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Connecticut Innovations 2022: Managing a State Venture Capital Agency’s Investments

Connecticut Innovations 2022: Managing a State Venture Capital Agency’s Investments

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Yale School of Management
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Matt McCooe had been navigating the similarities and differences between managing private and state-sponsored venture funds since he was appointed Connecticut Innovations’ CEO. Seven years in, McCooe and his investment team were considering whether yet another difference between private venture firms and Connecticut Innovations (CI) was an opportunity or a hazard for CI’s funds.

CI was created by the Connecticut legislature in 1989 to jumpstart job and enterprise creation in the state. The new entity proceeded by fits and starts until 2012 when the legislature gave CI a new infusion of capital and an expanded mandate. In 2015, the CI board also recruited McCooe, a veteran of private and university venture funds, to head the agency.

McCooe and his team sought to infuse some of the values of private venture funds into CI within the limitations imposed by being a part of state government. CI's employees had a strong sense of mission - they saw their role as building jobs and new businesses for the people of the state. To this, McCooe encouraged a more entrepreneurial mindset, while managing political risk, conflicts of interest, and a lower compensation structure than private VC firms.

CI's funds made equity and convertible debt investments into start-ups and early-stage technology companies in Connecticut. The organization also encouraged other VC funds and angel investors to back Connecticut ventures. CI regularly reported three metrics to its board of directors: return on investment, job creation, and additional capital attracted. By July 2022, CI was managing a portfolio of nearly 200 companies with a total value of $426 million. In the fiscal year 2022, CI invested $54.8 million in 98 companies, and those portfolio companies went on to raise more than $1.3 billion in additional investments. Furthermore, CI's portfolio companies had created nearly 2,500 jobs. 

Unlike nearly all private venture funds, CI was an evergreen fund with no pressure from limited partners to distribute proceeds and could hold public shares after a firm's IPO. But should the fund do so? The issue flared in considering CI’s investment in Arvinas, a New Haven biotech firm. CI's investment managers had observed that the valuations of biotech companies often continued to rise after an IPO. After Arvinas’s IPO in 2019, CI had to decide: should it sell its Arvinas shares after the lock-up period, or hold the shares for longer than the usual two-year period? What were the potential benefits and risks of the decision? And in a larger perspective, did a policy of holding onto public shares make sense for CI from a public policy or financial perspective? If so, what were the appropriate parameters for an investment in public shares?

Suggested Citation: Jean Rosenthal and Song Ma, "Connecticut Innovations 2022:  Managing a State Venture Capital Agency’s Investments," Yale Case 22-016, November 1, 2022.