Florida Venture Forum Early Stage Venture Capital Conference - where’s the beef?

May 19th, 2009 by Dennis R. Pape

On May 15, the Florida Venture Forum hosted its second annual Early Stage Venture Capital Conference at the Omni Orlando Resort in ChampionsGate, Florida. About 200 people attended, down from the previous year. The conference agenda included morning seminars for entrepreneurs and afternoon company presentations for potential investors.

I attended two of the morning seminars - The Business Plan and Angel and VC Funding. Both were informative for the neophyte entrepreneur.

16 seed/early-stage Florida companies were selected by the Forum to present in the afternoon. Here are the companies that presented (while 16 were selected only 14 presented - no word on what happened to the other two - Advanced Aero and eCycling):

Airgonomix, LLC - low cost, easy to install “Personal Air System” that controls temperature at the individual room level in commercial or residential buildings.

bioTRAiTS Inc. - a biometric technology company providing hardware, I. T. solutions, and customized software solutions to meet time and attendance and access control needs via recognition and verification of unique human characteristics.

CliQuality - has developed a Google AdWords campaign optimization engine, driven by data mining that automatically manages and optimizes online campaigns and their ROI.

Consult A Doctor - offers 24/7 access to its proprietary nationwide 24/7 access to doctors via phone and secure email.

Digiport, Inc. - professionally managed Tier II/Tier III colocation facilities delivered within commercial office properties provide 24 hour redundant cooling, redundant power and non water based fire suppression to tenants of the property. www.digiport.com .

Eginity - operates in the Wireless Sensor Networks (WSN) market.

HybridNRG Inc. - provides wireless integrated renewable energy solutions (WIRES) at facilities within the telecommunications industry. www.hybridnrg.com .

Milliken Environmental, LLC - builds and then leases its sewer and storm water cleaning equipment to contractors and municipalities.

My Therapy Journal.com - therapy-oriented online journaling tool.

Physical Health Insights, LLC - provides a low cost (<$10), first of its kind, web and medically based, health assessment of the human musculoskeletal system.

Quasar Bio-Tech, Inc. - manufactures professional and consumer light therapy devices.

Quiescence Technologies LLC - develops healthcare products powered by safe novel technology to reduce the $30B costs of Healthcare Associated Infections (HAIs) such as MRSA.

Proton Data Security, LLC - products for declassifying and destroying electronic data.

Voalte, Inc. - innovative healthcare solutions for the emerging class of highly mobile computing devices.

I attended all of these presentations and, with a few exceptions, I think this session left a lot to be desired for potential investors. One speaker stated that over 250 applicants had been evaluated and 16 selected to present. Another speaker said that over 100 applicants had been evaluated. Whichever number is accurate, most would find it hard to believe that these are the best 1614 early-stage deals in Florida at this time. More importantly, however, was the lack of a compelling story conveyed by the majority of these companies.

For too many of these companies investors didn’t hear about:

1. A compelling business model that scales
2. Intellectual property or “secret sauce” that differentiates and provides barriers to entry
3. Revenue in year 5 that is sufficient to warrant the investment the company is seeking
4. An addressable market that is sufficient to warrant the investment the company is seeking

This begs the question of whether there was no compelling story to be told or whether the presentations just fell short. After talking to some of the companies afterwards in the exhibit area I learned that, at least for some, the latter was the case.

I look forward to seeing more beef from Florida’s early-stage venture community next year!

Green smokestack chasing

May 11th, 2009 by Dennis R. Pape

Smokestack chasing is the economic development policy of attracting existing firms from somewhere else, either to relocate to a particular area or to build new facilities there, using financial inducements and tax incentives.

There is little to no evidence that it works.

Despite this, economic development agencies continue to pursue this policy.  With the current emphasis on green jobs, some cities are  now green smokestack chasing -  the latest example being Orlando - as reported in today’s Orlando Sentinel “Incentives to lure jobs to Central Florida could hit $31M“.

What does work?  Entrepreneurship!  As the authors of the Kauffman Foundation report Entrepreneurship and Urban Success: Toward a Policy Consensus write

Likewise, policymakers at local and state levels increasingly recognize that entrepreneurship is the key to building and sustaining their economies’ growth. Although this is a seemingly obvious proposition, it represents something of a departure from past thinking about how local, state, or regional economies grow. Historically, state and local policymakers have put their energies into trying to attract existing firms from somewhere else, either to relocate to a particular area or to build new facilities there. Such “smokestack chasing”—or, in this cleaner era, simply “firm chasing”—often has degenerated into what is essentially a zero-sum game for the national economy. When one city or state offers tax breaks or other financial inducements to encourage firms to locate new plants or headquarters, and succeeds, some other city or state loses out in the process.

