Editor’s Note: CNY Executive Q and A is a feature appearing regularly in The Central New York Business Journal, authored by guest writer Jeff Knauss, who is president of his own digital-marketing firm. In each edition, Jeff chats with a different executive at a Central New York business or nonprofit, with the interview transcript appearing in a conversational Q&A format.
In this issue, I speak with Somak Chattopadhyay, managing partner of Armory Square Ventures, which is based in downtown Syracuse and also has an office in New York City. He has been operating, advising, or investing in technology companies in New York state since 1999. Most recently, he was a partner at Tribeca Venture Partners (TVP), an early stage venture fund in New York City with more than $160 million in assets under management. Chattopadhyay was responsible for sourcing, leading, or managing numerous investments across TVP’s two funds before launching Armory Square Ventures in 2014. He lives in Skaneateles with his wife.
JEFF: Tell me a little bit about your journey to Syracuse and creating Armory Square Ventures.
SOMAK: I am not originally from upstate New York. I was born in Pittsburgh, moved to Philadelphia as a kid, and then grew up in Vermont — my middle school and high school years were spent in Vermont. I studied engineering in college in Boston and came to New York City during the go-go 1990s, during Internet 1.0. I worked briefly as an investment banker. I hated it and I was connected to an early stage startup, called DealTime, which was one of the first companies that was offering comparison-shopping services. Now, it’s such a common business model — whether it’s travel, hotels, flights — but DealTime was an early pioneer. That company went public and was later acquired by eBay. But after the dot-com bubble burst in the early 2000s, our venture capitalist said you can’t build a high-tech company in New York City; it’s a backwater in tech. The VCs stopped investing in the area then and the company relocated to the West Coast.
I met my wife then and said, “I really believe New York City can be a tech hotspot.” I stayed on and turned out to be right. I was just probably seven or eight years too early. I did a second startup in the health-care technology space, which was later acquired. It wasn’t as big as the first company, but I learned a lot more about early stage company building during those lean and mean years of the early 2000s, and then I was tapped after a brief stint at a technology association representing the software industry and business school. I was selected to join the venture-capital side in a fund that is now a pretty large growth fund. It’s a company called Edison Partners, which taught me a lot about early stage investing in regions not known for tech companies. Edison has been around since 1986. The firm built its business model on investing in early stage — and now growth-stage startups — that were in regions that everybody else was ignoring, areas like central Pennsylvania and southern Virginia. The company was focusing on the Mid-Atlantic, and even then, all venture capitalists were concentrated in Boston and the Silicon Valley. Edison was focusing on finding diamonds in the rough, cultivating them, helping them scale, bring talent, and when they were ready for venture capital, be the first round of capital for them.
I did that for a few years, but by the time I joined Edison, it was really pretty late stage. We were convincing entrepreneurs that really didn’t need the capital to take the capital and I really missed the early stage side. I was actually recruited to join a venture fund that is now known as Tribeca Venture Partners, but in the mid-2000s, it was affiliated with Greenhill, a boutique investment bank. We were a $100 million fund. I was involved with nearly all the investments, became a partner in 2011, and then we spun out and created Tribeca Venture Partners, because we wanted to do something entrepreneurial. In the process of helping to raise capital for Tribeca, I was connected serendipitously to a group of people in Syracuse including CenterState CEO’s Rob Simpson, Eric Allyn of Welch Allyn, and the Syracuse University chancellor at the time [Nancy Cantor]. And I thought they had an interesting idea.
This Central New York group of investors wanted to create a next-generation venture fund in Syracuse and I really wasn’t taking the initial request very seriously. But then I came once and then I came twice, and I was like, “This is a really, really interesting place.” I saw the Tech Garden. I saw that there weren’t 100 entrepreneurial success stories, but there were already a handful of companies that I saw that had scaled quite successfully and had great exits. I saw an emerging angel community. I saw the Tech Garden and all the things that Rob and CenterState were doing. When they started really spending time with me, they said, “We really want you to help build an early stage venture fund modeled after some of the most successful venture funds in other regions like the Foundry Group in Boulder, Colorado.
The idea was that you will have the opportunity to invest wherever you want in whatever you want. They said, “We just want you to help build something here in Syracuse and we hope that you can be a conduit to talent and capital in this region and can show that over time if you’re successful and you generate returns for our investors this can become a vibrant venture hub and recruit other venture capitalists in this region.”
I thought that was a very ambitious goal, but these people were really serious. They kept saying that they really wanted to do this, that this would be a 10-year, 20-year project if it were successful, and that they have wanted to do this for over 13 years before they even started talking to me.
JEFF: What made you decide to pull the trigger?
