Connecticut Software Industry Rock Solid

December 22, 2003
Fairfield County Business Journal, December 1, 2003
Software companies continue to sprout up statewide, making it one of the fastest-growing industries in Connecticut. You dont see the smokestacks poking up along state highways since many software companies thrive in offices of all sizes - almost out of view.
 
It's unlikely Connecticut will evolve into another Silicon Valley or the Route 128 corridor in Massachusetts. But there's little doubt the pieces are all in place to insure that software companies will expand and play a strong role in the state's economy.
 
Deborah Magid, director of strategic alliances for IBM Software Group Strategy, says New England has provided fertile cyber grounds for software companies from startups to worldwide major corporations.
 
"New England has always been known for software investing," Magid says. "The state has promoted the industry. It has reached a critical mass and continues to thrive."
 
Magid points out that there are more than 1,000 software companies throughout the state at all stages of development. These software companies service a broad array of different industries, which insures continued growth despite unexpected downturns of the economy.
 
The growth of the state software industry has gone unnoticed for the most part because it is spread out across Connecticut from Stamford to Glastonbury unlike a Silicon Valley.
David Yarnell, director of the Connecticut Venture Group (CVG) Stamford chapter and a venture capitalist (VC), attributes the growth of the software industry to several key components in the state:
  • The robust talent pool in the state, which produces a steady stream of creative, entrepreneurial minds;
  •  Major VC firms in Connecticut and the tri-state area, such as Canaan, Oak, BSI and General Atlantic, which can provide the capital to nurture software companies from startups to major players;
  •  Major corporate headquarters that utilize software/information technology products;
  •  Cheaper costs than New York;
  •  The concentration of service-industry companies dependent on a variety of software products.
"Many of the biggest investors in software are located on the East Coast and Connecticut has a large number of them which provide the steady flow of capital for young companies," Yarnell says. "Fairfield County, in particular, is one of the prime areas for VC funding."
 
Owen Davis, president of CVG and the lead for the emerging technology practice in Southern Connecticut and Westchester, N.Y., for PricewaterhouseCoopers (PWC), has seen a steady growth of Connecticut's software industry for the last 15 years.
 
In the third quarter of 2003, six companies received funding through PWC of which three were software startups. During the last five years, the state software industry has generated 10,000 jobs, a trend that is only expected to grow at a healthy rate, according to Davis.
 
He points out that PWC has jumped into the software market, including 30 Connecticut software companies in its portfolio. In Connecticut, Davis points to Hyperion and Open Solutions as two prime examples of Connecticut-based software startups that have grown into major software players in the industry.
 
An Ernst & Young report for 2001 to the third quarter of 2003 of the New York metro area, which includes southern Connecticut, shows 199 rounds of financing involving software companies.
 
"For software startups, Connecticut is the right place to be," Davis says. "All the parts are in place - a large concentration of VCs, a talented work force and a highly desirable standard of living."
 
Bill Perrone, a partner in Wiggin & Dana in Connecticut and Philadelphia, has represented software companies for more than 20 years. He sees the concentration of VCs in the state as a major reason for the growth of software companies. Because many major VC firms are located in Connecticut, they tend to prefer to invest in software companies in their back yard. "VCs prefer to invest in a company they can visit. It's easier than hopping on planes and flying across the country," Perrone says. "VCs like the lifestyle here in the state. That's a plus for Connecticut entrepreneurs looking for capital."
 
Perrone mentors entrepreneurs and says there is funding available for software startups in the state. However, they must overcome the hurdle that all startups face - a track record of generating revenue. They also must have a realistic business plan and a top flight management plan. Perrone recommends that entrepreneurs match up with the proper VCs who have the expertise to help nurture their startups.
 
"It's a Catch 22 for software startups," Perrone says. "You want funding but you need to have customers to attract serious VC interest. But you have to find the best suited VCs. Some are a better fit than others. But Connecticut is fortunate because there are VCs out there."