Slater investing slowed by delay in stimulus grant

Slater Technology Fund is waiting patiently – but still waiting – for the bulk of $9 million in federal stimulus crucial to its transformation from a state-funded investment vehicle to a self-sustaining, venture-capital firm.
The money is part of a $13.1 million federal grant to Rhode Island first announced in 2010, of which only $4.3 million has reached the Ocean State so far.
The second tranche of the grant, of which Slater was set to receive $3 million, was first slowed by the state Small Business Loan Fund struggle to find borrowers for its portion of the money.
Now state economic-development officials who manage the grant are conducting an unspecified review of the program before applying for the second tranche of funds.
R.I. Economic Development Corporation spokeswoman Melissa Chambers declined to offer any details of what was being reviewed, what had changed in the last four months to prompt the review or when, if ever, the second tranche might arrive.
“We’re doing our due diligence,” Chambers said.
In the absence of the federal money, investments in Rhode Island companies Slater has in its pipeline are being held up, said Slater Managing Partner Richard G. Horan.
“There is no doubt there are compelling ventures that warrant continued Slater support, where we are having to refrain from moving ahead pending receipt of additional funding,” Horan said. “At some point it becomes a delicate balancing act, because our strategic operating plan is built on $9 million in this and next fiscal year.”
So far Slater has received $1.9 million from the federal grant, including the planned $1.5 million initial installment and an additional $400,000 advanced from the Small Business Loan Fund out of the pool it couldn’t find takers for.
Slater’s anticipation of new cash comes as the pace of venture investment, mergers and acquisitions accelerates nationally and several companies in the fund’s portfolio are raising significant private capital.
Since September, three Slater-backed companies have raised a combined $82 million: IlluminOss Medical raised $28 million in a Series C round; Medrobotics, raised $34 million in a Series D round; and NABsys raised $20 million from a Series D round.
That $82 million in nine months compares with $394 million Slater-backed companies raised in the 15 years between 1997 and last April. Rhode Island leaders steered the $9 million federal grant to Slater not only to provide a capital boost to local startups, but to keep the organization alive while gradually eliminating its state funding at a time of recession-induced austerity.
Slater received $3 million in annual state funding in the years prior to crisis-wracked fiscal 2010, when it was cut to $2 million.
Under the terms of the agreement that steered the federal grant to Slater, the state appropriation was cut to $1.5 million in the current fiscal year, is set for $1 million in fiscal 2014, which starts in June, and will eventually end entirely.
The impact of the recession, funding cuts and uncertainty were reflected in Slater’s transaction volume, which hit a high of $3.5 million in fiscal 2008 and dipped all the way to $500,000 in fiscal 2011.
Without long-term state funding, Slater is changing direction to become more of a traditional venture-capital firm focused on maximizing the return on its investment instead of just helping local companies.
It will also be raising private capital in a fundraising campaign starting this year.
With the transition in mind, Slater has ramped up investment in the past 18 months, particularly with an eye toward companies with a good chance of bringing a return.
Since receiving the first $1.5 million federal installment last year, Slater has invested a total of $3.5 million in 11 firms, including some of the more advanced companies that have already drawn outside venture funding.
Those investments include $1 million in Mnemosyne Pharmaceuticals, $130,000 in Mofuse, $250,000 in VCharge and $500,000 as part of the $28 million IlluminOss Series C.
With those companies, along with others like Andera, Medrobotics and NABsys, all growing and drawing outside investment, Horan said an acquisition or public offering that would allow Slater to realize returns in the next year or two is possible.
“One of the tried and tested rules of the game is that investors don’t get their money out until success is achieved – either in a company going public or getting acquired – that is why it is an illiquid business investing in seed and early stage,” Horan said. •

No posts to display