Local, state, and regional economic development centered on entrepreneurship, however, is a fundamentally different phenomenon. The formation and growth of new firms, especially those built around new products or ways of doing things, wherever this occurs, is clearly a positive sum game, not just for the locality, but for the nation as a whole. A brief look at the various “high-tech” or innovative clusters that have grown up around the country—from Silicon Valley to Austin, Research Triangle Park (N.C.), San Diego, Boise, Denver, Madison, Route 128 around Boston, and northern Virginia, to name just a few—demonstrates this. The U.S. economy as a whole clearly has benefited enormously from the innovative products and services the major companies from these various “hubs” or “clusters” have introduced to the country.

We can only hope that someday we might see this headline in the Orlando Sentinel: Incentives to form and grow new firms in Central Florida could hit $31M.

University of Florida Celebration of Innovation - Showcase 2009

April 16th, 2009 by Dennis R. Pape

This past Tuesday I attended the University of Florida’s Celebration of Innovation - Showcase 2009 organized by the UF Office of Technology Licensing.  As in years past (this was the third year of this event), this was an opportunity for entrepreneurs, investors, and service providers (some 240 were physically present and another 60 listened via WebEx) to gather in Gainesville to network and hear about start-up companies commercializing technology from UF’s research labs.

Following brief remarks by UF’s president, Bernie Machen, and VP for Research, Winfred Phillips, Jonathan Cole of New World Angels and his panel of Jim Counihan from Prism VentureWorks, Garheng Kong from Intersouth Partners, and Mark Dunkel from Southeastern Technology Fund gave an informative, but sobering, assessment of the state of the VC funding in the current economy.  Their remarks are similar to those I have heard at other recent conferences and blogged about here and here.

Following a brief survey by UF OTL’s David Day and Jane Muir of new UF technologies ready for licensing, the CEOs from 16 UF start-up companies each made 15 minute pitches in two parallel sessions, Technology and Lifescience:

Technology Session

(Century Ballroom B)

Lifescience Session

(Century Ballroom C)

3:00-3:15pm Kairos Microsystems
High Performance Silicon Semiconductor Technology
James Spoto
CEO
BIKAM
Therapeutics for Retinal Degenerative Disease
Dr. Muz Mansuri
President and CEO
3:15-3:30pm Prioria
Unmanned Aerial Vehicles
Bryan da Frota
CEO
Drug Detection Solutions
Instant Surface Testing for Drugs of Abuse
David M. Martin, Ph.D.
CEO
3:30-3:45pm AZonic Solar
Low Cost Manufacturing of CIGS Photovoltaic Cells
Doug Meyer
CEO
Apeliotus Ophthalmics
Contact Lens Drug Delivery Systems
John Edwards
CEO
3:45-4:00pm Red Lambda
Identity-Aware Network Security Solutions
Robert Bird
CEO
Banyan Biomarkers
Novel Method to Monitor Traumatic Brain Injury
Gary Ascani
CEO
4:00-4:15pm Sestar Technologies
Revolutionary Solar Energy Products
Mike Starks
Founder and CEO
Clinipace
Software Applications to Improve Clinical Trials
Jeff Williams
CEO
4:15-4:30pm Delta R Detection
Ultra Violet Based Explosive Trace Detection System
Thierry Dubroca
CEO
RetinaSense
Retinal Device for Increased Surgical Precision
Navroze Mehta
CEO
4:30-4:45pm Rapid Mobile
Mobile Network Emulation Technology
Edwin Hernandez
CEO
360ed
Interactive Educational Products
Ben Noel
CEO
4:45-5:00pm dEmo Speech Technologies
Auditory-Based Method for Measuring & Modifying Voice Quality
Dana Nemenyi
CEO
X-Ray Robotics
A Dynamic Radiographic Imaging System
Kevin Bowles
Interim CEO

I spent most of my time listening to the technology presentations, although I did manage to catch a few of the lifescience presentations. Of those presentations that I heard, the most compelling to me were 1) Sestar, which is developing a flexible polymer photovoltaic material that can be incorporated in any number products (e.g. synthetic turf and fabric) to generate electricity and 2) X-Ray Robotics, which is developing an x-ray imaging system that can form, in real-time, images of a body while in motion.

The University of Central Florida scheduled and subsequently cancelled a similarly titled Innovation Showcase in Orlando two days after this UF event.  I don’t know why it was cancelled, but the breadth and quality of technologies and companies presented by these 16 CEO entrepreneurs in Gainesville as well as the superbly organized conference put together and graciously hosted by David and Jane sets the bar very high for those that follow.

