Buffalo’s First Test: Can City Keep Its Entrepreneurs?

The Buffalo News, N.Y.

The 43North business plan contest has met its biggest competition: Home.

With its first class of winners now free of the mandate that they spend a year in Buffalo, six of the 11 prize-winners remain here.

Five have left town, mostly to go back home or return to school.

43North organizers say that’s to be expected. Despite all their efforts to nurture the contest’s first class of prize winners, they say it never was realistic to expect all of them to stay in Buffalo. Equally important, they say, is that they had a good experience here and can be Buffalo boosters back home.

“That isn’t always the objective,” said John Gavigan, 43North’s executive director. “I don’t think we ever went into it where our measure of success would be how many companies stayed. We want to give our businesses the greatest chance to optimize their own success and also be great ambassadors for Western New York.”

A year and a half ago, moving to Buffalo to build his startup energy business was the furthest thing from Daniel Shani’s mind.
He was working in suburban Boston, trying to launch Energy Intelligence, a business built around technology that can generate electricity from the momentum of braking vehicles.

“Buffalo wasn’t on our radar,” the 29-year-old entrepreneur said.

Then Shani heard about the 43North business plan competition, offering $5 million in prizes, including a top prize of $1 million, to 11 companies that agreed to move to Buffalo for one year.

Shani applied, and in October 2014, won $500,000.

A year and a half later, Shani is still in Buffalo, even though the terms of his 43North prize no longer require him to stay.
“Our experience in Buffalo has been fantastic,” Shani said.

Energy Intelligence is one of six companies from 43North’s first group of 11 prize-winners that have decided to stay in the Buffalo Niagara region once their one-year commitment ended. Three of those remaining companies, including grand prize winner ASI Inc., were local. Three moved here because of the competition.

Five of the winners have left Buffalo, with most simply returning to their roots.

Asana Medical, now back in Miami is one of the companies that decided not to stay.

It wasn’t because the company wasn’t pleased with the 43North program or the reception Asana received here, said Rick Bulman, vice president for business and legal affairs.

“The space was fine. The resources were great,” Bulman said. “We were introduced to Buffalo investors. We went up to Toronto to meet investors there.”

But for a cash-strapped startup, having offices in Miami and Buffalo wasn’t practical, Bulman said.

For many of those companies, the call of home or school was the driving force.

Peeyush Shrivastava, the teenager who founded medical device startup Genetesis, returned to Ohio State University for the rest of his sophomore year after taking a one-year leave to fulfill his commitment to 43North. Genetesis in March won another $10,000 in funding after winning a business pitch competition for the Global Student Entrepreneur Awards of the Entrepreneurs’ Organization.

Hayden Ren, the CEO of fanless electronics cooling system maker Dastrong, is now in Shanghai. The company won $300,000 in funding from a group of Chinese venture capitalists last year.

TriMirror, the startup that is developing a virtual fitting room for clothing retailers, is back in its hometown of Toronto. While it was in Buffalo, the company worked with the Microsoft store in the Walden Galleria to hold a demonstration of its technology. It held another last month at the Microsoft store in New York City.

The 43North winners filed for, or received, 16 patents last year. As a group, they raised $3 million in new funding for their individual businesses.

But after handing out $5 million in state money to the winners and spending another $2.7 million to build a support staff and develop incubator space in the former Trico Products factory on Ellicott Street, where the companies work rent-free during their first year, the decision by the winners to stay or go is the most visible way to track the competition’s impact.

More than a million views
“That exceeded our expectations,” Gavigan said. “It’s a wonderful endorsement to say we not only like your community, but we want to stay.”

More than 380 articles were written about the contest during its first year, and visitors watched the videos 43North posted on its website more than 1 million times, Gavigan said.

“We are a marketing juggernaut. This community received more brand awareness and attention because of 43North,” he said.
All the attention helped the companies, too. “Those are all credibility builders,” Bulman said. “They make it easy to go out and talk with people. The fact that you won something in a fairly big competition gives you some gravitas.”

