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February 20, 2024

Without bond funding, CTNext lays off staff, winds down operations

COURTESY / CTNEXT Chris Gelnaw of Tidal River, Onyeka Obiocha of CTNext and Dan O'Keefe, Connecticut's chief innovation officer, gathered to announce CTNext's $100,000 support for Tidal River.

For nearly three years, one of Connecticut’s marquee organizations supporting entrepreneurship and innovation in the state, CTNext, hasn’t received any of the bond money lawmakers authorized to fund its programs. 

Rather than allocating any portion of the $65 million the legislature approved in 2022 to sustain the ongoing work of CTNext, Gov. Ned Lamont — who signed that legislation — is now proposing that the Department of Economic and Community Development take over and rebrand CTNext as the state’s “Office of Innovation.” 

As the chairman of the State Bond Commission, Lamont sets the agenda and decides which projects get funding. CTNext funding has been left off the commission’s monthly agendas since 2021.

“Gov. Lamont is committed to supporting Connecticut’s innovation ecosystem,” a spokesman for the governor wrote in response to emailed questions. “In conversation with CTNext leadership this fall, his administration concluded the best way to continue providing that support would be to take programs that had incubated in a quasi-public agency and build them a permanent home at DECD.”

That the governor viewed CTNext — a quasi-public agency launched in 2016, reporting to an independent board of directors — as a way to “incubate” what would ultimately become an office within his executive branch wasn’t clearly communicated to many of the agency’s staff until just a few weeks ago. All 12 staff will be laid off by next month.

Onyeka Obiocha, executive director of CTNext, declined to comment for this story. But he confirmed, in an emailed response to a request under Connecticut’s Freedom of Information law, that staff were informed of the layoffs on Jan. 23. He also confirmed there’s currently $4 million in CTNext funds that have not been spent. Decisions regarding which CTNext programs will continue and which will be phased out now fall to DECD, he wrote. (Obiocha is a member of The Connecticut Mirror’s Board of Directors.)

Incoming DECD Commissioner Dan O’Keefe, whose nomination was approved by a legislative committee last week, vowed that CTNext’s current programs won’t be cut off.

“Any existing commitments that are still outstanding will absolutely be met, full stop,” he said. Connecticut Innovations, the state’s quasi-public venture capital arm and the parent agency of CTNext, will steward those programs for the time being.

What remains to be determined is the timeline of the agency transition and the amount of financial resources DECD will have at its disposal to hire staff and relaunch CTNext’s innovation and entrepreneurship programs.

CTNext administered a wide range of initiatives for early-stage companies, from coordinating internship and education programs to providing entrepreneurs with technical support, boosting industry associations and networking, awarding grants and offering assistance accessing other sources of funding.

Over the coming months, O’Keefe said he will be working with members of the legislature to establish, in state law, the Office of Innovation at DECD. But the department won’t be able to seek funding to support that office and its programs until next year, he said.

“We’re not proposing anything in the current budget cycle,” O’Keefe said. “The governor has already released his budget. … What we need to do is work in this session with members of the legislature to see if they’re supportive of this reimagining, this transition.”

Startup business leaders, meanwhile, are lamenting the suspension — even if it proves to be temporary — of programs they say have helped them build capacity. Several cited CTNext’s Talent Bridge, which covers the cost of hiring interns. 

Saion Sinha, founder of 12-15 Molecular Diagnostics in East Haven, had hoped Talent Bridge interns would be available to help his company this summer with product development. Clovia McIntosh, inventor of the Tubee child-sized tub, said she was planning to hire a marketing intern this summer to help her launch and promote a new fundraising campaign. “That would have been really, really helpful as a startup trying to keep our expenses low,” McIntosh said.

Jeremy Bronen, founder of Woodbridge-based SedMed, said Talent Bridge and other CTNext programs have provided critical support for his company, which makes mobility products.

“Getting talent is one of the more crucial things you can do to build a company. It’s also one of the most expensive things,” he said.

Words v. actions

Lamont’s decision, time and again, to leave CTNext off the State Bond Commission agenda highlights an inherent conflict facing the businessman-turned-public servant: His professed commitment to fostering small business growth appears to have been at odds with his devotion to fiscal restraint.

As it was designed by the legislature, CTNext’s main source of funding was through bonds, meaning the state had to borrow money in order to support the agency’s efforts. Connecticut’s other quasi-public agencies have alternative ways of raising revenue, but CTNext was beholden to the decisions of the Bond Commission, spearheaded by the governor. 

The last time CTNext was allocated bond funding was April 16, 2021 — an infusion of roughly $7.5 million, according to O’Keefe.

“This administration doesn’t necessarily view bonding, debt, as the right mechanism to fund programming and overhead,” O’Keefe said. If the efforts of CTNext were instead to become part of DECD, they could be paid for annually through state revenues, which would provide stability, O’Keefe said. 

Both O’Keefe and the governor’s spokesman, David Bednarz, pointed to DECD’s recently established Office of Manufacturing as a model for the proposed Office of Innovation.

