RI Attracts More than $200 Million for Hot Start-Ups
Monday, December 01, 2014
One gleaming sector of the Rhode Island economy is the world of start-ups. In the past two years, Rhode Island-based companies have raised in excess of $200,000,000 in capital.GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST
While Silicon Valley and Boston/Cambridge are two of the biggest hubs for attracting venture capital that fuels hundreds of companies each year, Rhode Island has seen a precipitous increase in dollars and deals.
“We are seeing the logical outcome of having a healthier startup scene in Providence. We have a half-dozen startups with big ideas that are coming into their own around the same time. In the past we've had one at a time, and long stretches when there weren't any obvious breakout successes. Venture capital is increasingly mobile, it will follow the best entrepreneurs and startups if they prove their business,” said Allan Tear, one of the founder of the business incubation company Betaspring.
SEE SLIDESHOW BELOW OF SOME OF THE COMPANIES RECEIVING INVESTMENTS
Led by high profile companies like Swipely, Teespring, Alex and Ani, and at least ten others, Rhode Island may have more hot start-ups than ever before in the state’s history.
Swipely has had two $20 million rounds and in 2013 was tagged by Forbes as one of the most promising companies in the United States. Teespring has raised $55 million in 2014 alone. GoLocal flagged this breakout company, founded by two recent Brown University grads, as a company to Watch in 2014. Alex and Ani in 2013 raised $75 million in private equity and ShapeUp has raised more than $10 million.
Companies who have raised more than $1 million and will be raising additional capital in 2015 include Giovanni Feroce’s BENRUS - the lifestyle brand that is looking to compete with Michael Kors and Tory Burch -- it offers a sweeping array of products from watches to apparel.
GoLocalProv’s parent company, GoLocal24 which is the only multi-state media company located in Rhode Island, raised more than $1 million and expanded to Portland, Oregon just three months ago.
Four Reasons for Success Says Mazze
According to URI Distinguished Professor of Business Edward Mazze, more venture capital is coming to Rhode Island entrepreneurs and businesses today for four reasons:
(1) the strategic location of the state and its nearness to markets because of its transportation systems;
(2) the existence of a number of businesses on the frontiers of their disciplines such as in the marine sciences;
(3) the state is an "educational" center for entrepreneurial education and;
(4) businesses developing from new technologies in the sciences and telecommunications are growing and need more capital.
“Every public and private college and university in the state offers business courses in entrepreneurship. The size of the state makes it an ideal place to test new ideas, and new products and services. The year 2014 may be a record year compared to past years because of favorable economic trends in the Rhode Island and U.S. economy, however, future years will bring even more venture capital to the state as the new Governor and current leaders of the General Assembly welcome new businesses to Rhode Island,” said Dr. Mazze.
Caution from Swipely CEO
Rhode Island still has much to improve on according to one top start-up CEO. “Compared to other states, Rhode Island attracts virtually zero venture capital investment. It would be a mistake to characterize recent investments as "so much VC coming into RI." Through the end of Q3 2014, RI had just 11 VC investments totaling about $87 million. That's nothing compared to Massachusetts, which saw 282 deals totaling nearly $2.7 billion over the same period,” said Swipely CEO Angus Davis.
He says the recent success can be greatly improved upon. “Venture-backed companies in New York attract nearly as much investment in a single week as RI companies raise in an entire year. The real question we should ask is why so little venture capital is invested into Rhode Island companies? The answer is there are not enough high-growth companies in Rhode Island for investors to back - yet,” said Davis.
Moreover, the only venture capital funding firm - Point Judith Capital - moved out of Rhode Island two-years ago to Boston. That firm was founded by RI’s Governor-Elect Gina Raimondo.
The Need to Change the RI Culture
“It means a few things: These startups that have begun hyper-growth and attracted venture capital will be our new job creators; Leadership should pay attention. It is a reminder that RI grows when we are the home for entrepreneurs with global ambitions, who play way beyond state borders. Finally, startups go through a lifecycle that hopefully ends in being bought by a giant or becoming a giant. We need to be starting the next crop of promising companies now if we want to keep on the right track in the future,” said Tear.
The growth of Rhode Island’s start-ups, whether funded by venture firms or private equity concerns, is more than just money. Rhode Island needs talent and a culture of entrepreneurship.
“The simplest, fastest way to accelerate growth in Rhode Island would be to draft off our neighbor to the north in Massachusetts, by making it easier for RI companies to access talent and capital concentrated in MA, and making it easier for MA companies to employ Rhode Islanders,” said Davis.
Another critical factor is the need to develop and retain talent in Rhode Island. Too many of the young and highly educated have left RI. Rhode Island is ranked among the worst for business climate by Forbes in part due to the loss of population. "Rhode Island needs to attract and retain more talent. Today, companies are about talent and the companies that can attract and train-up potential will win," said Josh Fenton, CEO and Co-Founder of GoLocal24.
“Over the long term, we must address our chronically under-performing education system and adopt a culture that is less parochial ("I know a guy") and more oriented towards aggressively increasing prosperity, welcoming businesses to compete on a fair, even playing field. High growth companies enjoy one of the healthiest private capital markets in a lifetime, and state income tax rates are of little concern to high-growth companies. We do not need more government; we need more entrepreneurs to start and grow companies that can scale,” said Davis.
Related Slideshow: Hot Rhode Island Start-Ups
Here are some of the hot Rhode Island-based companies that have raised over $200 million combined in 2013 and 2014.
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