Matt McCooe was one of the people who helped me find my way into venture capital back when I was at Columbia Business School, so this one was overdue. He has spent the last several years running Connecticut Innovations (CI), the state’s strategic venture capital arm.
CI put $58 million to work last year through a mix of venture debt, fund-of-funds commitments, direct investments at home and abroad, and a set of in-house funds run by GPs it recruited and capitalized itself. And as I learned, PitchBook ranked CI first in New England for portfolio exit value over the trailing year and among the top five East Coast venture firms investing at Series B or earlier.
A state venture fund (that also invests internationally)
CI is a quasi-public agency, and Matt describes its position as sitting “at the nexus between the state government and the private sector.” The mechanics look like any other venture fund. The scorecard does not. He measures himself on returns and on jobs created in Connecticut. A good multiple on its own does not clear the bar.
Roughly $15 million of last year’s total deployment was venture debt. The fund-of-funds program has now backed 20 venture funds, each with at least one GP in Connecticut. Matt figures 15 or 20 new firms set up in Westport thanks to COVID, and CI has been investing in the people who made that move out of the city.
CI usually holds its Fund 1 commitments to somewhere between $500,000 and $3 million, depending on the size of the raise. Spice, run by Ribbit Capital alum Nick Huber, is the first time CI went above that ceiling. Huber’s focus is emerging markets, with the Philippines and South America alongside the US.
The deal Matt uses to illustrate this is a buy-now-pay-later business that Huber backed in Caracas before Maduro was removed, which Matt calls one of the craziest deals he has ever seen and one that was growing by leaps and bounds anyway. Huber, in Matt’s words, sees the world in a way that is “totally different.”
“I think he understands lending and debt as well as anybody that I’ve ever met.”
The direct international book goes back about six years, with what Matt described as mixed success. CoolIT is the one I already knew. It’s a liquid-cooling company out of Calgary, and it was in the portfolio back when I worked for Matt’s prior firm during business school. CI came in at seed. KKR later sold it in a multibillion-dollar exit that Matt says ranks among its best-returning deals ever. He was quick to point out that KKR did a lot better on it than CI did, and that the deal did not create a lot of jobs in Connecticut. That second part matters to him.
“For me to consider something a true win… it’s the jobs, it’s the creating a permanent company that’s going to become part of the growing innovation ecosystem in Connecticut, as well as round-tripping the money.”
The international work is built around that same goal. CI is looking for founders who want to come to the US eventually, and the only places they know are the Valley, New York, and Boston. Matt’s job is to get them to consider Hartford, New Haven, or Stamford instead. That is the thesis behind the two investments CI just made in India, where he likes the consumer opportunity in the rising middle class and the odds that those founders will want a US footprint down the road.
Handing GPs a fund instead of writing them an LP check
Rather than only backing outside managers as an LP, CI picks a thesis area, finds someone who can run it, and stands up an in-house vehicle for them.
“We’ll also give people in-house captive funds where they can build attributable track records.”
Gwen Cheni runs the AI/Q Fund covering artificial intelligence and quantum, having come over from SOSV and Khosla. Konstantine Drakonakis runs the ClimateTech Fund. Alison Malloy runs the Future Fund on the consumer side. All of them arrived as investors or operators, and none of them had to go raise money.
Rather than manufacture a thesis he did not believe in, he went and found someone who had one. By his count, Gwen sourced around a thousand opportunities in her first six months. She runs a barbell strategy, with pre-seed on one end and later stage on the other.
Some of the founders she is chasing have Connecticut roots and some have no connection to the state at all. She is chasing Yale grad students and undergrads coming out of Y Combinator, trying to get them to land in Connecticut once they graduate, and there is already an Israeli company in the portfolio.
“She (Gwen) came to us, she moved from… the Bay Area to Connecticut and she’s got a $75 million fund, day one, without having to talk to a single LP. We basically stood her up.”
Matt gets coverage of a sector he says he cannot underwrite himself, and the GP gets a mandate with no raise attached.
