MIDDLETOWN – Martin Sabarsky, CEO of Cellana Inc., was clear Tuesday in his message about the future of the state’s blue economy, an industry that Rhode Island officials have staked out as a future pillar of economic innovation and growth that is now entering choppy waters the next four years with President Donald J. Trump.
"Make something completely independent of the feds," he said during a discussion titled "Blue Economy Investing Today" at the 10th annual Blue Innovation Symposium at the Wyndham Atlantic Resort, “at least for the next four years.”
Sabarsky, who predicted that the American Rescue Plan Act would be repealed by Congress, warned “any business model that depends on federal funding is going to be challenged.”
While his company saw year-over-year growth during the Biden administration, Trump's prior election in 2016 brought the company “to zero overnight.”
Companies large and small looking to break into the emergent space will need to lean more on venture capital investment rather than be endlessly dependent on federal government programs and grants to sustain revenues, the panelists said.
The industry has found itself in “tough spot,” said panel moderator Adam de Sola Pool, an investor and special advisor to the Woods Hole Oceanographic Institution.
All panelists agreed that the industry may need a "SpaceX moment” to convince investors to buy in, meaning the creation of an sector that creates smaller spin off companies out of larger ones.
Steven Fox, partner with Propeller Ventures, is bullish on the blue economy's prospects. He has seen several companies hit or exceed revenue thresholds in the space. Companies that don't provide dual use services or have financial autonomy will fare worse in the coming months and years, he said, as previous “frothy valuations” become normalized.
Blue economies will need to learn to swim independently, said Fox.
“There is a pruning that is happening,” he said, likening industry consolidation to “scraping of the barnacles.”
“It sounds brutal but it's necessary."
However Beth Orcutt, director of research for the Bigelow Laboratory for Ocean Sciences, said that federal government can still have an important role if it makes the industry more attractive by "removing regulatory obstacles to seeing these investments move faster.”
And recent geopolitical trends have brought another opportunity in the defense space, said Jon Rotolo, co-founder of DTN Ventures.
“Five years ago, a lot of venture capitalists would have been hesitating on any business plans that have a strong military component to them," he said.
Still, Jon Chait, a partner with IQT, agreed that defense will be a growth area, which will be necessary for the American companies to compete internationally.
While he has seen record levels of investment recently, “this is still not a category where we are number one,” he said, partly because much of the technology created in the defense sector is classified, which can give outside investors cold feet and left wondering “Does the system have any competitive advantage or not?”
But Chait said there is plenty of opportunity in the diversified maritime sector, which operates “from sea to sky." and where "we will start to see a venn diagram that draws more [investors] in,” he said.
But if regional companies need a model, they should look across the Atlantic Ocean, said Fox.
"Two of our last three investments were made in Europe,” he said, citing a conversation he recently had with an overseas venture capitalist who suggested any company looking to raise funding prioritize “LSD ... Liquid, stable and delighted."
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.
