Deal flow signals rising startup sector

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High-tech startups in Rochester attracted $77 million in venture capital during the first half of this year. The area recorded 10 deals, generating 235 new jobs.

Excell Partners, which compiled the data using information from state venture investing activities and PitchBook Data, says Upstate New York drew more than $117 million in 35 deals, resulting in approximately 500 new jobs.

Buffalo led the pack with 12 deals, followed by Rochester. The Buffalo region attracted $28 million, generating 138 new jobs. The upstate region includes Albany, Syracuse and Binghamton as well.

“Health care and IT are the two most active industry segments attracting investments in upstate followed by consumer products and energy,” says Theresa Mazzullo, CEO of Excell, a seed and early-stage venture fund that invests in high-tech startups and is an affiliate of the University of Rochester. “Given the strengths of our region, this trend is expected to continue in the near term.”

The top five deals in the upstate region involved Excell portfolio companies. Excell led the investment, Mazzullo says, and recruited co-investors for some transactions.

Health care technology firm Casana’s $30 million raise was the largest deal in the area. Rochester-based Casana plans to use the money to speed the development and commercialization of the firm’s Heart Seat, a cuffless blood pressure monitor built into the toilet seat.

“I think it’s the continuation of a trend we have been seeing for several years now, and that is, with a stronger and stronger startup ecosystem, comes more deal flow, and better deal flow,” observes Jim Senall, president of NextCorps.

He points to the development of new programs at incubators like NextCorps and accelerators including Luminate, ForClimateTech, and Embark. Startup support from other efforts such as Rochester Institute of Technology’s Venture Creations and its Center for Urban Entrepreneurship, the Commissary and Venture Jobs Foundation have helped nurture an attractive environment for investors.

For example, Owl Autonomous Imaging, a Luminate company, brought in $15 million this year to help advance its technologies. The business has a patented 3D thermal-ranging camera that delivers HD thermal video with high-precision ranging for safe autonomous vehicle operation.

NeuroGenesis, which develops cell therapies for neurodegenerative diseases, drew $10 million while venture capitalists invested $8.6 million in GDI and $8 million in Real Eats, rounding up the top five deals in the first half. In 2021, companies in Excell’s portfolio made big strides and its Finger Lakes Fund posted a banner year.

Senall says companies that can attract funds are those that can show progress in meeting a market need.

“Gone are the days of an entrepreneur trying to write a business plan and get funded.  That doesn’t work,” he says. “Those who are getting funded are the ones that can show they’ve actually talked with customers, know the problem in the market, have validation that what they are creating solves that problem, and ideally, have some revenues, or signals from customers that they will be buyers someday.”

Later-stage companies are expected to demonstrate a growth trajectory with a strong team. In addition to investors like Launch NY, Excell, Thomas Golisano’s Grand Oaks Capital and others, Senall is encouraged by out-of-state and corporate venture capitalists that are interested in local companies.

“I personally expect to see continued deal activity in our region,” he notes. “Many experts nationally are projecting some pullback in the venture investing sector, as VCs tend to their current portfolio more, and do fewer new deals. But I think that applies more to very late-stage companies—those that were thinking of going public, who are now staying private until the market turns around, and their investors will need to provide them additional capital.”

Seed and early-stage deals will continue to ramp up here, Senall predicts.

“VCs are sitting on a lot of money in their funds that they raised a few years ago, and they have to put those funds to work,” he says. “Rochester is emerging as a strong startup hub at the right time to try to capture more and more of those dollars.”

Rochester has long bemoaned the absence of funds for fledgling companies. While that tide is changing, Senall says the area could always use more capital, especially for companies that are in later stages.

“We could also use many more experienced startup CEOs,” he says. “Experience makes a big difference in the trajectory of these companies, and so when we do have a successful startup exit, we really need to try to ‘recycle’ those founders into new companies. Or we need to recruit and attract more founders to the region. I believe both of these are possible.”

Entrepreneurship continues to grow nationwide. A couple of years ago, after the pandemic hit, there was a surge in applications for new businesses. Total applications surpassed 20 percent in 2020 compared to 2019, twice the growth rate in any other year. The trend has endured—an August report from the Bureau of Labor of Statistics showed business applications in July, when adjusted for seasonal variation, were 425,698, a 3.7 percent increase over numbers in June. 

Though more work lies ahead for Rochester, the signs are promising.

“Many experts have said that building a strong startup ecosystem can be a 20-year journey. I’m not exactly sure what year we’re on, but I can say that our community has come a long way,” Senall says. “Seeing more companies getting investment, more venture funds being formed, more out-of-town investors investing here, and even some big exits happening in Upstate New York, are all signs that we’re making progress.”

Smriti Jacob is Rochester Beacon managing editor. The Beacon welcomes comments from readers who adhere to our comment policy including use of their full, real name.

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