Promised relaunch of IIP fails to get off ground

Providence’s on-again-off-again venture-capital program is off again.
Unable to settle on the best way to manage it, Mayor Angel Taveras has decided not to relaunch the Innovation Investment Program he pledged to bring back in his state-of-the-city address last winter.
That means Mayor-elect Jorge Elorza will decide whether Providence should be involved in stimulating the local startup ecosystem through a program that invested $1.65 million between late 2011 and April 2013.
“At this point we felt it would be best to let the next administration determine which direction to take,” said Gonzalo Cuervo, chief of staff for Taveras and his designee to the Providence Economic Development Partnership, which managed IIP.
In the IIP’s original incarnation, Providence used U.S. Department of Housing and Urban Development dollars to piggyback investments by three private groups in local companies that promised to stay in the city for at least one year.
The vast majority of the startups who received IIP investments – 31 out of 33 – were graduates of the Betaspring accelerator and it was the rapid utilization of the program by Betaspring companies that prompted Taveras to suspend it. The city had only intended to invest $1 million through the program.
When Taveras decided to bring the IIP back, he didn’t want it to be dominated by Betaspring or any other private investor. (The other two original participating investors were Slater Technology Fund and Cherrystone Angel Group.)
But if the city wouldn’t be piggybacking on bets made by private groups, it would have to make those underwriting decisions itself, something the PEDP board apparently never became completely comfortable with. “Those incubators provide a level of expertise, but limiting things to them keeps out folks who might have a good idea and otherwise qualify,” Cuervo said. “Does the PEDP have the expertise to vet these investments? [IIP startups] are very different from conventional loan applicants, who have assets and a business history.”
Cuervo said HUD didn’t clear the city to resume using federal dollars for IIP investments until early summer, at which point discussions about the program’s structure were still taking place and the PEDP had become backed up with approvals for its traditional revolving-loan program.
By the end of August, campaign season was in full swing, including Taveras’ run for governor, and a lame-duck period in City Hall loomed.
After making a revived IIP one of the few new specific economic-development items of his final year in office, Taveras did in fact say he wanted to get the program moving quickly.
After assembling a task force to work on specifics of the plan, he told Providence Business News after a February PEDP meeting that he hoped to be deploying funds to local companies as early as March.
Many details of the revived plan had already been worked out.
Instead of the $50,000 convertible loans made during the original IIP, which carried a 4 percent interest rate, the new version would involve $35,000 convertible loans.
Instead of requiring startups receiving money to make a one-year commitment to stay in the city, the new program would require at least two years.
Last week, Taveras spokeswoman Dawn Bergantino said of the 35 loan recipients, 23 were still active and 12 had been wound down.
Three of the companies have done well enough that the city has converted the loans into equity positions, which would bring a return in the event they are sold or go public. Those three converted loans went to Maternova, 121 Nexus and Nest4Less. Even if the city doesn’t receive a direct return from its IIP investments, Cuervo said the program is a good investment that nurtures the city’s knowledge economy.
“Having these young startups in Providence has a multiplying effect and builds a critical mass of young entrepreneurs that everyone is trying to attract,” Cuervo said. “They network and spend money locally and new projects are born.”
The promise of $50,000 in capital certainly provided a boost to Betaspring as it worked to put Providence on the map within the growing national landscape of startup accelerators.
Now with Betaspring on hiatus as it raises a new fund, and no IIP, local startups are without options they had in previous years, something perhaps at least partially offset by the improving economy.
Around the same time they were trying to relaunch the IIP, city officials were also working with four private groups on a proposed accelerator program for commercial-design-related startups.
That project, named Providence Design Forward, is also “regrouping,” said Lynne McCormack, director of the city’s Department of Art Culture and Tourism.
A partnership between the city, Rhode Island School of Design, Rally Rhode Island, Founders League and DesignxRI, Design Forward was to be based on the MassChallenge accelerator model and provide mentorship, expertise and assistance to city businesses.
Cuervo said Design Forward, like the IIP, are programs the Taveras administration intends to pitch to the next mayor during the transition on the hope the new administration will pick them up. •

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