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Opportunities to invest abound, NJ's largest VC manager proclaims Edison Partners' Sugden: 'Innovation climate's never been better'

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Chris Sugden, managing partner, Edison Partners.
Chris Sugden, managing partner, Edison Partners. - ()

Techies and millennials seeking to start their own companies in the health care and financial services spaces will have big opportunities in 2018, according to Chris Sugden, a managing partner at Princeton-based Edison Partners, one of New Jersey’s largest growth equity firms.

Despite concerns by many state officials about the migration of millennials from the state, Sugden believes they will be the ones driving startups and creating opportunities for his and other funds, all while improving the entrepreneurial atmosphere in New Jersey.

“There’s greater opportunity now to effectively put money to work then there ever has been,” Sugden said in an interview with NJBIZ. “Part of that goes to states like New Jersey where the innovation climate has never been better. One thing that enhances that is that we’ve got young people not wanting to go to work for a big company.

“We have a highly educated technology workforce, and when you look at the young people here, they’re not wanting to go into big companies. They want to start companies as much as they want to go work for one. That pool has just gotten bigger and bigger.”

Sugden joined Edison Partners in 2002 after having worked for a startup financial billing company. Since Edison Partners was launched in 1986, it has become one of the staples of New Jersey growth, with assets of $1.4 billion, $600 million of which is in active investments.

Edison Partners has placed growth equity into New Jersey-based startup companies primarily in the financial and medical technology fields; they include Zelis, TrialScope, SciVantage and CheckpointHR, and has exited from others such as Princeton Financial Systems and Clearpoint Interactive Health Education. Much of its funds come from pension plans, and some come from the state’s Economic Development Authority, which in turn provides growth stage money.

The growth equity firm currently is investing from a $275 million fund, and will close a similarly sized fund sometime this year.

“The next fund will be slightly larger, but not materially. We’re looking for it to close sooner rather than later,” Sugden said.

Edison Partners is also on the lookout for the next growth investment. Sugden said the firm has individuals on staff whose sole job is to evaluate startup companies that could help companies already in its portfolio grow. Sugden believes giving advice to entrepreneurs before they have started their companies is nearly as important as investing growth equity into a young company.

“One of the things we do is that we have an operating platform called the ‘Edison Edge,’” Sugden said. “We have four individuals here who do nothing but spend time with our portfolio companies, and the intent is to help develop an operation from the people and culture to the financial side to the CFO side. We want to help those companies scale up.

“It’s a collaborative process, so in a typical deal, we might own 30 percent of the business, but we’ve got to bring more than just money to those entrepreneurs. So we’re actually taking the manager fees that investors pay us and putting that back into our own talent.”

Sugden says the best industries poised for potential growth are financial technology, health care IT and enterprise technology solutions. And his firm is willing to speak to potential entrepreneurs all three of those fields.

Cybersecurity, mobility big opportunities in tech

On the enterprise side, Sugden said he sees two big areas for growth in New Jersey – cyber-security and mobility. He believes both areas are still “in the early innings” in their development, despite the fact that strides have been made by both over the past decade.

He called cybersecurity a “forever problem,” especially with midsized companies that might not have that much money to allocate to the problem. He added the firm is willing to speak to startup companies that both address security and educate employees on how to avoid malware and phishing schemes that could breach systems.

“Innovation in this area will be big,” Sugden said. “Hackers aren’t just hackers anymore, they’re rogue-state hackers. So we see great opportunities in creating companies that protect access points to your network. This is really interesting because data now is all on the cloud. We also want to see companies focusing on educating employees at companies to not do something stupid that they don’t even think they’re doing.”

Edison Partners also would be interested in talking to startups that specialize in creating technology to make the workforce more mobile. Sugden believes there still is a lot more room for growth in this area.

“Have you developed your application or your technology to be mobile in terms of businesses communicating with its employees?” is one of the questions Sugden would ask of a startup mobility company. “Have you created a system from a mobile first perspective? You look at the younger workforce, they are only on mobile screens, and what’s interesting is that when you look at mobile-first companies, whether it’s a financial services company with a customer service app to a B2B company with a mobile app, you see they can be more efficient, and their workforce can be that much more efficient, so it’s gotten very interesting.”

Compliance, behavioral health tech 'underserved market'

Sugden said he sees big opportunities in terms of creating technology to help therapists and behavioral health professionals to treat their patients.

“Behavioral health has been way underinvested by folks in our business,” he said. “We have a few companies in our pipeline now that, from a software perspective, allow a therapist or other doctor to identify and diagnose issues with their patients. That’s really interesting to us. But this is a big issue that we keep coming back to.”

The health care industry’s focus on patient-centered care and compliance with changes to the Affordable Care Act also represent potential investment opportunities, Sugden said.

“Patient outcomes are becoming more important in terms of getting reimbursed,” he said. “So we’re asking, what technologies are coming into play that allow patients to be more in control of their own health care and wellness? In what areas will hospitals and health insurance companies spend so that the patients feel more in control of their own health care?”

While Sugden would not give specifics, he said his firm is in talks with an Ohio-based company that specializes in allowing electronic health records to be more easily transmitted from doctor to doctor. This is a particularly big area of interest for Edison Partners.

“Getting your health information from one doctor to another is a big pain in the neck,” he said.

Fintech for the middle class

Edison Partners’ recent $42 million follow-on investment in New York-based MoneyLion, an online financial services company, represents, in part, where the firm believes the future of financial technology lies, said Sugden.

The firm’s latest investment in the burgeoning firm brings total equity raised to $67 million. MoneyLion has experienced a nearly 100 percent compound annual growth rate since Edison’s first investment in November 2016. MoneyLion provides an artificial intelligence-powered consumer finance platform that allows consumers access to low-interest credit, automated savings and investment opportunities.

In short, Sugden believes financial technology firms designed to give financial advice to the middle class is the wave of the future.

“What we’re seeing is the democratization of financial services,” he said. “How does anyone who has a little money to save have the same access to financial tools as people who have a lot of money to save? That’s a theme that I’m seeing.

“ … Financial wellness solutions that offer consumers a chance to take control of their own wealth is huge. 70 percent of the middle class is one financial crisis away from bankruptcy.”

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Vince Calio

Vince Calio

Vince Calio covers healthcare and manufacturing for NJBIZ. You can contact him at vcalio@njbiz.com.

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