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Partnership looks to invest $30 million in start-up high-tech firms

By Daymond Steer
CONWAY — Could the Mount Washington Valley become the Silicon Valley of New Hampshire? That scenario might seem outlandish but a newly formed partnership between the New Hampshire Business Finance Authority and Borealis Ventures is committed to bringing start-up capital for high-tech companies to this state — including the north country. With today's communication technology, companies can operate in places like the Mount Washington Valley that have been the province of the tourist and retail industries.
The partnership, called the Borealis Granite Fund, was explained at a recent meeting of the Mount Washington Valley Economic Council and its guests at Tech Village. The BGF's goal is to invest $30 million, of which $4.5 million is federal stimulus allocated by the New Hampshire Business Finance Authority, over the next five years. Borealis Ventures has offices in Hanover and Portsmouth.
Borealis Ventures is in the process of raising the $30 million now. The BGF will be able to offer entrepreneurs $50,000 to $250,000 of funding — an amount that has the potential to help turn an idea into an multinational company. The minimum amounts of money to invest in the fund are $500,000 for an individual and $1 million for institutions.
Borealis Ventures managing director Matt Rightmire stressed that the funding could go to very early-stage businesses.
"What I like to describe as two guys, a dog and a powerpoint," said Rightmire. "If people have a good idea — one that we think is worth exploring — but don't have the resources to validate that through a minimally viable product or service. So, in today's day and age, $50,000 to $250,000 can get you to that point to determine if there's actually a dog that will hunt."'
Rightmire earned his MBA from Dartmouth College's Tuck School of Business, and later helped Yahoo grow from about a dozen employees to 4,000.
In addition to providing money, Borealis Ventures will also provide business owners advice because they want them to succeed.
"We want to create five more Echo Groups up here in the next five years," said Borealis Ventures cofounder and managing director Jesse Devitte, citing the Conway-based health-care software company as something he hopes the fund will replicate.
According to Devitte's biography in Borealis Ventures' website, Devitte helped grow a small New Hampshire start-up company called "Softdesk" into a "multi-national public company."
Venture capital is about providing money to early-stage companies that have a substantial amount of risk but offer a potential for reward. It shouldn't be confused with "private equity" in which one company takes control of other another company. Private equity has a reputation for shipping American jobs overseas.
"With venture capital we're creating companies," said Devitte.
One of Echo Group's founders, George Epstein, was impressed with what the BGF had to offer. He said venture capital would have been helpful in creating the Echo Group about 30 years ago, said Epstein adding he was able to get an SBA loan and terrific support from Northway Bank. With 80 employees, Echo Group is the largest technology company in the area. Epstein would welcome more high-tech companies into the valley.
"These guys are smart people who are committed to the state of New Hampshire," said Epstein who said the Mount Washington Valley, with its ample recreational opportunities, would be in a good position compete for high-tech jobs.
New communication technologies make starting such a business in New Hampshire more viable than ever, said Devitte. Borealis Ventures considers the north country an "emerging ecosystem" for technology companies along with Keene and Nashua. By high-tech companies, Devitte means companies that derive their value from intellectual property. Those generally include software, biotech, life science and Internet companies.
Mount Washington Valley Economic Council executive director Jac Cuddy said the area has been marketed as being for the retail and tourist industries. Cuddy said the Mount Washington Valley needs a partner to encourage the owners of high-tech businesses from southern New Hampshire and Massachusetts to relocate to the Mount Washington Valley. He said many business people come her for vacation but don't stay. Cuddy said he would like to have representatives from the Mount Washington Valley participate in the discussions Borealis Ventures is having.
"We need to help change the branding a little bit," said Cuddy adding some companies, like Echo Group, have already found a home in the Mount Washington Valley.
Conway is also home to Animetrics Inc, which is a facial recognition company.
Jack Donovan of New Hampshire Business Finance Authority explained that previous efforts to finance New Hampshire businesses were actually counter productive in terms of job creation.
"Every month our credit committee gets frustrated largely because what we've been doing over the last couple of years is financing efforts by people to use less labor," said Donovan.
The New Hampshire Business Finance Authority realized there's a lot of job creation at the early cycle of companies when they first enter the market place. In 2011, it went to the legislature asking them to encourage more venture capital in the state. The legislature agreed. Lawmakers wanted the finance authority to partner with a New Hampshire-based business that would focus on start-ups. Borealis Ventures was selected to lead the fund through a competitive process.
The Granite Fund will keep investment money in the state that would otherwise be scattered all over the country and the world.
"People have this local food effort and this is local investing," said Donovan.
Donovan stressed that Borealis will make the investment decisions.
"Government doesn't do that well," said Donovan.
N.H. Business Finance Authority wasn't provided with any property tax dollars but it was able to get funding through the federal stimulus package. Donovan said the authority's $4.5 million investment into the fund is basically in "B shares," meaning that other investors will get their money back before the authority sees any.
The venture capital BGF will be involved in is much different than the type that's portrayed on the ABC network television show "Shark Tank" — where entrepreneurs ask a panel of rich investors for money in exchange for an equity stake in their businesses. The investors, nicknamed the "sharks," frequently ask the business owners to consider sending the production of their products overseas.
"That's not what we do," said Devitte.
Rightmire said Borealis Ventures has raised two funds and invested $50 million in 23 companies across the United States. Nine of those companies are from New Hampshire. Those nine companies have done well — earning 2.3 times cash on investment and created 450 jobs over the course of a decade. Rightmire said Borealis Ventures has been more successful with the companies that it's in close proximity to than ones that were farther away.
After a potential company gets some funding from the Granite Fund, it will become more attractive to investors from Boston and other places because the risk for them is reduced.
"It helps them get comfortable with writing a meaningful check to a company that's based 90 minutes away from their office," said Rightmire of larger investors from Boston.
Most proposals to Borealis Ventures come in by email and all are evaluated. Borealis Ventures will only make investments in a small fraction of the plans it receives. For example, said Rightmire, if they review 100 plans, they will closely examine about 30, call about 10 of the entrepreneurs, perform market analysis on five plans, and then make investments in two.
Borealis Ventures' first deal was with a biotechnology manufacturing company called GlycoFi, which was sold to Merck for $400 million and is still based in Lebanon.
After a BGF-assisted company is sold, its new owner isn't obligated to keep it in New Hampshire. However, Rightmire said a major part GlycoFi's value is the knowledge its employees possess. Merck would face a substantial risk if it chose to move the business elsewhere. GycoFi's business was based on research associated with Dartmouth College.
When a company becomes successful, other entrepreneurs are encouraged to start their own business in the same location, said Rightmire.
"GlycoFi has played that lighthouse role for the upper valley since the transaction with Merck in 2006," said Rightmire.
For more information about Borealis Ventures and the Borealis Ventures Granite Fund, visit borealisventures.com.
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