Despite challenges, startups can find investors to grow in R.I.
Feb 17, 2017 | VIA BLOG | Posted 6:06 PM by Dr. Jon Elion

Dr. Rajiv Kumar and Dr. Brad Weinberg molded the idea for what became known as ShapeUp while earning their medical degrees at Brown University in the early 2000s.

The startup, focused on encouraging healthy life habits, proved lucrative and last year was sold to Massachusetts-based Virgin Pulse Inc., an arm of Sir Richard Branson’s Virgin Group. The company subsequently announced a plan to bring 300 new jobs to Rhode Island over the next five years.

“When Virgin Pulse bought ShapeUp, the worst-kept secret among business leaders was that they were looking to move north to Boston,” said Gov. Gina M. Raimondo, who held a press conference to announce the new jobs last year. “[But] instead of losing 65 good-paying jobs to Boston, we’re going to create nearly 300.”

The homegrown success story received a shower of praise from the state’s top elected official and political operatives, as it fits nicely into Raimondo’s economic-development agenda aimed at growing jobs. But taking ShapeUp from idea to acquisition wasn’t simple, and like most Rhode Island startups it had little to do with the state’s involvement, but rather its own ability to raise money.

Understanding how to raise money is critical to the long-term success of any venture. And while debt has long been the most popular type of capital for entrepreneurs, startups with the fastest growth – such as ShapeUp – are typically backed with venture capital.

“Generally speaking, [startups] with the greatest economic impact are those that raise significant amounts of capital,” said Richard G. Horan, senior managing director of Slater Technology Fund.

Indeed, venture-capital-backed startups tend to realize faster employee growth and greater sales growth compared with companies backed with other types of capital. And such growth bodes well for a small state such as Rhode Island, where jobs are counted in the hundreds, not thousands.

“Without question, venture capital is an important part of economic development,” said Kumar, now chief medical officer at Virgin Pulse. “Hopefully, our story will encourage more early-stage investors to invest in other Rhode Island entrepreneurs.”

But accessing venture capital, a type of private equity, is not easy. And it’s exacerbated in Rhode Island because of its small size, lack of private venture-capital firms and relatively underdeveloped startup ecosystem.

Rhode Island between 2009 and 2014 generated $505.7 million in venture capital across 45 companies. But only 19 percent of that money was invested in seed and early-stage companies, compared with 26 percent nationally.

What that means is there’s a disconnect between venture-capital and early-stage ventures, but opportunity for companies that mature here or move to Rhode Island already developed.

“Recent years have reflected a significant increase in the level of venture-capital investments in Rhode Island, though not in the number of companies receiving it,” according to a 2016 study done by the Brookings Institution.

The dynamic is twofold: First, there’s a disconnect between innovation happening in the state’s universities and colleges and pre-commercialization, according to Horan. Well-established entrepreneurial hubs, including Boston and Silicon Valley, have existing processes that help students take their ideas out of the schools and get them ready for market.

Secondly, there’s a funding gap between the $300,000 and $2 million range, according to Dan Aziz, founder and president of Providence-based Luna Pharmaceuticals Inc. The gap is exacerbated by there being no private venture-capital firms in Rhode Island. Companies in search of that amount of capital are typically too small to attract a great deal of attention from out-of-town firms, and too big to scale using what scant, early-stage resources are available in-state.

“You get into no-man’s land,” Aziz said. “There’s seed capital here, but when you get to a Series B or C, or private equity, you need to have a minimum of $1 million-$2 million in sales.”

Slater provides a much-needed springboard in the ecosystem, helping companies secure seed and early-stage capital. But the publicly supported investment fund has finite resources, limiting its investments to just a few each year. But beyond Slater, Rhode Island-based options thin out quickly. And beyond the angel investors of Cherrystone Angel Group and some other investment groups, such as the Boulevard Group and IGW Trust, which bills itself as the second-oldest investment club in the United States, the remaining options are individual investors.

“The investor class, which might be perceived to exist here, is relatively under-engaged,” Horan said.

But as Aziz, Kumar and others have shown, it is possible for Rhode Island-based startups to raise money needed to grow locally. Below are five examples of startups that, despite the challenges, blazed their own paths to success locally.


Bridging the funding gap isn’t impossible, and Aziz, is proof. Aziz raised a friends-and-family round, and won some money from the R.I. Business Plan Competition. The Brown graduate then decided to go the angel-group investment route, and successfully pieced together capital from New England angel groups, including Cherrystone.

Aziz spent nearly eight months on the road meeting with potential investors, pitching his idea – creating a line of natural pre- and postnatal nutrition products for mothers – and scrambling for funds to ensure the company stayed cash-flow positive. After months of working with one investor, the relationship fell through and he was forced to take out two bridge loans to ensure he made payroll. Ultimately, he made ends meet raising small amounts of capital from investors throughout New England, and even some from Canada.