Maximize the probability that potential investors will find your deal compelling

March 31st, 2009 by Dennis R. Pape

Raising money for a startup in this economic environment is difficult at best.  Of course, having the prerequisites that create investor excitement for an opportunity are needed now more than ever: an opportunity which addresses a large, unmet need in a large and growing market with a proven management team executing a clear and compelling business model.  In seeking potential investors in this difficult investment climate entrepreneurs should:

1) Qualify the investor: Entrepreneurs now need to perform more extensive due diligence on their potential investors.  There are now many investors that, while they may say there are investing - they really are not.  Many angel investors have moved to the sidelines as their own net worth has decreased.  Many institutional VC funds, unable to count on planned liquidity events for their portfolio companies and unable to raise new funds from their limited partners, are now in a holding pattern – conserving their current funds for the future needs of their existing companies.  Do your due diligence and seek truly qualified investors for your deal.

2) Structure the funding profile of the deal: In this environment, where investors are much more conservative, an entrepreneur should structure a staged funding profile so that investors are able to invest in smaller tranches tied to the achievement of specific milestones. The achievement of these milestones goes a long way in minimizing the risk of the investment.  Once achieved, these milestones provide the entrepreneur a compelling argument for an increasing valuation of the company (although that too may also be problematic in this environment).

3) Optimize the amount of money being raised: It is unlikely that you will have much say over the pre-money value of your company.  In fact, particularly in this environment, the investor will have a pretty firm idea of the pre-money value and will not be motivated to negotiate that value.   Minimize your monthly cash-flow requirements to seek the minimum amount you need to get through at least 18 months if not two years.  This presents a lower funding requirement to the investor and optimizes the amount of equity the company retains in the deal.

While these tips won’t necessarily make your deal the one that gets funded, we believe they will certainly help you maximize the probability that potential investors will find your deal compelling enough to dig deeper.  They will also help you maximize the value of your deal to all of your stakeholders.

Southeast Venture Conference - now is the best time to start a new venture

March 15th, 2009 by Dennis R. Pape

I attended the Southeast Venture Capital Conference last week in Atlanta.  Similar to the Florida Venture Forum held last month, it is a two-day event that brings VC’s, entrepreneurs, and service providers together to network, hear the latest news on the state of the VC industry, and learn about promising new startups.  What impressed me most about this conference was the number and variety of panel presentations and the notable keynote speakers.  The one message conveyed throughout the conference - now is the best time to start a new venture.

Why now?

Tim Draper, managing director at Draper, Fisher, Jurvetson, at the beginning of the conference noted that:  1) Existing companies are going into survival mode and reducing their investment in innovation, 2) new ventures can now find an abundance of less expensive services and talent, and 3) new ventures that are created in this environment will develop a survival mode culture that will serve them well just like the companies founded during previous downturns - including: Microsoft, Apple, FedEx, Oracle and Genentech.   I think that we will see an increase in the number of startups as the perceived risk to potential entrepreneurs lessens, as instability becomes a part of their careers and lives.  Risk is indeed the hallmark of the entrepreneur, as Tim sang in his now famous song, The Riskmaster.

That now is the best time theme was amplified at the end of the conference by Rich Karlgaard, publisher of Forbes.  Rich noted that instability leads to innovation and dislocations.  In this regard, I highly recommend Clayton Christensen’s book, The Innovator’s Dilemma. Disruptive technologies will now have an easier time gaining a foothold in the market.

Now is the best time to start a new venture!

We have plenty of Venture Capital?

February 23rd, 2009 by Dennis R. Pape

Thomas Friedman hit a VC nerve yesterday with his NY Times op-ed piece Start-Up the Risk Takers.  Friedman says:

“You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves”.

Before Sunday was out Fred Wilson of Union Square Ventures was blogging that:

“But the venture capital business, thankfully, does not need any more capital. It’s got too much money in it, not too little…..  The worst (VC) firms, on the other hand, will gladly accept government money.   And that is what is going to happen with all of these government efforts to pour more money into the “innovation sector”.   That money will go to bad investors and weak entrepreneurs and management teams for the most part. It’s a problem of adverse selection”.

“The venture capital business has too much money in it” (?).  Maybe the VC business in the Silicon Valley, LA/Orange County, and New England do, (which accounted for 57 percent of the VC dollars invested and 49 percent of the VC deals reported in 2008 according to the PWC MoneyTree Report) but that is not the case for Florida and the rest of the US.

“Any additional money will go to bad investors and weak entrepreneurs” (?).  I’m sure there are plenty of good investors, like my friend Dan Rua at Inflexion Partners, who could put the money to good use investing in strong entrepreneurs.  As Dan recently blogged:

“We’ve backed 9 great companies/entrepreneurs with Fund I, but we’ve seen over 2000 deals. We probably saw 50+ institutional quality deals/teams during that same period. That selectivity is great news for our investors, but really unfortunate for FL entrepreneurs”. 

In fact, precisely becasue Florida needs more venture capital, the state has recently created the Florida Oppotunity Fund - a fund-of-funds which will invest in VC funds focused on making investments in Florida.