SOMAK: I was in a very established venture fund, making good money living in New York City, but I really was feeling life was getting too soft and this really was the opportunity to create something from the ground up. I was so taken by the people I was meeting here and the region. So I quit my job at my old venture fund and I came here in 2013. We had some commitments for capital early on, but we spent much of the first eight months cobbling together that initial $15 million in capital and then we raised a bunch more over the course of the next few months. I recruited my senior associate, Nicole Camarre, my two partners Steve Felsher and John Cococcia, and we started really building this portfolio.
JEFF: Tell us about the firm and the work you do?
SOMAK: The thing is as a venture-capital firm, we spend a lot of time advising entrepreneurs. But I just really had forgotten, living vicariously through my entrepreneurs, how difficult the entrepreneurial journey is. We have a group of investors including institutions as well as individuals, and I was just so surprised at how receptive people were to this idea and to take a leap of faith in me. We have a team of four that has over 70 years’ experience operating and investing in technology companies across New York and the Northeast — but really across the globe — and a portfolio of seven companies. We just announced our first Syracuse investment last month in Good Uncle. It was led by Wiley Cerilli, a very prominent New York City entrepreneur [who had attended Syracuse University for a short time]. We basically focus on early stage, mostly B2B software companies. We like to be the first check in a company, up to $1 million initially. And we generally work on boards that really help build these companies, supporting entrepreneurs, and recruiting customers, talent, co-investors, and later-stage investors. We ultimately help them see a path to liquidity.
JEFF: What do you feel sets Armory Square Ventures apart from the other venture-capital (VC) funds around the country?
SOMAK: What I think differentiates us from many of the other funds our size — we’re talking about sub-$50 million funds which are often labeled as micro VCs — is that we focus on leading deals, if that makes sense, to our type of investment. That means when we invest, we try to choose much smaller basic investments where we know that we are going to be working actively with the company, we’re going to be involved in the board, we’re going to be leading investment rounds. We employ that sort of model because we think the most returns have come when you focus on good-old fashioned company building as an early stage investor versus trying to adopt a mutual-fund approach where you’re just collecting a bunch of logos.
We like to focus on and be actively involved at the early stage. That’s one way we differentiate ourselves. We focus mostly on B2B software. When you look at a lot of our brethren in New York City and Silicon Valley, historically especially over the last five, six years, most of them are focusing on consumer, social mobile platforms. A few now have moved back into the enterprise world, but we’ve always generally focused on that area. The last and probably the biggest differentiator is we are actively focused on upstate New York.
We are a returns-oriented fund and there are very few returns-oriented funds in Upstate. We’re the first real institutional fund to launch at our size, I think, in this area in Upstate in over 10 years. When we’re focusing on Upstate, we’re focusing on industries that are really off the radar for many of the VCs in the West Coast and New York City. That includes auto dealers, agriculture technology, health-care technology, and education technology. There are VCs who invest in our industry but given the fact that we’re focusing on non-urban areas like Upstate, I think that opens up a lot of deal flow that a lot of other VCs aren’t focusing on.
JEFF: Do you disclose how large a fund you are?
SOMAK: Yes, our goal was to raise a fund of just about $20 million. We are happy to have achieved that target. For us, that’s actually a nice-sized fund for a first-time fund to really execute on our approach of a portfolio — call it 10 up to 15 companies where we’re averaging $500,000 to $1 million.
JEFF: What are some of the key attributes you look for when investing in a company?
SOMAK: Obviously, the management team. We like to see a strong CEO and head of product, a large market opportunity (typically at least $500 million plus), competitive differentiation, an actual working product typically, and a fundraising strategy that we think actually is something that will catalyze that next level of growth. Traditionally, it’s the next round of venture capital but it could be a strategic round. Those are all things that are relatively easy to figure out.
The biggest reason why I think we end up investing in a company is that we just can’t stop thinking about the entrepreneur and his or her business. We met them over a meeting, I start bringing it up with family over dinner, then I start talking about them over the weekend, I start calling up my friends and seeing whether they would use this technology in the industry sector, and then suddenly we realize that there’s a part of me at least that I feel I could quit my job — which I think is one of the most exciting jobs ever — and actually work for that entrepreneur. That’s how much I want it and that’s how badly I want to get involved with that company. To me if I don’t have that level of passion, then I don’t think it’s going to be a successful investment.
The idea is that if that entrepreneur is able to convince any of us that we would want to leave our jobs to work for that entrepreneur, it also speaks volumes of their ability to articulate their vision and recruit other people. That feeling generally comes after we’ve gotten comfort with a lot of the business factors; it’s really our excitement about working and helping that company to scale.
About the author: Jeff Knauss is managing partner and president of a digital-marketing firm, The Digital Hyve, and has always been interested in hearing successful executives’ stories. He lives in Camillus with his wife Heta and son Max. For more, check out his blog at www.CnyCeo.org
