Debrief: Red flags, high hopes from Master Faltischek

Early-stage snafu: Investments in established companies are so strong, investors have become wary of buying into startups, warns senior law partner, Long Island Angel Network Chairman and Master of Innovation Michael Faltischek.

When Innovate LI last debriefed Long Island Angel Network Chairman Michael Faltischek in May 2015, the LIAN already boasted a significant legacy: 600-plus financing applications reviewed, in excess of $5 million in investments brokered. Less than three years later, the network – which arranges investments but doesn’t make them – has reviewed another hundred-plus applications and negotiated upwards of $30 million in private investments. Meanwhile, at the senior partner’s Uniondale-based law firm Ruskin Moscou Faltischek, the Cybersecurity and Corporate practice groups are soaring. But for all the positive signs, the Island’s innovation economy still faces a tough fight, including a steady exodus of its brightest thinkers. Faltischek, who receives Master of Innovation honors when the 2018 Innovator of the Year Awards take place April 24 at Crest Hollow Country Club, shares his unique perspective on the regional innovation economy:  

Pile on: [The LIAN] has brokered total investments by members in the $30 million to $35 million range, and a lot of it is in secondary and tertiary rounds. That’s happened in several cases and that trend is growing, with some very successful results. No exits yet, but hopefully that will happen soon.

It’s who you know: We’ve been working closely with the New York Angels on opportunities they have going. We’ve also been talking with Accelerate Long Island, which has restructured itself. We’re looking at the potential to co-invest in companies they feel merit commercialization as they come out of the regional innovation pipeline.

Anything goes for Angels: There’s no real focus on technology or anything else. Among our most recent (brokered deals) is a company that does water purification – sewage disposal, at the back end. And we have another at the front end of the business, setting up the equivalent of filtered-water fountains in public places, which you can access through a membership card or smartphone.

Investments by LIAN, for LIAN: We’ve been trying to create our own fund, but so far, that hasn’t come to fruition.

Slow flow: I find that the deal flow out there is not as strong as it has been in years past. I don’t think the innovation economy as a whole is any better or worse, but the [LIAN] itself isn’t seeing what it was two or three years ago.

If they can’t make it here: I think there’s a much greater focus (among early-stage entrepreneurs) on New York City and downtown Brooklyn, because of the greater access to resources. Companies that have started out here are finding it more difficult to operate and they’re moving into the city.

Meanwhile, back at the law firm: The [Cybersecurity and Data Privacy practice group] is going really well. We brought in Richard Frankel, who is a former FBI special agent who was involved in a lot of cyberterrorism investigations. He’s very astute, and as a consequence we’ve gotten some really good traction in terms of demands for these services.

Corporate climbing: Our Corporate practice group also continues to grow. We’re one of the largest corporate groups in the region. We have 12 lawyers in our Corporate group, which is a lot for one firm, especially on Long Island.

Sorry, startups: I think the investment economy over the last two or three years has been strong, so strong that there’s a disincentive for people to invest in the really early stages. If you can make 20 or 30 percent a year investing in a rock-solid company, why would you take a flier on a startup? I think this has had a major effect on the willingness of the investor to invest in new opportunities, even good ones.

Island answers: Accelerate Long Island is one answer. And the major institutions have all formed their own venture funds, which is actually one of the reasons the Angel Network isn’t seeing as much. Northwell (Health) has its own venture capital fund, and a very substantial one, and Cold Spring Harbor (Laboratory) has a very strong direct-investment network as well.

Strength in innovation: When gains are outsized to begin with, without significant risks, people are less likely to go down this road. But when the returns in the investment market go back to something more mundane, people may then be willing to take some risks for some larger gains. And in terms of the institutions that foster opportunity on Long Island, we’re as strong as we ever were.

Interview by Gregory Zeller