“Even with Cherrystone, we only got one-third of what we were looking for, and we almost dried up every other [angel] resource in Rhode Island and the New England area,” he said.

In November, the company secured nearly $2 million of a $3.5 million Series B equity round, which was led by a New York private-equity firm, River Hollow Partners. Aziz, looking back at the process, wishes the state and business community could do a better job helping promising startups navigate the fundraising process. The resources are hard to come by, which hurts the economy overall, he added.

“There are a lot of entrepreneurs in Providence, and it’s not harnessed particularly well,” Aziz said. “There are a lot of smart individuals who are from here, graduate here and are not staying. So, if there was a better way to link up the funding to help startups to the next stage and create growth, it could help keep some of the brain drain from happening.”


ShapeUp started small.

Originally set up as a nonprofit, the Providence-based company incorporated as a for-profit business after local employers started offering to pay for the program in 2006.

“That was the ‘Aha!’ moment,” co-founder Dr. Rajiv Kumar said. “It was totally accidental, and we stumbled right into a market opportunity.”

ShapeUp then won a couple of startup competitions, resulting in a $50,000 infusion of cash and in-kind services. The money helped the company to open a small office, buy some equipment and do some initial marketing.

By 2007, however, it became clear the company would need to raise more.

“We had no experience in raising capital, so we started calling our friends, families and other people we knew,” Kumar said.

Friends-and-family rounds, as they’re known, are a common method of pre-commercialization fundraising. ShapeUp pieced together $300,000, which kept the ball rolling. For the next couple years, the ShapeUp team spent what Kumar describes as countless hours and days pitching ShapeUp to investors in Rhode Island and throughout New England.

“It required sending emails, sitting in people’s living rooms, talking about the business idea,” Kumar said.

The efforts culminated in a $1 million angel-group round, fueled by the Boulevard Group, an investment club led by Alan H. Litwin, managing director of the accounting and business advisory firm Kahn, Litwin, Renza & Co.

Kumar says there’s no blueprint for early-stage fundraising, and being good at it is largely dependent on how well you can sell your idea, yourself and your team, especially when you are going to the capital markets with social-based wellness products for the corporate market.

“Trying to tell a credible story when it’s all based on a hypothesis and your best guess – there are a ton of questions that come up,” he said. “How will the market respond? What type of price will the market bear? What will the full product suit look like? You might not know, so selling yourself becomes almost more important than selling your business.”

An important milestone for ShapeUp was when it hired Michael Zani, a Brown and Harvard University graduate, as its CEO. Zani opened the door to Harvard investment circles, eventually leading ShapeUp to Tony Jjan, CEO and managing partner at The Cue Ball Group, a Boston-based venture-capital firm.

“We weren’t a hot startup growing at 1,000 percent a year, but we were growing,” Kumar said. “There were some larger venture-capital firms that would pass at that opportunity because of our size.”

Cue Ball and ShapeUp clicked, and the former brought in Excel Venture Management, another Boston-based venture-capital firm, to fuel ShapeUp with about $13 million in various rounds between 2010 and 2015.

The decade of raising money culminated in the Virgin Pulse deal, which Kumar is thrilled about. But he warns about the tediousness that comes along with raising money, and urges aspiring entrepreneurs to be patient, persistent and to manage time well.

“We underestimated how much time it would take,” Kumar said. “[Fundraising] is a full-time job, while you’re also running your business.”


Unlike the entrepreneurial novices driving many new companies, President and co-founder Todd Grant and his team at Warwick-based SquadLocker had experience starting and growing startups.

Grant in the late 1990s started a company called New Territories Inc., specializing in supply-chain management, which was acquired in 2008. He also helped grow Logic Bay, now part of Partner Relationship Management in North Carolina.

The experience helped Grant navigate the fundraising world with SquadLocker, along with the company’s founder and CEO Gary Goldberg, but it didn’t change the challenges that come along with it.

“Early on, I was talking to anyone who would listen,” Grant said about SquadLocker, an online software company designed for customized athletic apparel.

The plan for SquadLocker from the beginning was to grow fast, so raising venture capital was a clear choice forward. Founded in 2015, the company has since raised $5.5 million, and closed another $3 million Series A round in January. Grant expects the company will open a Series B round in the middle of this year, ranging between $5 million and $8 million.

The company found its footing originally, however, with Slater. Funded by state-administered federal funds, Slater has invested about $30 million in early-stage companies from 1997 to 2015, with an estimated $550 million in add-on investments. The group makes three or four relatively small investments each year. Two years ago, it invested $250,000 in SquadLocker.

Through working with Slater, the company connected with George Overholser, CEO of Boston-based Third Sector Capital Partners. Overholser, one of the founding members of Capital One, was an attractive investor to Grant not because of his history in financial services, but rather his work at VistaPrint, an online customized-printing company.

“The VistaPrint model disrupted the stationary printing industry,” Grant said. “That’s why he was so quick to understand our business model and to invest, because we’re trying to disrupt the corner store [sports apparel] industry.

