Rocco Forino on The Value of Investing in Entrepreneurs

April 15, 2018: Part of this Article appeared in Fortune Term Sheets section Deals  and Deal Makers

Jeff Fagnan believes that if you’re a startup founder, you have a social responsibility to become an angel investor — whether you want to or not. “We feel like if someone helped you, you need to pay it forward as well,” he told Term Sheet.

Fagnan, the founder and general partner of seed-stage venture capital firm Accomplice, is well known in the Boston startup ecosystem. The firm’s portfolio companies include AngelList, Carbon Black, DraftKings, Hopper, PillPack, Veracode, and Zoopla.

Rocco Forino of Rocco Forino Capital (RFC) agrees with Jeff Fagnan.  Rocco Forino says, “The economic vitality of cities and local economies depend on successful business people to help mentor and finance the next generation of inventors and entrepreneurs. And you see which cities are thriving because they foster that ecosystem.

Top tier cities like Austin, Texas; Dallas, Texas; Silicon Valley California, Denver, Colorado; Brooklyn, New York; Miami, Florida; Boston, Massachusetts;  and Los Angeles, California. Even mid-sized cities are experiencing explosive growth like Louisville, Kentucky; Madison, Wisconsin; Indianapolis, Indiana; Pittsburg Pennsylvania and Columbus Ohio as reported by Curbed.com.  These cities and their economies are constantly growing and real estate values for the most part hold their values and continue to climb because the United States economy is built investors funding the next generation of entrepreneurs.

Rocco Forino grew up in Waterbury, Connecticut and after graduating from college in 1999 he started a company called echainonline.com right out of college. Echain stood for electronic supply chain and would connect all warehouses around the world of excess inventories of microelectronic and electronic components. And back in 1999 after the explosion of tech there was a surplus of microelectronic components, but you didn’t know who had what and you basically had to rely on a type of physical phone book directory just to contact the facility and from there the inventory manager would tell you what they had in their warehouse.

Rocco’s idea was to just digitize the whole process, from facility contact info to location to the inventory and it was set up like a hybrid of Alibaba where you can go on and see what a company had in its inventory and you could bid on the component like ebay, since some of the electronics were in high demand but hard to find.

Rocco had 3 partners, a software engineer from Bangalore India, and two recent Harvard graduates to get the company moving.  Waterbury at the time was touting an information technology zone (ITZ) with tax breaks and money funded by the Naugatuck Valley Development Corp. (NVDC) (most likely the same organization) that was claiming to provide a $100K grant to each company that would HQ their technology business in Waterbury.  So with funds raised from family and friends Rocco Forino located echainonline on Bank Street a designated information technology zone (ITZ), in Waterbury, Connecticut.

Thereafter, Rocco met with some individuals who claimed to be investors, but were mostly sketchy characters to say the least.  All the while Rocco had also been meeting with NVDC executives numerous times over the initial months with each meeting ending in inconsistent requirements from the previous meetings.

Rocco, said “Looking back they were asking us to provide personal financial income statements from all of us who were recent college graduates.  Then they were looking for a business plan, which is a 30 page document trying to predict the future five years out before the product even touches the customers hands. Versus something more practical, like a lean startups pitch deck that starts with a hypothesis,  ‘The Business idea or customer pain point’ and prove if there is a market by talking directly to enough customers first then building exactly what the customer wants…versus spending months or years building a product first and finding out later that customers never had a real use for it.  Meanwhile in Silicon Valley entrepreneurs with incredibly dumb startup ideas were walking out of VC offices with millions of dollars using a 13 page slide deck presentation.”

And do you know how much the NVDC granted echainOnline…nothing.  After seven months negotiating and numerous run arounds with the Waterbury Economic Development agency for a measles $100K grant, practically pocket lint back then. echainOnline got nothing but the run around. “Rocco, said, “At the time I was not aware of any Connecticut based professional angel investors or venture capitalists or where to find them, keep mind Google just started in 1998 and was only popular on the Stamford campus, otherwise these professional investment channels would have been my first option and I wouldn’t have wasted so much time with the NVDC.”

See the 1999 article on echain covered by the Waterbury Republican-American.

And after some local press coverage on echainOnline, not a single credible business mentor, investor or business leader from the entire Waterbury area reached out to pay it forward, not a single one. Not even a call from a local well know businessman saying, “If you guys need any advice or help..give me a ring.”

Not even the Mayor of Waterbury reached out.  He made several public statements that he was pushing hard for this economic zone to work probably so he could appear as Waterbury’s economic savior.  So, Rocco decided to reach out to the mayor to set up a meeting and see if he had genuine interest in building Waterbury into a tech hub.

Rocco said, “It was a fifteen minute meeting and he seemed to be in a hurry to get rid of me.  It was the typical ‘I’ll meet with you, just to keep you from pestering me again type meeting’ and it was awkward at the least. He didn’t ask much about the company or what it did or say how he thought the ITZ zone was going to transform the city or anything like that.  And after that meeting I just had a feeling like I was part of some inside joke that no one let me in on.  It was clear after that meeting that neither Mayor of Waterbury nor the NVDC were on the same page, and the idea of the ITZ was a half baked idea that I was now embroiled in.”