Top of the New England tables
PitchBook measured portfolio exit value among investors participating in pre-Series B rounds over the previous year. The firms CI came out ahead of include General Catalyst, General Atlantic, Insight Partners, and Greycroft. Matt posted the numbers on LinkedIn if you want to see how the rankings shook out.
The stories underneath are better than the ranking. Veradermics began with a UConn faculty member, Dr. Reid Waldman, whom Matt describes as a Doogie Howser type already carrying 100 publications, working on a microneedle technology for wart removal. Waldman connected with Dr. Vlad Coric of Biohaven, who had sold his company to Pfizer for $13 billion in what was the top M&A deal of that year, and Coric pointed him toward minoxidil instead. They reformulated it, took out the side effects, and ran trials in men and women, the first time the company had tested in women. No new drug had come to market in that category in 30 years. CI had been playing small ball early; Coric’s group came in with more than $30 million at the Series A and a much bigger plan for it. The stock was supposed to price at $17, opened at $37, and was trading around $120 when Matt and I spoke, all inside a six-month window.
Matt gives the credit on the other two to Yale and Canaan Partners. Quantum Circuits traces back to Dr. Rob Schoelkopf, who studied under a Nobel Prize winner and who Matt thinks will win one himself. He compares Schoelkopf to Belichick in the sense that ex-Schoelkopf lab students are now working inside every quantum company. Brendan Dickinson at Canaan made a big early bet and pulled Sequoia in. D-Wave bought the company for $550 million. Halda Therapeutics was Canaan again, this time Tim Shannon working with Craig Crews on their second company together, and it sold to J&J for $3 billion in what Matt calls the number one biotech M&A deal.
Those three alone add up to roughly $8 billion of market cap and valuation, and there were others behind them.
“Each one is a uniquely Connecticut story.”
The exits show up in the fiscal year numbers. CI closed on June 30 with a record $66.5 million in proceeds, against $43.2 million the year before.
Undoing what had made CI hard to work with
Matt had invested alongside CI before he took the job, so he came in already knowing where the friction was.
“The truth is… it was a very hard shop to work with…like if your employee count went below 50%, we had a 25% IRR put. So we got rid of that.”
Under Matt’s watch, that side letter language disappeared . So did the office that was a chore for founders and investors to get to “from anywhere”. Headcount fell from around 80 people down to 15 and has since come back to about 30, all working from a New Haven office that’s easily accessible from Metro North and Amtrak. Along the way, CI’s board was rebuilt entirely out of former entrepreneurs and executives from around the state.
The insourced recruiting operation surprised me most. Two people place 15 to 20 hires a month, which Matt said amounts to a good two years of output by normal standards. If a portfolio company wants the world’s best CTO and that person turns out to be in Houston instead of Hartford, CI will find them. And if they are willing to move to Connecticut, CI has money to offset the cost.
What’s next, and an open ask for New Haven
Connecticut just won a National Science Foundation Center of Excellence award for quantum and AI worth up to $160 million, with Yale and UConn each putting up substantial money alongside it. Matt expects a lot more quantum out of the state as a result, doubling down on what is already there with the Schoelkopf lab. He also thinks “quantum supremacy” is close to being a reality, and that once quantum starts attacking cyber, plenty of things previously considered crypto-proof will turn out not to be.
“I think that there’s some new opportunities that are going [to] arise to rethink the world as we know it.”
CI is actively hiring, paying market, with bonuses that give people a piece of the upside. Matt is careful to say it is not carry. The biosciences team is getting bigger, and he is open to biotech and life science entrepreneurs, people coming out of CVCs, and investors at other venture firms. In fact, Yale Ventures and CI are working through how to get a first-time fund stood up outside of CI rather than inside it, and Matt wants to hear from people who have ideas on how to do that. The one condition he attached is that you have to be willing to live in Connecticut.
We also got into the bench of people around Connecticut’s innovation economy that lets him reach almost anyone in the state with a single phone call, and why he points to what David Fialkow and his partners did at General Catalyst as the model for handing a firm to the next generation. Watch it above.