Finding like-minded investors helped SquadLocker realize an 800 percent growth in sales in 2016. The company, now with 50 employees and 30 contractors, also expects to add another 30-40 employees this year.

Thorne Sparkman, managing director at Slater, has worked closely with the SquadLocker team. He says the company’s executives are succeeding in the fundraising sphere because of their ability to clearly detail exactly how the company works and will continue to work.

“Being able to drill down and find the right investor is tough,” Sparkman said. “And if you’re talking about doing it local, it’s even tougher. A good entrepreneur is able to spell out their vision and say, ‘Here’s why it’s a good opportunity,’ and make it sound real. … SquadLocker has been excellent about this.”


Jon Bittner, founder of Splitwise, first brought his company to Rhode Island to participate in Betaspring, a startup accelerator.

After graduating from the program, Providence invested $50,000 in convertible notes into the company through an incentive initiative called the Innovation Investment Program.

By accepting the investment, Bittner was compelled to keep Splitwise, a consumer-app platform that helps people share expenses, in Providence for one year. Bittner, after one year, decided to keep his company here, despite some of the barriers he recognized in raising money.

Splitwise, however, is largely unique in Rhode Island, where consumer-app businesses are a rarity. The industry is much more active in the San Francisco area, where Bittner says new ideas are popping up every week and venture-capital deals are made often. The West Coast, Bittner explains, is where the investment firms that best align with Splitwise are located.

“Not a knock on the Boston market, but there aren’t a lot of firms that invest in consumer-app companies here,” Bittner said, adding that even fewer investors interested in his realm of business are in Rhode Island.

So how does he make it work?

“I get on a plane to California six to eight times each year” to fundraise, Bittner said. Last year his company closed a $5 million round led by California-based Bullpen Capital that included a debt-equity swap.

Bittner says it might be easier to be noticed by investors if he was in California, but he has no plans to move his company. In discussions with potential investors, he says they are surprised to learn he’s not located in California but have never explicitly suggested he move his company there.

Plus, he added, his wife’s work and his employees’ lives are already established in New England. But Bittner is realistic that not every aspiring entrepreneur would be interested in the back-and-forth travel, and could see why people would want to move companies closer to capital resources.

His success in Providence, too, would be difficult to replicate, as Betaspring, which used to draw several promising startups to Providence each year, made a major shift in 2015. The company launched RevUp by Betaspring, which focuses on revenue-generating companies, and provides services in exchange for payment, rather than equity. The new model, along with the drying up of some federal funds a few years ago, has limited the number of new startups associated with the group.

Likewise, the Innovation Investment Program that benefited Splitwise no longer exists, reducing what was already a scant amount of seed capital available for early-stage startups.

But Bittner is committed to doing what it takes to meet with investors, and continue to grow in Rhode Island.

“Providence is our home,” he said. “This is where we want to be.”


Dr. Jonathan L. Elion, founder and president of South Kingstown-based Chartwise Medical Systems Inc., says that when he was ready to start meeting with investors in 2012, he wanted to call the shots.

“I interviewed with 38 investment firms,” he said. “They all thought they were interviewing me, but I was actually interviewing them.”

Elion’s approach might seem audacious, but it’s rooted in experience. Like Grant, Elion has experience starting a company, co-founding HeartLab Inc. in 1994. He helped grow and ultimately sell the designer and supplier of digital image and information networks for cardiology in 2005 to Agfa Healthcare. The company at the time employed more than 200 people.

Through that experience, Elion says he learned that finding the right type of investor was paramount because of the close working relationship you will have moving forward. To find such an investor, Elion hired an investment broker, who connected him with dozens of investors.

His prerequisites required a group already investing in his industry of health-information technology, one that was realistic about what to expect in return and understanding about how his industry generates revenue, operates and makes payroll. Although receiving several offers, he said only five of the 38 meetings made sense to him.

“If there’s money that falls into your lap, don’t fall for it,” he warned.

Finally, Elion connected with FCA Venture Partners, a Tennessee-based venture-capital manager of Clayton Associates. The group focuses on early- and growth-stage health care IT, and digital health and technology opportunities. A federal filing shows Chartwise raised $2 million, and Elion says the relationship has worked out extremely well

“I’m thrilled with my current investors,” he said. “They’ve become friends and colleagues, and – by the way – they invested money in my company.”

Elion is now focused on running a “hell of a company,” saying he’d like to be a leader in his industry. Chartwise helps health care providers manage the often byzantine world of medical reimbursements, making sure they receive what they should from payers. He’d recommend hiring an investment broker to anyone who’s ready for commercialization, as it helps weed out some potential investor meetings that could ultimately be a waste of time, he said.

Ultimately important, he says, is working hard toward your fundraising goals, adding that serendipity has little to do with it, citing a favorite Thomas Jefferson quote: “I am a great believer in luck, and I find the harder I work, the more I have of it.”

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