But many of the Office of Manufacturing’s programs — from equipment vouchers to apprenticeships and worker training — are paid for through the Manufacturing Innovation Fund, which is supported by state bonding. 

During O’Keefe’s nomination hearing last week, Sen. Joan Hartley, D-Waterbury, asked how the new innovation office would be supported, given that many of the department’s other high-profile development initiatives (she cited the Community Investment Fund and the Urban Act Grant Program) are funded through bonding.

“Are you suggesting that goes into the appropriations budget?” Hartley asked.

“I’m not here to debate either way, that’s a debate for others to have,” O’Keefe responded. “What I’m what I’m here to say is it hadn’t showed up in the bonding agenda for three years, and we need to do something.”

“TBC, got it, OK,” Hartley responded curtly.

A fate foretold

The governor’s decisions, since April 2021, against borrowing to fund CTNext weren’t exactly well-timed. New business applications in Connecticut soared in 2020, reaching an all-time high in January 2021. And they have remained elevated above their pre-pandemic levels since then. 

Seizing on that momentum, in early 2022 the CTNext board of directors — led by newly appointed chairman Revell Horsey — hired Obiocha as the new executive director and launched a scheme they called “CTNext 2.0.” Horsey declined to comment for this story, but minutes from the board’s meetings show a shift in focus that year as the organization laid out new strategic plans.

One of the agency’s foundational programs, known at Innovation Places, was to be restructured. Originally designed to fund local startup support networks and workspaces, the program made less sense after the pandemic had normalized fully remote and hybrid work, leadership agreed. Instead, Obiocha wanted to pursue “Nexus” networks, which would promote investments and innovation within targeted sectors — such as food systems and maritime technology, aka “blue tech.”

Staff members presented “investment theses” and “workflows” to the board of directors. And Obiocha made a series of new hires, several of whom moved from other states to take the jobs.

During that time, Obiocha also repeatedly asked the State Bond Commission to allocate more bond funding. Without it, CTNext wouldn’t be able to put its new strategy into action. 

“They were in a bit of a limbo status,” said Matt McCooe, chief executive of Connecticut Innovations and a board member of CTNext. “How do you make a three- to five-year commitment if you don’t know if you’ve got the funding? I think they were in an awkward position of having a mission but not having clarity and good visibility on whether or not the bonding was going to be there.”

A leadership shakeup at DECD may have been the catalyst for the governor’s decision to propose taking CTNext in-house. Last July, Lamont brought O’Keefe on board to serve in a newly-created position as the state’s first Chief Innovation Officer. The Hartford Business Journal reported that O’Keefe’s position would be housed at DECD but that he would also work on “special projects” for the governor.

A few months later, in November, then-DECD Commissioner Alexandra Daum stepped down to take a position at Yale. O’Keefe was quickly named interim commissioner. 

Days after that announcement, O’Keefe and Obiocha submitted a memo to the governor’s office outlining a transition plan for CTNext. The CT Mirror obtained a copy of the memo from Obiocha in response to the FOI request.

The memo proposes a timeline for the transition of a year and a half.

“In the upcoming 18 months, CTNext’s leadership team will work closely with the CTNext Board of Directors, state legislators, and key stakeholders in the innovation ecosystem to establish The Office of Innovation. During this period, CTNext will implement strategic cost-cutting measures. … Ensuring that the organization operates efficiently and leanly is considered crucial for its success,” the memo read.

In December, CTNext once again was left off the State Bond Commission’s agenda. From there, things progressed quickly.

By the end of the month, CTNext’s board chairman had resigned. In a letter to Sen. John Fonfara, D-Hartford — who is often credited as the architect of CTNext — Horsey wrote: “I was not surprised by the Governor’s recent decision to reconstitute CTNext as the Office of Innovation in DECD. This fate was foretold when the Governor appointed the state’s first Chief Innovation Officer as an employee of DECD.”

Horsey went on: “As a quasi-public entity, CTNext had the advantage of operating outside the confines of a state agency. Although in reality, the organization’s financial insecurity and lack of authority to recruit a board in support of its mission rendered the advantages of quasi-public status moot.”

At the CTNext board meeting, on Jan. 23, according to published minutes, O’Keefe kicked off the meeting and told staff and board members about the transition plan. The board approved $450,000 to cover employee severance — making an exception to a rule that only employees who’d worked at least two years for the agency were eligible. Many of CTNext’s staff were recent hires.

“This is just the unfortunate reality,” O’Keefe said. “We’ve got to go through a short-term transition, which I understand creates uncertainty, I understand will likely create frustration. But the end state, I think, is the right one. The end state is continuing to do the good work, but in a way that allows it to sustain.”

Fonfara said he’s supportive of the new commissioner’s vision.

“Some people are going to be let go, others may be absorbed in and and we’ll pick up the ball from here,” Fonfara said. “I’m not going to sit back and let the program die.”

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