1. Where Economic Development Meets Venture Capital: Impact Investing
Noa Simons, Executive Director
Upstate Capital Association of New York

2. Agenda What is Venture Capital and Why Does it Matter?
How does Venture Fit in the Capital Stack?
Where does Venture Intersect with Econ Dev?
Next Steps for Implementation
It is our mission to make understanding funding options more straightforward, so entrepreneurs and executives can focus on the important work of building businesses across New York.

3. What is Venture Capital?
Startup or growth equity capital, sometimes in form of debt, also called risk capital
For new or growing businesses
Investor gives funding to company and gets equity or rights to buy equity
Most common in high growth technology industries like biotech and software
Source:
It is our mission to make understanding funding options more straightforward, so entrepreneurs and executives can focus on the important work of building businesses across New York.

4. Capital Stack: How Businesses Are Funded
Founder Equity
Long-Term Debt
(Secured, unsecured, senior, subordinate)
Investor Equity
(Private and public)
Convertibles
(Options, Warrants, etc.)
Short-Term Debt
(Trade credits, etc)
Equity
Debt
The textbook definition is “the types and sources of capital funds invested in a business.”
It is the sum total of the value of every share of actual stock, potential stock, and the different types of debt that can exist within a company.
Source:

5. Convertible debt / Preferred stock
Risk, Cost & Ownership
Risk
Cost
Founder Equity
Investor Equity
Short-Term Debt
Long-Term Debt
Asset-Based Lending
Bank
Venture Debt
Angel / VC
Entrepreneur
Finance Company
Senior Debt
Mezzanine Debt
Convertible debt / Preferred stock
Common Stock
Senior Secured Debt
Higher
Lower
This chart describes who owns which piece of the Capital Stack, with highest risk and highest cost at the top.
Entrepreneurs of new ventures take on the most risk at the highest cost
Traditional banks are at the opposite end of the spectrum. They are in the business of not losing money, so they make loans that meet criteria designed to ensure they get their money back. They typically own senior debt.
Economic development capital historically comes in somewhere in between - revolving loan funds are common, angel and seed capital are becoming more common through organizations like Launch NY and the Hudson Valley Startup Fund.
Sources:Internal,

6. Why Risk Capital Matters
Venture capital broadly - and more specifically for our conversation, seed/angel capital - can generally be called risk capital - and it’s important because there are always more companies that seek it than there is money available to cultivate new companies.
Source:

7. Impacting Investing for Economic Development
Apply venture investing principles to local opportunities
Example: Ben Franklin Technology Partners (31 years in PA)
Example: Launch NY (6 years in Western NY)

8. Example: ECIDA & Athenex
ECIDA loaned the biotech startup $200k, part of larger round - with warrants (option to buy stock) in contract
Company paid back loan over time with interest
ECIDA had a put option in the loan agreement to be able to sell warrants back to company
ECIDA exercised put option when company had IPO and received $300k in addition to the $200k loan repayment
Source: Steve Weathers, President and CEO, ECIDA

9. Principles of ECIDA Risk Capital
Make investments for economic development purposes, primarily focused on new job creation, less focus on return on investment (ROI)
Never be the first or only money in a deal
Typically last to the table and fill the last gap of capital needed, under the same terms as the first investor
Source: Steve Weathers, President and CEO, ECIDA

10. Next Steps Get law changed so local IDAs can invest in startups
Develop a plan that aligns with your mission
Consult with experts on best practices
Contact me at for more information

11. Appendix
Good Venture Investment
Good Venture Portfolio

12. Good Venture Investment
Early-stage business with high growth potential (useful solution in a growing market segment)
Great management team with execution ability
Competitive advantage with long-term defensibility (intellectual property, traction with customers)

13. Good Venture Portfolio
Well-considered investment thesis
Strong pipeline of opportunities
Multiple investments within portfolio
Solid investment management practices