2:19pm

Wed April 13, 2011
Ithaca

Ithaca startups face challenges growing locally

Yesterday we brought you a hard look at Ithaca’s employment numbers, and heard from the experts who think the region still needs more job opportunities.

Today in our series about Ithaca’s economy we look at one sector the city is hoping will create those jobs: new high-tech companies, spun out of Cornell University research.

Jennifer Tegan, who heads the Cayuga Venture Fund, which was founded in 2007 to support local growth, works at an office park near the airport where a lot of Ithaca’s tech startups have set up shop.

On a tour of the park, with jets whizzing overhead, Tegan points out the building of one company that’s stayed. Kionix, a nano-tech manufacturer, was purchased in 2009 by a major Japanese semiconductor company called Rohm.

“They’re keeping Kionix here, which is phenomenal. It’s like the dream,” says Tegan, “to get these companies started and to really grow them here and create jobs here. And now we have a major Japanese company that’s going to grow those companies in Ithaca.”

Kionix designs and manufactures tiny sensors, smaller than a dime. They become the component of consumer electronics like smartphones. They’re the sensor that tells the phone to say, flip your screen when it’s turned from vertical to horizontal.

Greg Galvin is Kionix’s CEO. The technology the company is based on was developed by Galvin and his housemate, at their kitchen table, in the early 1990s.

The business partners were able to rent the hugely expensive equipment needed to make their prototypes from Cornell by the hour.  They spent the next six or seven years raising the money to start producing products through people they knew and individual investors.

“[We] very slowly bootstrapped the company up, and by the time we were starting to raise money from more venture capital type entities, we already had a facility here. We were already manufacturing. And it was kind of too painful for people to move us even though [investors] probably would have preferred we moved,” Galvin says.

Kionix is a firm that stayed in the region, and found a way to grow here. But not every firm is able to make that equation work.

What’s not to love?

High-tech businesses take a lot of money to grow. Many say lack of access to outside investors makes it hard to grow startups in Ithaca.

The Cayuga Venture Fund was started to support local firms. But beyond that fund, there isn’t a lot more organized venture money to be found locally. Upstate New York consistently comes in at the bottom of a quarterly breakdown of venture investment by region from PricewaterhouseCooper (though, interestingly, upstate New York makes the list as its own region - while some areas on the list contain parts of multiple states).

“If that capital comes from Seattle, often the investor wants the company to be in Seattle,” observes Jean McPheeters, who heads Ithaca’s Tompkins Chamber of Commerce.

“[Investors] want to drive by in the middle of the night, and make sure the company is still working. They want that hands-on thing. So I worry about that all the time. If we can’t develop enough capital here to sustain these kinds of businesses, can we really keep them here?”

Steve Turner, an entrepreneur who moved his Ithaca startup, Nanofluidics, to Silicon Valley agrees that that’s how the scenario often plays out.  But in his case, Nanofluidics chose to move.

“I lived in Ithaca for a decade and my heart is still there,” says Turner.  

But when his company attracted some big outside money in 2004, Turner realized within a month that Nanofluidics would have trouble finding the resources it needed in Ithaca. He moved the company to Silicon Valley, and renamed it Pacific Biosciences.

“It could have been Boston, Research Triangle Park, San Francisco,” Turner says. “Places [with] a critical mass to be able to do top tier biological work. And we chose to come here to Silicon Valley because we wanted to get the maximum value out of the network that our venture capitalists have.”

The chicken and the egg

That type of resource is available to some extent in the Ithaca area, says Greg Galvin of Kionix, through the Cayuga Venture Firm.  But overall, he says the slowness of the area’s growth has been “depressing.”

“The whole thing is a kind of [a] chicken and egg problem ... the investment capital doesn’t come,” says Galvin.

Why doesn’t enough capital come? Because there aren’t enough startups to attract investors. There aren’t enough startups, because there isn’t enough capital. 

Solving that dilemma requires a certain degree of critical mass in the region. In the final part of our series we’ll look at strategies the university and the community can employ to ramp up the pace of growth in Ithaca.