Connecticut Innovations is wrapping up another year—a milestone year, as it turns out, since it’s our 30-year anniversary. Despite the global financial crisis and the pandemic, I’m proud to report that we funded approximately 30 new companies, made investments in 3 venture funds and 68 established companies this year, and generated returns of $18 million. What’s more, our portfolio companies added 400 high-tech, high-paying jobs and attracted nearly $500 million in outside capital. Not too shabby.
To succeed in our mission, it is imperative that we make good decisions about our investments, both initially and in follow-on rounds. I’d like to shed some light on our process both in the spirit of transparency and in the hope that some aspects will be relevant to you.
OUR DECISION-MAKING
When evaluating potential investments, our team starts by asking questions to make sure we understand the startup team’s background and drive, along with their product, market, competitive landscape, intellectual property, co-investors and financial forecast. In most cases, we are trying to envision how things might look three to five years after our investment.
Once we have a good idea of the company’s potential, our team meets to discuss the investment in detail. If we think the deal team leader is on the verge of making a bad call because we don’t believe the company will create jobs or generate returns, we share those concerns and then double down on our due diligence. If the investment goes through anyway, we start fresh by casting our doubts aside and supporting our team members and the company with the might of our financial resources, our decades of experience and our considerable network.
Investing is a rational exercise, and yet we can’t help getting emotionally involved. We champion our companies and we care about their employees, so it is not uncommon to see tempers flare when we vote against a deal. Nevertheless, we value open, honest intellectual discourse, and we move past our differences quickly. Each decision stands on its own, independent of the prior decisions and their outcomes.
We understand that it is impossible to predict how startups will perform. For this reason, if a colleague is adamant that an investment has a high probability of yielding jobs, outside capital and outsized returns, and they are willing to put their reputation on the line to back up their claims, we defer to their judgment. The deal team leader has spent more time evaluating the investment than anyone else, and we know that spotting something others miss is often the path to greatness in venture capital investing (Airbnb is a great example).
Our process seems to be working, because CI has a long history of making sound investments that have helped grow Connecticut’s innovation ecosystem. We understand we must take risks and accept failures to generate jobs and returns. But when we see a company achieve a billion-dollar valuation, add hundreds of jobs in Connecticut, and deliver products and services that improve lives worldwide—Sema4 is a recent example—the rewards are far greater than any stumbling blocks we encountered along the way.
Matt McCooe
CEO, Connecticut Innovations