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Second round of payments delayed for 43North prize-winners

The 11 companies that won prizes ranging from $250,000 to $1 million in the state-backed 43North business plan contest have not received their second round of payments.

The 43North organization made the first-quarter payments between January and March as each company moved into its home in the Innovation Center on the Buffalo Niagara Medical Campus. But the organization has not made the second-quarter payments, which were expected by some companies at the beginning of this month.

“I feel powerless. I know they’re working in good faith to bring this forward. 43North has been good to us to this point, and we’ve been good to them. If there are delays, I’m assuming they’re legitimate delays. I’m willing to give them the benefit of the doubt,” said Marc Ramer, CEO of Asana Medical, which won $250,000 in the business plan contest.

Officials from 43North acknowledged the delay, which they blamed in part on a change in the organization’s governing structure, and said they are working to get checks out to the companies by next week. “On our end, we could not be more anxious to get it out of our hands,” said Peter Burakowski, a 43North spokesman. “We want to provide the best service we can to the teams.”

The $5 million 43North competition is part of Gov. Andrew M. Cuomo’s Buffalo Billion economic-development initiative, and in 2014, its first year, was marketed around the world.

The contest drew more than 6,900 entries from 96 countries and all 50 states before the entries were narrowed down to 11 finalists that vied for the $1 million top prize in an awards ceremony last October.

A panel of six judges from the venture capital and business worlds selected the grand prize winner, along with the six companies that received $500,000 each and the four companies that received $250,000 each.

One $500,000 winner, the Scottish drug storage and shipping company Eulysis UK, withdrew from the program and was replaced by an alternate, Amherst-based Programmable Equipment Co., which received a $250,000 prize.

In addition to the cash prizes, each company was promised rent-free space in a local incubator, as well as help from mentors and eligibility for the state’s Start-Up NY incentive program. In return, each company agreed to stay in Buffalo for a year and to give the state a 5 percent ownership stake in their businesses.

The companies’ prizes were split into as few as two payments or as many as four payments, to be paid out every three months as long as the startup businesses met certain milestones. The companies and the state agreed to the benchmarks and to the payment breakdown ahead of time.

One company founder, who brought the delayed payments to the attention of The Buffalo News, said he hasn’t received much of an explanation for why the 43North businesses haven’t yet received their second payments. He said that the delay isn’t a major crisis but that it is, for example, making it harder for him to pay vendors who have done work for his company.

“If there’s another 30 days beyond this 30 days, it will” affect the business, said the company founder, who asked not to be identified for fear of angering officials with 43North and with the state.

Ramer, the Asana Medical executive, said his company received most of its $250,000 prize in its first payment, and expected the remainder of the prize money at the start of this month.

He said a startup company tends to quickly burn through its funding, and Asana is starting to be more judicious in its spending because of the delay.

The companies’ money comes from the New York Power Authority, which funded the contest, and is funneled through 43North.

That process was more streamlined at the start of the year because the companies simply received their first payment as soon as they moved into the Innovation Center, 43North’s Burakowski said, with checks going out between Jan. 12 and March 6.

For the second payment, which is meant to fund the companies from April to June, 43North needed to make sure the companies were meeting their agreed-upon progress benchmarks. Officials from 43North met with company representatives at the end of March, and 43North submitted the required documentation to the Power Authority early this month.

There is no set date each quarter for when the companies will receive their payments, Burakowski said.

A wrinkle that further delayed the payments stemmed from a change, between the first and second funding rounds, in 43North’s status from a subsidiary of Launch NY, which has its own Power Authority vendor number, to a stand-alone entity with a new vendor number, Burakowski said.

John T. Gavigan, who was appointed 43North’s new executive director in February, emailed company officials Tuesday with a funding update and a promise to speed up the process before the third payments are due.

“We apologize for the delay. As a result, we will be changing our timeline of reviews this quarter so we can accelerate the flow of disbursements sooner in July,” Gavigan said in the email, which was provided to The News.

Burakowski said 43North expects to receive the Power Authority funds by the end of this week and would provide checks to the companies “immediately” after that. He said that all 11 companies met their second-round progress goals.

The Power Authority has agreed to fund the business plan contest for a second year in 2015.