Shortly before the COVID-19 pandemic hit, David Brown and Dennis DeLeo launched Impellent Ventures, a new venture fund in Rochester that targets technology-enabled businesses. Bad timing? Not at all, Brown believes. He says change creates opportunity.
While most might expect the fund to struggle during the pandemic, Impellent has invested in eight startups so far. Three of them, 3AM Innovations, Kickfurther and Innovation Semiconductor, are in Upstate New York.
“Historically, venture funds outperform during recessionary periods,” Brown says.
He expects that to be true now as well, adding that he believes it is one of the best times ever to start a business. Impellent is looking to invest in companies with large market potential focused on creating exponential improvements.
A Rochester native, Brown returned here after spending 15 years away in bigger cities in the United States and abroad. DeLeo is a founding partner of Rochester’s Trillium Group and veteran Eastman Kodak executive.
The Rochester Beacon posed a few questions to Brown, managing director of Impellent Ventures. His responses are below.
ROCHESTER BEACON: Could you briefly describe your background and that of your partner, Denny Deleo, and how you joined together to start Impellent Ventures?
DAVID BROWN: I grew up here in Rochester and came back after 15 years away. In that time, I spent stints in Boston, Minneapolis, New York City, Denver, Australia, and South Africa. Before returning to Rochester, I spent the previous eight years focused in Boston’s tech startup community. I held roles building ecosystems as vice president of innovation leadership with the Greater Boston Chamber of Commerce; in startup operations as director of partnerships at ZappRx, a health care IT startup that raised $41 million before selling to Allscripts; and in startup investment as executive director of Technology Underwriting Greater Good, applying venture principles to social ventures, and as a direct angel investor. I also did a lot of startup mentorship as an industry champion for MassChallenge, the world’s largest startup accelerator, and with a number of universities including Harvard and Babson. Through these roles, I have worked alongside over 500 startups and 50 of the country’s most prominent venture funds.
Denny is a longtime leading venture capitalist in Western New York. He was a founding partner of Trillium Group, which raised nearly $90 million in capital across three funds and a series of special-purpose investments, investing in high-growth companies across the region. Prior to founding Trillium Group, Denny was with Kodak, serving in several professional roles over his 25-year tenure. Of particular relevance to our work at Impellent Ventures, Denny was president and CEO of Eastman Technology Inc., a Kodak subsidiary, which was formed to guide Kodak’s internal entrepreneurship operations and launch businesses based on leading‐edge technologies. As chief executive, he had overall profit‐and‐loss accountability and managed a portfolio of more than a dozen new ventures.
Denny and I first met when I moved back to Rochester three years ago. I reached out about a startup I was launching at the time and Denny graciously met with me, gave me great feedback, and was a natural connector and referral source. This greatly accelerated my transition back to this community and I owe him a lot for helping make Rochester a great place to boomerang back to. As we got to know each other better over the next year, our conversations quickly evolved to identifying the hole in funding left by the ending of his last fund and ways to combine our complementary strengths to offer new options for entrepreneurs in Western New York. Despite age and experience differences, we share the same vision for our region and entrepreneurship. I’m excited to be on this journey with him.
ROCHESTER BEACON: What is the typical profile of a startup that your fund would invest in?
BROWN: We like to support companies early and strategically, and as a result have done everything from first capital to Series A investments. Currently, we look at all applications of technology except biotechnology.
When exploring investment opportunities, we first look for businesses led by an outstanding team with an unquenchable thirst to change the world. These entrepreneurs are passionate, coachable and customer-centric, as well as highly versed in their fields and incredibly motivated to bring a better experience to their customers based on evolving consumer trends. Ideally, the founding team has complementary skills with varied worldviews, along with great chemistry. Team is the top priority for us because execution beats ideas and the leadership will be the ones building the culture for the company, for good or for bad.
We next look at capital-efficient business models. Companies that take a lot of upfront capital to prove their model, or have to carry a lot of inventory to grow, make the hard task of starting a business even harder and riskier. It’s not a deal breaker for us, but the traction and team have to be that much better for us to jump on board when extra overhead is added to the mix.
Startups we invest in must also have large market potential. We are looking for companies that can transform industries nationally and globally. Western New York is a great place to test locally, but we want our companies to be able to translate learnings here outwards. Typically, this means an addressable market of at least $2 billion in the U.S.
We also look for companies that offer a 10x better solution. Customers can be finicky and educating them on why they need to switch can be expensive. You reduce that barrier when you are 10x faster, 10x stronger, 1/10th the cost, etc. We want companies creating exponential improvements not incremental ones.
ROCHESTER BEACON: So far, three of your first six investments have been in upstate companies, including one in Rochester. Could you talk about your views of the strengths and challenges of our region for growing startups?
BROWN: We had six investments and just jumped to eight this week! Western New York and Rochester have many strengths: incredible talent, great mentors, and highly competitive costs of operations and living. Between our academic landscape, depth in STEM, strong history of entrepreneurship and more, Western New York has the footprint to be a great venture capital hub. However, talent here remains undervalued.
Our region has its share of challenges, but our strengths make them surmountable. I see those challenges as:
1. Capital: We don’t have enough, period. Western New York sees $200 million in funding on average per year compared to $3 billion in Boston and $2 billion in New York City. We are an hour’s flight from 20 percent of global venture capital and yet less than 1 percent of that sees our market. Based on conversations I have had with top venture capital firms, I know more investors are willing to play here, we just need to do a better job of connecting our ecosystem and sharing our stories. Impellent hopes to help do that, bringing not just our money but other Tier 1 investors to the deals we are doing.
2. Connectivity: Western New York can improve on two fronts here. First, in working better together across Rochester, Buffalo, Syracuse, and Ithaca to grow startups and our ecosystems. These cities are all just an hour or so away from Rochester, yet our overlaps are nascent. Boston and New York City both take way longer than an hour to cross and yet work cohesively. And by creating more symbiotic relationships with nearby startup hubs (Boston, NYC, Toronto, D.C., Chicago, etc.), this region will see a better flow of deals, dollars, and labor that will rise all boats.
3. Reinvestment: Big winners locally should help lead the way. If you look at highly successful markets, there’s an active group of entrepreneurs reinvesting in the next generation of startups. We see some of that in Western New York, but it still needs to open up more with quicker capital for entrepreneurs.
Overall, Western New York’s strengths speak for themselves and far outweigh the challenges. This is why we are focusing investment in this region.
ROCHESTER BEACON: The COVID-19 pandemic hit shortly after you launched your fund. How has that altered your fund’s investment thesis?
BROWN: It’s accelerated it. Historically, venture funds outperform during recessionary periods and I believe this will be true now. Change creates opportunity. While some venture firms are sidelined to help their existing portfolios, and companies with less traction are finding it hard to raise new funds, top companies are accelerating and picking up talent at a discount, and top funds are leaning in. To be sure, rounds for great companies are still oversubscribing. The big difference now is that companies are grabbing 24 months or more of runway, while it used to be just 18 months on average. I believe it’s one of the best times in history to be starting a company and equally one of the best times to be investing into the market. We see a lot of great companies forming and we’ll keep raising more money on our side to invest in and grow those ventures.
Alex Zapesochny is Rochester Beacon publisher. Managing Editor Smriti Jacob contributed to this article.