Phillips Lytle Sponsors Venture Capital State of the Region

A strong ecosystem of tech entrepreneurs

Moderator Richard Honen, partner with Phillips Lytle LLP, left, panelists Vikram Agrawal, Jim Pascarell and Jeffrey Schwartz.

Vikram Agrawal and Vikash Agrawal created a foundation that invests in software startups. The brothers earlier this month invested $600,000 in Ithos Global, a startup in Troy that helps cosmetics companies manage regulatory compliance and product safety. The Agrawals are scouting more local companies in growth mode.

“We see so many different companies here now. There’s a strong ecosystem of tech entrepreneurs, and the pool of talent and finance is getting deeper,” Vikram Agrawal said.

When local companies buy or invest in other local companies, the jobs stay local, quality business leaders stay local, and the community benefits overall, Agrawal said.

“There’s never been a better time to sell or raise capital because there’s so much of it floating around,” Agrawal said. He said the right investment bankers can help early-stage companies identify the right partners and maximize the deal value.

The Albany region’s higher education system graduates a robust pool of programming talent, but New York’s regulations and high taxes make it hard to keep businesses and attract new ones, Agrawal said. He said the state’s Start-Up NY program is a step in the right direction, but there’s little incentive for early-stage companies to stay once they grow.

Startups fail when they don’t transition out of survival mode. In the beginning, they’re focused on the next paycheck and bringing on the first customer. As they position themselves for growth and exit, the mindset must shift from exclusively innovation to earnings, managing costs and effectively deploying funds.

“Once you hit that plateau, it’s more about structure and governance and discipline,” said Jim Pascarell, president of Integra Optics, an Albany-based fiber-optic company that makes equipment for Verizon and other telecom companies.

As companies hit certain thresholds, they must adjust people, skills, and processes to meet that new level of growth. The most successful ones get comfortable with constant change and can navigate the thresholds fairly quickly, Pascarell said.

If the company is operating with people who expect to come to work and do the same thing every day, the company will struggle. It’s important to have the right talent in place at each stage of growth.

“When you’re struggling, the numbers will reflect certain things. Talent will also tell you certain things,” he said. “At the end of the day, good leadership sets the bar.”

Whether they’re strategic investors or partners, they want a history and story that cleanly captures the company’s achievements. Startups with the “cleanest” stories have the highest valuations, Pascarell said.

Choosing the right equity partner is key, he said. Many founders are concerned with their employees’ futures and the impact of a full-out sale on the local community. There are funding options that do not involve a full exit and can minimize the risk of moving jobs and operations out of the area.

As startups grow, they need new levels of management talent to move to that next phase. Many founders wait too long to build this team. Successful companies have strategic advisors. They have boards and they act on the leads of those boards, Schwartz said.

“It’s about accountability,” Schwartz said. “You need people that are willing to help. And there are plenty of people around here who are willing to help.”