Archive for February, 2009

We have plenty of Venture Capital?

Monday, February 23rd, 2009

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

Monday, February 16th, 2009

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

Friday, February 6th, 2009

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!

Monday, February 2nd, 2009

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!