New ‘Granite Fund’ To Put Local Capital In The Hands Of N.H. Startups

Over the last year, only 11 venture capital deals went down in New Hampshire – compared with 400 in Massachusetts. And only 10 percent of those went toward early-stage funding. But without funding at the very beginning, no startup can actually start up. Now, a new venture fund is trying to make it easier for high-tech startups to get off the ground in New Hampshire, and stay here.

New Hampshire entrepreneurs Gerard Murphy and Andy Young were playing darts a few years back in a bar in Nashua, when they got a great idea. They would start a business that stores digital photo files for professional photographers in a new and better way. There was money in Boston, Murphy says, but investors there “didn’t think that a sophisticated startup that would be venture-worthy would come from this ecosystem.” In other words, staying New Hampshire was a tough sell. 

That’s the problem the Granite Fund is meant to solve. It’s a collaboration between one of New Hampshire’s few venture companies, called Borealis Ventures, and the New Hampshire Business Finance Authority, which administers state funds. The fund is starting out with $4.5 million federal dollars from the 2010 Small Business Jobs Act. Meanwhile, Borealis Ventures is also raising $25.5 million in private investment. “Any investors are eligible,” explains Jack Donovan, the director of the Business Finance Authority, “although we’re targeting foundations, endowments, and other groups that hold a lot of capital in the state.”

The Granite Fund is one of many managed by Borealis Ventures, and it represents a new kind of public/private collaboration for the state. When other states have experimented with venture investments, they have either simply insured private investors against loss, or participated as an equal partner. With the Granite Fund, New Hampshire’s involvement is a little bit of both. If the startups thrive, the state will reap the returns with everyone else. But if things go sour, Donovan says, the state absorbs the first 15 percent of losses.

Because of this, Donovan calls the state a “subordinate partner.” He adds “we have the upside, but we’re shouldering a lot of the downside.”

The state’s “subordinate” position sounds like a bad deal for New Hampshire, but it has a strategic role. In order to convince investors with endowments to get on board, the fund has to provide better returns than traditional investments – without too much risk. Yet, investing in early-stage startups in New Hampshire is, at its core, a risky business. New Hampshire doesn’t have the high-tech infrastructure that Boston. But by shouldering that first 15 percent of losses, the state is hoping to create an attractive environment for local investors.

If investing in local businesses isn’t appealing on its own, the folks at Borealis and the BFA will tell you the Granite Fund is also a good investment. While traditional investments are performing poorly today due to global financial uncertainty, New Hampshire’s high-tech economy is growing. Meanwhile, early-stage funding of high-tech can offer much higher returns than traditional investments. That’s why Borealis feels confident it can raise that $25.5 million.

Jesse Devitte, a cofounder of Borealis Ventures, says the formation of the Granite Fund marks a new stage in the development of New Hampshire’s high-tech economy. “We live true to this model of live free or die, and sort of rugged individualism. You do this on your own. To have the Business Finance Authority step up and say we’ve got this program we want to commit resources to make sure that we have the fuel in the state to fund the growth for the next generation of technology companies, this is a really exciting thing.”

Although Gerard Murphy’s firm, Mosaic, has already grown beyond the early-stages of development, he’s hopeful programs like this one will move New Hampshire closer to the thriving tech hub he thinks it can be. “Cambridge specifically, has a reputation as a really good place to start businesses, and then people leave”, Murphy says. “Facebook is the prime example of that. I think people can start businesses in New Hampshire, and stay here forever.”

Which new startups will the Granite Fund be investing in – and who will the private partners be is top secret at Borealis Ventures. But if you see more startups getting off the ground over the next few years, you might be able to thank the Granite Fund.

Statistics and map of venture deals by state is based on PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters.

 

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Comments

  • Bhlc

    EmiIy: Interesting article and I don’t think you provided too much detail. You are a good writer!

    Betty

  • DLI

    Thank you for an informative, interesting story about an important economic topic.

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