The Mayor soon after was sentenced to life in prison for child molestation.  The FBI was investigating him on political corruption charges when they caught him molesting two young girls numerous times (Beware you may be sick, after reading that article) right inside the mayors office and were brought to him by a prostitute. The two girls were the niece and daughter of the prostitute.  It made headlines everywhere even the New York Times covered the story.

And to this day Rocco Forino always wondered how things would have been different if he started  in a city like Boston, or closer to Silicon Valley with larger talent pools and where credible angel investors or VC agencies would have taken a shot on his company and team.  Rocco raised just enough money to get a site up, pay the rent for about a year all while trying to raise more money to give the business a longer runway to hire a larger software team to build the back end and sales team to go after customers.   And back then everything was super expensive.  There was no out of the box anything, it all had to be developed from the ground up. Your entry level computer in 1999 started at around $4,000.00.

And then the tech bubble burst later in 1999 closer to 2000.  And as Rocco was considering Silicon Valley as the next location, unknown to him…it was already too late. The bubble burst  and all VC investments dried up significantly.  And what sucked even more than the lack of VC investments was the lack of funding forced the value of electronic components to became more valuable and in demand because tech companies who were splurging on brand new electronics and computers years previously, now had to spend less recklessly for once and buy used.  A prime market for echainOnline.

If you look at what Shark Tank has done for the hundreds of entrepreneurs they invested in, its just amazing. They have created economic vitality in a number of communities across the United States.  The Shark Tank entrepreneurs created over $250 million dollars in sales for their investor and created thousands of jobs in all their respective towns and cities.  Imagine if Shark Tank did not exist, those same entrepreneurs and inventors probably would have had much higher failure rates.

Having access to investors and mentors is such and important component to a startup because they act as a guardian of the business.  Just like a parent raising a child and looking out for the child’s best interest, investors and mentors who have a stake in the business clearly want the business to succeed and will do what they can to protect it and direct it towards success.

And do you know what Waterbury, Connecticut looks like today? Not much different than in 1999.  More blighted building, insanely high property taxes, no real innovation or tech businesses have located there past or present. No developers building skyscrapers to fill with new offices. A typically frequent business in Waterbury is a national retailer or fast food company supplying only minimum wages jobs.

Insanely high property taxes are a symptom of a lack of economic and property development typically reversed by businesses growing and locating to the locality.  When a business grows it occupies more office and commercial spaces, employees spend more money around town and more employees making decent salaries will need to buy homes.

This growth increases the denominator (The number of tax payers) therefore lowering the result of the numerator (Tax Bills) for everyone. When businesses leave the locality it causes a stagnant economy for those left behind.  And when the numerator (Tax Bills) keeps growing and the denominator (Number of tax payers) gets smaller it makes tax bills higher for those stuck dealing with the lack of economic activity.

Matthew Stewart wrote a tremendous thought piece on “The Birth of a New American Aristocracy” and how the the 9.9 percent of wealthy Americans wall themselves off and box out those who are looking to improve their intergenerational earnings elasticity (IGE) or social economic status. 

According to Stewart, “IGE, measures how much of a child’s deviation from average income can be accounted for by the parents’ income.  An IGE of zero means that there’s no relationship at all between parents’ income and that of their offspring. An IGE of one says that the destiny of a child is to end up right where she came into the world.”  

Stewart wrote, “The higher the inequality between socioeconomic classes, the higher the IGE. It’s as if human societies have a natural tendency to separate, and then, once the classes are far enough apart, to crystallize.”

Stewarts piece is an amazing eye-opener on the defining challenge of our time of recognizing the effects of accelerating inequality in America and to partake in reversing its calcifying divisions.

Rocco said, “Here we had an amazing business concept and a stellar team that could have been the gasoline that turned Waterbury into a tech hub or some hub, but we had a lot working against us: a team split between staying and leaving, a pedophile mayor more focused on his own interests than on building up Waterbury’s economic value, a clueless economic development agency masquerading as a source for entrepreneur funding, no experienced angels or venture capitalists reaching out and a tech bubble literally months away from bursting. It felt like a full season of the HBO hit series Silicon Valley, except its not as entertaining when you are the main character in the drama.”

And what’s sad is Waterbury has some great architecture around town.  It has some of the most beautiful churches and Italian inspired architecture that could be found in any town in Europe. If the people who made their wealth in Waterbury years ago actually paid it forward on a continuous generational basis, Waterbury could have been an attractive destination for businesses.

This brief was written to let entrepreneurs know that Rocco started Rocco Forino Capital to pay it forward to the next generation of entrepreneurs. As you have read from Rocco’s first business experience it could have been a much more successful experience with access to credible investors. He knows firsthand what its like to be frustrated with the lack of mentors and investors in underdeveloped communities especially smaller impoverished cities and small towns that tend to be void of credible investor mentor options.

Rocco Forino Capital is open to investing in entrepreneurs from all over the United States including entrepreneurs from his former hometown of Waterbury, Connecticut.  If you are an entrepreneur with a business or product at the sales stage, see the About page for presentation instructions and reach out to us whenever you are ready to make big money moves.