Shani was named to Forbes magazine’s “30 under 30” list of promising young people in the energy industry. TriMirror, the 43North winner that is developing a virtual fitting room for clothing retailers, got national exposure in a USA Today article last summer.

The 43North prize was a “huge” boost for Asana, providing the company not only with additional capital, but valuable exposure because of the attention that the competition attracted and the marketing videos that the organization did with the winners, Bulman said.

And while the Buffalo Niagara investment community has become more active, it’s still relatively small. That shortage of venture capital and angel investors in the Buffalo Niagara region who focus on life sciences also were drawbacks, Bulman. “If there was more cash for the life sciences space in the region, we might have been more inclined to stay,” he said.

Fewer winners
Gavigan said more than 800 people volunteered to help the competition in its first year, many helping to screen the more than 6,900 applications the contest received, others acting as mentors to the competition’s entrepreneurs.

“Last year was an exercise in adding stability and building on the strengths of year one. I feel very strongly that we did that,” Gavigan said. “Now it’s about improving our processes and being a better organization.”

This year, the application process is expected to be more focused. Rather than casting a wide net in hopes of attracting even more applicants than the 11,350 who applied last year, William Maggio, the contest’s chairman, said this year’s recruitment efforts will have more of a focus on catching the eye of a smaller number of top-quality candidates.

“Now we know who we’re talking to,” Gavigan said. “We know the audiences to talk to. That is the evolution.”

The contest has added an entrance fee to weed out less-than-serious applicants. Instead of 11 winners, with prizes ranging from $250,000 to $1 million, it will have eight winners, with six companies winning $500,000, the runner-up getting $600,000 and the winner $1 million. The contest will hold $400,000 in prize money in reserve to be awarded in 2017 to winning companies that show particular promise.

A wide network
The contest is one of the smallest pieces of Gov. Andrew M. Cuomo’s Buffalo Billion economic development initiative. The idea behind the contest is to help create a more entrepreneurial climate in a region, where the pace of new business creation was lagging behind the nation, and also to create an image of Buffalo as a good place to start a business.

“The networking element of the global ecosystem is increasingly important,” Gavigan said. “The more aware they become of the resources in Western New York and the quality that we have here, the more likely we’ll see other investments being made. But you’ve got to get on the radar.”

One step in that direction came last fall, when AOL founder Steve Case brought his Rise of the Rest pitch competition to Buffalo. Shani won another $50,000 in funding in that contest and another $50,000 from Z80 Labs, a Buffalo technology incubator. His company in January launched a debt offering that so far has raised $50,000 but could generate as much as $500,000 in funding for Energy Intelligence.

Funding is essential for startups because their products aren’t ready to be sold. That puts those businesses in a scramble to keep finding new sources of funding so they can continue to develop their products and try to prove that they can be a commercial success.

That’s why more startups fail than succeed. Some run out of money. Others find that their product doesn’t work or isn’t economical. For every 10 startups, six or seven are likely to fail. Of the three or four that survive, two or three may do OK, while only one might become truly successful, Gavigan said.

Door stays open
If the 43North winners succeed, the competition stands to benefit as well. 43North owns a 5 percent ownership stake in each of the winning companies.

Shani said Energy Intelligence made significant progress last year. The company, which does most of its hardware development at a site in the Hudson Valley, has developed smaller prototypes of its system and done some small field tests. The company is planning several larger field tests this year at a parking ramp on the Buffalo Niagara Medical Campus and the Peace Bridge.

“2016 is all about systems in the field for us,” Shani said.

Asana Medical’s work on its gel-based treatment for ulcerative colitis also continues from its home base in Miami.

Asana has close ties to researchers at the University at Pittsburgh, who developed the intellectual property that forms the basis for Asana’s treatment. The company signed a research agreement with the university in September and new data stemming from the school’s research is encouraging for Asana’s treatment, Bulman said. The company hopes to do additional animal studies on its treatment in Australia.

But Bulman, a Lancaster native who has lived in Florida for more than 25 years, said Asana still is open to renewing the ties it formed in Buffalo if it succeeds in building a commercially viable treatment.”I don’t necessarily think we’re divorced from the region,” he said. “The door is totally open to continuing our development in Western New York.”