmergingTechnology funds to hire its
first employee and buy partsfor a prototype of its scanningdevice. The device, whichuses technology fromBrookhaven National Lab, canbe used to monitor the reac-tion of mice and rats to drugsunder development.
“Ten years ago it wouldhave been impossible for Syn-chroPET to exist because thefunding wasn’t available,” saidMarc Alessi, CEO and co-founder of SynchroPET.
The Stony Brook-basedstartup plans to begin sellingits scanning device to re-searchers next year. It onlyneeds to sell 11 each year toturn a profit, he said.
“It feels impossiblewhen youare just starting a company. Ev-eryone says, ‘You cannot do it,’ ”said Alessi, a former Demo-cratic state assemblyman fromShoreham. “But programs, likethese local investment funds,help you over that hump.”
TRAVERSEBIOSCIENCES INC.Founded 2013Employees 1What it does Developingdrugs to treat dogs’ gumsand humans’ lungsTechnology Licensed fromStony Brook University
From left: Researchers FrancisJohnson and Lorne Golub withTraverse Biosciences founderand CEO Joseph Scaduto,in Golub’s SBU lab
SYNCHROPET INC.Founded 2011Employees 8What it does Small animalscanners used in tests fornew drugsTechnology Licensedfrom BrookhavenNational Laboratory
CEOMarc Alessi creditsinvestment funding withmaking development of hispet scanner possible.
BARR
YSLOAN
THE STARTUPS
1Codagenix Inc. (Farmingdale),vaccines
2Envisagenics Inc.(Manhattan), drug
development
3Traverse Biosciences Inc.(Stony Brook), drugs
4DepYmed Inc.(Farmingdale), drugs
5Green Sulfcrete LLC(Melville), concrete made from