So before completely dismissing Friedman’s idea out-of-hand (and I too worry about the implications of and constraints imposed by government money), let’s acknowledge that there are deals in Florida and beyond that are un- (or more likely under-) funded and start discussing ways to get those deals funded.  We have an opportunity, as Thomas Friedman says, to start

“…. a new generation of biotech, info-tech, nanotech and clean-tech companies, with real innovators, real 21st-century jobs and potentially real profits for taxpayers”.

Term sheets tilting in the direction of VC’s

February 16th, 2009 by Dennis R. Pape

One of the panel discussions I look forward to attending at the annual Florida Venture Capital Conference (organized by the Florida Venture Forum) is titled “Latest Fads in Term Sheets“.  This one is always a favorite of mine as it gives me a view into the VC industry that is otherwise usually difficult to find.  This year’s panelists at the recent conference in Naples were Dave Felman of Hill Ward Henderson, John Glushik of Intersouth Partners, Randy Poliner of Antares Capital, Jack Rybicki of Larsen Allen, and Steve Vazquez of Foley and Lardner.  The panel was moderated by Carl Roston of Akerman Senterfitt.    VC term sheets are like weather vanes - they turn in the direction of the prevailing economic winds and the winds are now (and have been for at least a quarter) blowing in the direction of the VC’s.  As the panel discussed, some of the key terms that founders and their management teams are now finding in their deals include:

  • Valuations - the economy and lack of timely exit opportunities is resulting in significantly lower valuations than last year (although the good news for early-stage deals is that valuations are already low - so how much lower can they really go?)
  • Milestone based investments - investments are increasingly being staged and tied to milestones that are spaced further apart in time with little or no increase in valuation
  • Liquidation preferences - deals with multiples in liquidation preferences (1.5 to 2X now and potentially going higher) are coming back.  Liquidation preferences protect the investor if there are subsequent flat or down rounds but significantly reduce the value of the common shareholders (read founders and management team) stock at a liquidity event.  Preferences of 3 and 4X were seen during and after the 2000 - 2002 tech bubble collapse which resulted in tremendous disparities between common and preferred shareholder value at a liquidity event).
  • Vesting - new vesting schedules for previously vested founders and management are being imposed in new funding rounds as exits are pushed out.

In this economy and funding environment these terms are the new norm. What can an entrepreneur do to gain more favorable terms?  I’m afraid not much other than to know what the prevailing terms are and to negotiate a deal that is not less favorable than what others are signing.  On the positive side, those founders and management teams with a term sheet in hand contemplating these issues are probably secretly counting their lucky stars!

Florida Venture Capital Conference - If I had a fund

February 6th, 2009 by Dennis R. Pape

I have just returned from Naples (short trip - Florida!) where I attended the Florida Venture Capital Conference - an annual event organized by the Florida Venture Forum.  This is a two-day event that brings VC’s, entrepreneurs, and service providers together (about 1100 people registered)  to network, hear the latest news on the state of the VC industry, and learn about promising new startups in Florida.  I’ll comment on the state of the VC industry in another post.  Today I want to highlight two of the companies that I learned about that I’d fund (if I had a fund).  I know, talk is cheap! 

Audigence (Melbourne, FL) - This company has developed a software-based optimization technique for assessing and tuning digital hearing devices, such as hearing aids and cochlear implants. The Audigence technology enables customized tuning of existing hardware devices to enhance the capabilities of hearing impaired patients.  This is just the beachhead for this company. The real market will develop when they get their software into mobile phones.  Just think, your cell phone speaker could be customized and optimized for your particular ear - dramatically improving speech intelligibility.  Over 1 billion mobile phones are produced annually.  If they can get their technology on a fraction of these, let’s say 5% the first year, at say $0.10 - 0.50/phone - thats $50M.  I think this is a winner.

Sharklet Technologies, Inc. (Alachua, Fl) - This company has engineered a new surface technology product called Sharklet™ that prohibits the growth of dangerous bacteria.  The surface is a microscopic pattern that is similar to that found on a sharks skin.  The observation that bacteria did not grow on a shark sparked the research at the University of Florida that is behind this company’s product.  All kinds of medical devices (like catheters, etc) could be coated with this product to provide longer lasting and safer use.  The potential market is over $1B.  I think this is another winner.

Welcome to AlphaLaunch’s Blog - LaunchPad!

February 2nd, 2009 by Dennis R. Pape

Welcome to our first blog on technology startups and venture capital in Florida and beyond. You might ask, does the world need another blog? Maybe not. We think, however, there are readers interested in reading about these topics from our perspective (technology entrepreneurs with business experience). A quick look shows that there aren’t too many people blogging from our perspective - certainly not in our region of Florida. So with that in mind, we launch our blog - LaunchPad. Welcome!