Connecticut Innovations’ chief investment officer, David Wurzer, and Peter Longo, the firm’s senior managing director, have seen their fair share of pitches; combined, they’ve been investing in startups for more than five decades. Here, they tell writer Amy Hourigan about the tech they like for 2022, the surprising trend they’re seeing among first-time founders, and the advice they’d give entrepreneurs who hope to pitch them this year.
Amy Hourigan: Great to talk with you again, Dave and Pete. Let’s dive right in. What industries will CI focus on in 2022?
David Wurzer: Great to talk with you, too. Digital will continue to be a focus in ’22; it’s still very much in demand. We’re living longer and requiring more services as we age, and then you have the pandemic, which forced the cancellation of non-emergency in-person visits and made us more comfortable with telemedicine. We’re 10 years into the start of Baby Boomers’ retirement already, too. Most Boomers are digitally savvy, so when they’re ill, maybe they can’t get to the doctor, but they can have a 15-minute consultation over the phone and get the care they need. It’s really convenient.
Besides digital health, we’re seeing larger deals on the bioscience-therapeutic side that we’re interested in funding.
Peter Longo: I don’t invest in healthcare; that’s Dave’s area. For me, fintech is hot right now. Like digital health, fintech is experiencing a great deal of disruption due to the pandemic. People are now comfortable banking online, and security has improved. As a result, many financial transactions—both B2B and B2C—are moving to the phone. We’re seeing good investment opportunities in security, too.
DW: Mobile banking is a big trend. There’s only one bank branch open in my town now, and you can only go through the drive-through. Not only are people doing more banking online, but there’s also a labor shortage; my bank doesn’t have enough workers to keep the lobby open. So both of those are driving demand for mobile banking.
PL: The labor shortage is definitely driving a great deal of innovation and change. Besides fintech, there are good opportunities in and around technology-enabling efficiencies through machine learning and artificial intelligence.
AH: Will CI continue to invest in early-stage companies?
PL: Industry-wide, we’re seeing increased adoption of barbell investing, a strategy whereby investors are coming in later and things are moving earlier to liquidity, and we’re seeing much larger A and B rounds. These strategies de-risk the investment because they give companies a longer runway to reach their critical milestones. At CI, we’re still getting in early, because, aside from trying to generate good returns, we’re also working to advance Connecticut’s ecosystem by growing companies and jobs here in our state. But we’re also providing access to growth capital deals more often than we have in the past. Getting earlier to liquidity events means we have more money we can pour back into Connecticut startups.
AH: Is there any tech that’s particularly interesting to you right now?
PL: Besides health tech and fintech, the climate tech space is making a comeback. Thanks to the current focus on climate change, reducing CO2 emissions, and putting more electric vehicles on the road, clean tech is big. Connecticut is very strong in this area, particularly on the engineering side of climate tech.
DW: Right. And with the focus on electric cars, remember that all electricity needs to be produced somehow. Solar helps, but you can’t generate solar power at night. Energy transmission costs are high. There’s an interest in solving that with battery storage solutions being innovated for locally generated wind and solar power.
AH: Speaking of clean tech, do you always look for companies that are strong in industries that have a strong tie to Connecticut?
PL: We do. There are great opportunities here for startups to tie into the insurance, financial and other established sectors here. Being connected to a network of companies in your industry makes it that much easier to scale.
AH: Do you focus more on nurturing Connecticut-based startups or attracting startups to the state?
PL: We’re focused on both. They’re equally important to our mission.
DW: We’re very attracted to repeat entrepreneurs. Many of those we work with are starting their second or third company and have excellent track records, so we know they’re a good bet. Even the entrepreneurs who weren’t as successful are usually great investments because they’ve learned lessons from their earlier outings that they will apply this time around.
AH: Is Connecticut Innovations offering any new funds or support for 2022?
PL: We’re launching two funds: the Futures Fund, which will invest primarily in historically underserved entrepreneurs, and the Climate Tech Fund, which is for clean energy, climate change and other tech of that nature. We’ll be announcing more about both a bit later in the year.
AH: What are some of the programs, outside of CI, that you recommend to entrepreneurs?
PL: UConn has a small Technology Incubation Program (TIP) in Stamford that we like. It pairs students with startups for mentored research fellowships. And CTNext’s internship grant program, Technology Talent Bridge, continues to be hugely popular for staffing and other support.
DW: Lab space is at a premium, so we’re pleased that Pierce Labs opened New Haven Innovation Labs, which has incubator and office space. There’s also a big development underway in New Haven called 101 College. It will house 500,000 square feet of lab and office space, plus an incubator, and will further alleviate the lab space shortage in Connecticut. Yale already leased three floors, so we’re encouraged by that. We expect 101 College to be a big feeder into our programs, probably not in 2022 but shortly thereafter.
AH: What other trends are you seeing?
DW: There’s going to be a big challenge next year with the public markets. Money runs downhill, from public markets to private markets. When the public markets are choppy, like they are now, there’s not as much new capital available and there is less interest in riskier investments, like early-stage companies. It’s cyclical, but the cycle doesn’t typically go back to favoring riskier investments as quickly as it turns away from them.
PL: We’re also going to see a noticeable trend of down rounds. For a while now, investors have been raising as much money as they can and making promises they will be unable to keep. Valuations were high, and things were being priced for perfection. Now we’ll be seeing companies that can’t meet their milestones. As a consequence, it will force recaps and down rounds. It’s not doomsday, it’s just that things are never perfect. And cycles affect the venture space more dramatically than they do the public space.
DW: Another trend we’re seeing is a lot of older first-time founders, particularly retired investment bankers from Fairfield County. They have healthy stock portfolios and equity in their homes, and more and more of them are getting together with friends and starting companies. There’s a lot of interest in business creation and innovation; also, it’s pretty cool to be an entrepreneur.
We’re also seeing that inflation is challenging corporate earnings, which in turn affects stock prices and liquidity. The labor markets are tight, too; you can’t get talent at affordable prices. That’s hurting startups; they have to spend more to get the talent they need, so we’ll definitely be seeing more of that. It doesn’t seem like the labor markets will loosen any time soon.
AH: What’s the one piece of advice you’d give to entrepreneurs looking to pitch you this year?
PL: Show us that you can be flexible. Show us that you know how to listen—to your customers, your team, and your investors. As you grow, there is always, always change. You have to be able to manage that change and stay flexible.
DW: One thing I’m sure of after working with startups for decades: It’s never going to go the way you think it’s going to go, so I’m most interested in investing in people who are experienced in managing change, or who surround themselves with others who can manage change.