Connecticut Innovations has been investing in high-potential, early-stage companies for decades. Founded in 1989, CI helped launch Alexion Pharmaceuticals (NASDAQ: ALXN), Arvinas (NASDAQ: ARVN), Biohaven (NASDAQ: BHVN), Tru Optik and hundreds of other companies, many of which have gone on to generate considerable financial returns for the state. Long recognized for seeding startups and for developing programs to address emerging opportunities for VCs, Connecticut’s venture capital arm has a new tool in its toolbox. Surprisingly, it’s not aimed at entrepreneurs—at least not directly.
Investing in investors
If you’re familiar with CI, you may know that it has historically invested in startups through tools like its flagship Eli Whitney Fund and the Connecticut Bioscience Innovation Fund (CBIF). CI’s new program is different. Rather than seeding startups, the goal of the Fund of Funds (FoF) program is to purchase stakes in other investment vehicles managed by other fund managers who are looking for investment opportunities.
The benefits are numerous. “The fund managers we invest in have deep industry expertise and handle due diligence, the selection process and monitoring, which saves us time and resources,” said Connecticut Innovations CEO Matt McCooe. “Even better, they greatly expand our access to the types of companies we want in our portfolio: those with great management teams, proprietary assets and large, addressable markets. We can watch these companies grow and then invest directly in those with the most potential.”
Like venture investing, investing in other investors requires patience. Indeed, McCooe’s team has been laying the groundwork for CI’s new program by selectively investing in large and small funds over the past five years. To date, CI has committed $30 million to 13 funds, including:
- Acadian Ventures I
- Bullish Ventures II
- C2 Ventures II
- Canaan XII
- Canaan XIII
- Elm Street II
- HighCape II
- HSCM II
- Skyview Ventures
- Tamarack Global
- Vesey Ventures I
- Wheelhouse 360
- 1843 Capital Ventures
Each of the funds has an office in Connecticut or has agreed to open one here. So far, seven funds have invested a total of $75 million in 2o Connecticut companies in deals totaling $900 million. As of last quarter, these investments helped create 430 jobs in Connecticut.
Meet the fund managers
McCooe said that CI seeks to build relationships with experienced VCs with whom its interests align. Kevin Rakin is one such investor. A co-founder and partner at HighCape Capital, a growth equity fund that focuses on life sciences companies, Rakin brings 30 years of experience as an executive and an investor. Before founding HighCape in 2013, Rakin was president of Shire Regenerative Medicine; chairman and CEO of Advanced BioHealing (ABH); an executive-in-residence at venture capital firm Canaan Partners; and co-founder, president and CEO of Genaissance Pharmaceuticals.
CI invested $3 million in Westport-based HighCape, whose portfolio includes several Connecticut companies: New Haven–based Alphina Therapeutics, which licenses technology developed at Yale University to exploit metabolic defects and develop new treatments for cancer; New Haven–based Wellinks, which has developed connected medical devices and technologies to help people living with asthma, COPD and other respiratory conditions; New Haven–based Modifi Bio, a preclinical stage biotech company creating a new class of molecules to selectively kill cancer cells via direct cancer DNA modification; Guilford-based Quantum-Si, a pioneer in next-generation semiconductor chip-based proteomics; and Cybrexa Therapeutics, a New Haven–based oncology-focused platform technology company.
Rakin said CI delivers tremendous value to HighCape. “CI’s involvement makes such a difference. When the state’s venture capital arm endorses and invests in you, it gives an imprimatur of credibility.”
Brent Montgomery is another investor CI is betting on. Like Rakin, Montgomery has a successful track record as both a businessman and an investor. After finding massive success in reality TV—Montgomery’s hit shows include Pawn Stars, Queer Eye and Fixer Upper, among others, and he sold his production company at a $450 million valuation—Montgomery said he realized how much brand-building a camera and some exposure could do for a business. He launched Wheelhouse 360 in 2018 in Stamford to capitalize on that knowledge. The fund invests in lower-middle market consumer businesses and brands it can add value to through content. “Look at what Fixer Upper did for Magnolia; look at Barbie,” he said. “Authentic entertainment content has a magnificent effect on a brand.”
Mongomery describes CI, from which he received a $3 million commitment, as a “thoughtful” partner. “We share deal flow with each other, and they’re good at making introductions. They’re synergy because no one feels like they need to be a hero.”
Bullish is another fund that received $3 million from CI. Like Rakin and Montgomery, Michael Duda, a managing partner at the hybrid consumer investor and branding agency, has had considerable success in business and investing. Bullish was an early investor in Casper, Peloton, Warby Parker and scores of other household-name companies. His fund’s current roster includes Function of Beauty, Hally Hair and Sunday Lawn, to name just a few.
Like the other investors in the FoF program, Duda said CI’s partnership lends credibility to his deals. He also praises CI as “enthusiastic” and “pro-business.”
“CI has a public relations program, it’s got a great intern program, there are diversity and inclusion initiatives, and there’s a women’s investor network that helps get more women involved in investing,” said Duda. “I’m extremely proud to be a part of this community.”
CI plans to allocate another $20 million to its Fund of Funds program over the next two years.