LISTnet chips ride on VC plan

By: Ken Schachter
Long Island Business News
February 5, 2004

GREAT RIVER - When Richard Lippe and Peter Goldsmith took the Autotrain to Washington for a Dec. 22 meeting, uncertainty was at the top of their agenda.

About seven months earlier, Lippe had begun hatching a plan that could allow the Long Island Software and Technology Network to harness the Small Business Administration's venture-capital program.

Through Rep. Steve Israel, D-Huntington, Lippe, LISTnet's general counsel, and Goldsmith, the group's president, had secured an audience with SBA officials.

Now they had to convince the bureaucrats to veer from the traditional format of the Small Business Investment Co. program in which venture capitalists raise their portion of the money (augmented by the SBA) and run the fund in search of a profit.

Over the course of the 90-minute meeting, Lippe and Goldsmith outlined a plan to create a nonprofit group - called the Long Island Fund for Entrepreneurs, or LIFE - from LISTnet and farm out management to outside venture capitalists.

"The toughest battle will be getting an SBA charter," Lippe acknowledged. But should the plan succeed, he said, it would address the capital needs that bedevil Long Island companies and the rewards would be enormous.

LIFE would target companies with trailing 12-month revenue of $200,000 to $25 million, many of which never make it onto the radar screens of venture capitalists.

"The most important single need identified by the membership of LISTnet is the availability of funding," Lippe said. "It will have an enormous impact on Long Island becoming one of the tech centers of the country."

Under the proposal, the SBA would contribute $2 for every dollar raised by LIFE, which would have to raise a minimum of $10 million.

But Lippe said that the SBA's participation likely would prime the pump in raising money from local sources.

"If the SBA is agreeable to doing this, I'd be extremely surprised if we weren't successful in raising $10 million," he said.

In the wake of the Washington meeting, Lippe and Goldsmith secured the official approval of LISTnet's board to pursue the plan in a Jan. 13 vote. Lippe is working on an executive summary of the plan for the SBA and said he expects a decision by the agency within 30 to 60 days.

Goldsmith said he was hopeful. "It could be a real breakthrough. The response we got in Washington was quite nice," he said. "If they weren't interested, after five minutes they would have said, 'Thank you and goodbye.'"

To ensure that funding stays on Long Island, the plan calls for companies that accept an investment to agree to a covenant that they keep substantial operations in Nassau or Suffolk for a minimum period of perhaps five or 10 years, Lippe said.

In the third quarter of 2003, Long Island companies received about $4.7 million in VC financing, according to the latest PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree survey. That compares to $750,000 in the year-earlier quarter. The lion's share in the latest survey ($3 million) went to a provider of facilities management services.

Goldsmith said LISTnet also plans to approach New York State Comptroller Alan Hevesi in an attempt to secure investment from the state's pension funds.

As part of its proposal, LISTnet, which has a bankroll of more than $1 million, agreed to plow up to $500,000 into the LIFE fund.

Two other funding initiatives also were approved at the same LISTnet board meeting.

In one, the board approved a joint venture with Stony Brook University to create a Long Island "Angel Network" of individual investors that would provide seed capital to startups. That group would be administered by Ann-Marie Scheidt, director of Stony Brook's economic development.

The third part of the initiative calls for the formation of the Technology Funding Forum of Long Island, which would conduct capital forums and other events to attract funding for spin-off companies from area not-for-profit institutions, including Stony Brook, Brookhaven National Laboratory, North Shore-LIJ Health System, the Long Island Life Sciences Initiative and the Long Island Forum for Technology.