Download The Missing Link: Financing the Industry

The Missing Link: Financing the
Industry
By Barry K. Fingerhut
General Partner, Synconium Partners
G3ict Global Forum
United Nations, New York
March 26, 2007
The Missing Link: Financing the Industry
By Barry K. Fingerhut
General Partner, Synconium Partners
I am the managing partner of a new venture capital fund called
Synconium Partners. The fund has been formed to make investments in
companies that offer products and services that will benefit individuals
with disabilities and add ease of use to these markets. We expect that
the partnership will help to create a new clearing house of
entrepreneurial investment opportunities within the industry. To that
end, the goal of the partnership is to produce outstanding investment
results for limited partners by investing in products and services that
add value to the life of the ultimate consumer.
Based on the analysis that I have done from an investment perspective,
what seems to be missing in the market of accessible technologies is an
absence of private capital. Such is the missing link that Synconium
Partners strives to provide. Private capital has not been very involved in
this industry previously. This following list conveys a better idea of the
demographics of this market:

The United States Department of Labor estimates that persons
with disabilities have an aggregate current annual income of
nearly $700B and $175B in discretionary spending power.

U.S. adults over the age of 50 are estimated to have over $1.7
trillion in discretionary spending and $17 trillion of net worth

Over the next two decades, the phenomenon of aging “baby
boomers” will cause these markets to converge and expand
dramatically.

The United States Department of Labor reports that the “over
65 segment” of the United States population totaled 36.3
million people (12% of the total population) in 2004. This
group will grow to 71.5 million people (20% of the total
population) by 2030.

Older adults experience greater incidence of disability and
“ease of use” issues. According to the United States Census
Bureau, currently 14 million older Americans (41.9% of the
total older adult population) have one or more disabilities.
A very interesting perspective from the point of view of the investment
community is that, with some exceptions, unlike the majority of new
U.S. markets that have been created through new technologies,
significant portions of the assistive technology industry have not. I
believe the market is in such a state, because there is no clear path to
achieve standards nor a way to garner the follow-up funding from
different government agencies, who should be providing services in
support of persons with disabilities.
Today, a vast array of federal, state, and local agencies
gravitate towards services that are already in the marketplace, resulting
in enormous inefficiencies in product and service delivery. In a 2005
Government Accountability Office (GAO) study, for example, 20
federal agencies were described as operating over 200 programs with
significant overlap and a large number of inefficiencies.
Additionally, as long as government remains the largest
funding source, bureaucratic standards will continue to dictate the
current market environment. With very few exceptions, most large
companies have come to view the field of assistive and accessible
technologies as one of only liability in meeting standards (e.g. Section
508 compliance).
Where we will go from here, and what does the environment look like
right now? I believe that spending levels in the United States will
continue to increase on the part of the federal government and most
state governments. Though the older population is significantly
healthier than in the past, the incidence of those living with disabilities
is still much higher than those in the general population. With that
being said, I think we are about to see a new reality. This new reality
would be brought about by the working age population refusing to
accept the ever-increasing tax burden – the burden of supporting the
older generation. Therefore, the result would be one of two things:
either the government’s funding and budgets will decline or not grow,
or there will be much greater productivity needed in service and
product delivery within the private sector.
Therefore, instead of new technologies essentially creating this
industry, new technologies will in effect transform the industry. Such a
process will improve products and cost productivity, and more capital
will need to be invested in developing new products and services.
Additionally, I would say that, from the role that I play as a board
member of a non-profit human service provider in New York City, I am
finally beginning to see evidence of a much more enlightened nonprofit attitude towards for-profit operations. In effect, I believe that we
are in the very early stages of significant venture capital investment to
support these changes and help create a new entrepreneurial phase of
development in the industry.
From our perspective, this means that we have several principal
areas that we must focus on.
The first one is clearly significant:
investing in improved product and service delivery in the areas of sight,
hearing, and mobility. We are also looking at and hope to invest in
companies that have developed new technologies to improve IT and
HR productivity for major service providers. The third area is one that
I find particularly troubling. Although there exists ease of use markets,
many types of funding, RFP opportunities, and significant data
collection and mining endeavors that consider all major aspects of the
disability community, these activities do not exist in one place. It is
important to invest in companies that deploy innovative business
models to assess, train, certify, and hire individuals who are on public
or private disability support.
A venture capital partnership in the accessibility domain would not be a
typical partnership. It would not be a partnership reactive to new
business opportunities, but rather a very active partnership. We feel that
an initial joint venture with a number of established companies is an
ideal step in creating such partnerships.
We are looking at putting together the capital behind all the
great technological work that is taking place. Returns on investment are
clearly there. The ability to have access to private capital on the part of
entrepreneurs is sure to transform the industry and will certainly incite
a lot more innovative thinking on the part of both the entrepreneurs and
their investors. Furthermore, early success in the field will bring about
additional venture dollars, which, in turn, will cause significant changes
in the number and diversity of people that the industry is able to serve.