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Erie County IDA gets back into venture capital business

The Erie County Industrial Development Agency is getting back in the venture capital business.

The agency’s board of directors Wednesday approved the creation of a new $1 million fund aimed at making equity or debt investments in early stage businesses that need financing to grow or develop, but often are not established enough to qualify for conventional bank loans.

Steven W. Weathers, the IDA’s president, said that there are few local sources of venture capital, which makes it difficult for early stage businesses to find funding as their companies evolve from an idea to an operating business with products or services to sell.

“It gives us a more well-rounded ability to support job growth,” Weathers said.

The IDA had a venture capital fund that made $9 million in investments in 37 deals from 1996 to 2008, yielding a $17 million return, said Theresa M. Carpenter, the IDA’s assistant treasurer. While that fund had success with investments in companies such as Synacor, a Buffalo Internet content provider, and Gemcor, a West Seneca company that makes automatic riveting machines for aircraft assembly, it made its last investment in 2008 during the administration of then-County Executive Joel A. Giambra.

But Mark C. Poloncarz, the current county executive, has been pushing for the IDA to get back into venture capital, arguing that it would give the development agency another way of helping local businesses grow.

“This is another tool in our tool belt,” he said.

The fund typically will make investments of between $100,000 to $500,000 in businesses. The IDA is expected to work in tandem with other local venture capital firms and angel investors to seek out and analyze potential investment opportunities.

“We will not be sole investors. We will always be co-investors,” Weathers said. “We will probably always be the smallest investor.”

The fund will start with an allocation of $1 million, which already is in the IDA’s budget for this year. Additional funding of $1 million a year could be provided over each of the next four years, building the fund to $5 million, Weathers said.

Carpenter cautioned that venture capital investing is a high-risk business. For every 10 businesses that the fund invests in, Carpenter said, the IDA’s directors should expect about six to fail, two or three to break even and possibly one to succeed. And those successes often take several years, sometimes as much as a decade, before they pay off.

“This is a more long-term type of program,” Poloncarz said. “We may not see any return on our investment for a number of years.”