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Ben Franklin Technology Partners Gap Fund: Critical Financing for Early-Stage Companies |
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Ben Franklin Technology Partners
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Written by Ben Franklin Technology Partners, Northeastern Pa
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Website flops like Pets.com, Go.com and MVP.com were among thousands of well-publicized casualties of the dot-com bust of the late 1990s and early 2000s. But web-based companies weren't the only ones to suffer. The bust also caused many venture funds and angel investors to lose a lot of money and created a capital gap in funding for startup companies in general—not just Internet-based businesses. "Coming out of the dot-com boom and bust, many venture funds moved up-market to invest in later-stage opportunities," says Joe Lane, vice president of enterprise development at Ben Franklin Technology Partners (BFTP) of Northeastern Pennsylvania. "At the same time, many of the funds raised were huge—in excess of $100 million, and if you have a fund that large, you cannot justify an initial investment in a company of less than about $2 million. So that created what we call a 'capital gap'—a lack of funding for companies at the early stages in the range of $500,000 to $2 million."
Bridging the Gap
To address this capital gap and provide additional funding and incentive for other funds to invest in some of their earlier-stage companies, BFTP of Northeastern PA created its Gap Fund two years ago. "We wanted to address the capital gap and incentivize some of the smaller funds and angel groups to invest in our companies in the initial 'A' rounds of funding," says Lane. "Many of our companies end up raising substantial amounts of money as they mature, but we decided to create this fund in an attempt to specifically address the companies' earlier funding needs." "The name says it all," says Dan McKinney, one of the founding partners of Next Stage Capital, who co-invested in RCD Technology with BFTP's Gap Fund. "It is widely recognized among my colleagues in this region that the capital gap is widening. As a result, it is very significant to have an additional source of funding for good companies and is extraordinarily important to have sources of co-investment. If you're a venture fund, having somebody as strong as BFTP come alongside of you with equity is terrific."
The Gap Fund in Action
To date, the Gap Fund has invested in three companies:
RCD Technology Corporation
RCD manufactures antennae to be made into radio frequency identification (RFID) tags that can be applied to or incorporated into products for the purpose of identification and tracking. RCD's proces will alow the tags to be produced more economically, driving whole new markets.
GlucoLight Corporation
GlucoLight Corporation has developed a noninvasive glucose monitor that allows diabetics to measure glucose levels from fluid under the skin rather than from repeated blood samples. "GlucoLight's initial target is the intensive care unit, particularly for heart surgery patients—you just put this device on the patient's arm, and it takes a reading periodically," Lane explains. Eventually, GlucoLight foresees a device that a type I diabetic can wear like a watch to take constant blood sugar readings.
Saladax Biomedical
Saladax has created a series of medical assays that are used to accurately determine correct chemotherapy dosing. Individual absorption rates of chemotherapy drugs vary widely, and the optimum level of medication is critical to effectively treat the cancer while minimizing debilitating and potentially life-threatening side effects. All three companies have benefited tremendously from the Gap Fund. "RCD, for instance, has benefited twofold—one because it has obtained additional equity financing, which has helped fuel its growth, and also because BFTP brings a lot of valuable resources beyond the traditional financing in terms of expertise and activity," McKinney says.
Two of the Gap Fund companies—RCD and GlucoLight—graduated from the Ben Franklin Business Incubator and will continue to grow their companies in the state of Pennsylvania. Saladax remains in the incubator (which has been expanded into Ben Franklin TechVentures, a new incubator and post-incubator facility on LehighUniversity’s campus) and is still receiving funding from the Gap Fund.
A Mutual Interest in Success
"We are very close to our client companies," Lane says. "Our philosophy is that if we are invested in them, we're in with both feet, and we are monitoring progress on an ongoing basis—technically, financially and commercially." In the future, Lane says BFTP plans to make two or three Gap Fund investments per year. McKinney adds that in the current economy, the Gap Fund is particularly important. "Where we are in this region and in this economic cycle, it is really important to have another equity fund, particularly an equity fund from BFTP," he says. "They are good partners, and they are filling a need—which is important, because it's a need I don't see going away any time soon."
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