Monday, December 29, 2008

Alan Kane of Archangel Ventures Talks about Raising a Fund for Game Developers

Alan Kane of Archangel Ventures Talks about Raising a Fund for Game Developers

What is your background?

I came to Austin in 2004 after earning an MBA in Entrepreneurship from Babson College. I started my career in gaming at Midway Games, where I was the studio CFO & COO for 4 years. Prior to Midway, I was an Investment Banker and quite frankly was not a “gamer.”

At the time, Midway had a great business plan and a bright future. My job was to focus on the business and operational side of the studio, while a very talented group of directors managed the production and creative development. The local studio grew from 35 to over 220 in just 18 months. We built out a new 40,000 square foot facility in the Domain. We released a couple of AAA titles and had a few more in the works. Then rather abruptly last summer, Midway corporate was forced to scale back their 2010 and 2011 plans, which led to a massive layoff here in Austin.

I stayed on for the transition and focused on securing employment for those who were let go. Then I decided to start my own consulting company focusing on CFO for-hire type engagements for game developers. I see so many studios that need help or want to outsource the operational and financial management side of their company, so that they can focus on making great games and not negotiating leases, bookkeeping, planning for growth, writing HR policies, etc. When I was growing up, my father was a brilliant engineer, however he couldn’t nail the business side of running his own company. So this is an issue I understand quite well.

My company provides investment capital and advisory services to game developers who are willing to do what it takes to succeed. My investments are equity stakes in actual game projects and not directly in the studio.

How much are you raising for your first fund?

For this first fund, I’m talking to successful angels and high-net-worth individuals in an effort to raise $10M to $15M and that will be structured as a typical VC fund. Over $15M the economics start to breakdown given the size of each project I am looking to fund and my investment criteria.

What are you going to provide your portfolio companies?

I’m looking for projects and studios in which there is a good fit. This is defined as a situation where there is a compelling risk reward at the project level and where the studio is willing and able to do what it takes to succeed. Let’s face it not every project is going to be the next Halo blockbuster, but if you structure the project in such a way it does not have to be, to be profitable. I will work with each portfolio company to help make this possible by investing the money, time, and energy necessary for success.

How does it work?

This is a new business model for funding game development projects and understand that each project is relatively unique.

However, without giving away the secret sauce I’ll give you a profile of an investment I will look to make. I will partner with an experienced game developer with existing technology to fund a specific project(s) rather than funding the studio itself. I will work with the studio to hash out the project (or slate of projects) budget and timeline that they are looking to produce. I will also base my investments geographically to take advantage of government matching funds programs. With these types of programs, you have a collateralized type of principle investment. In addition to a share of backend royalties, if a larger publisher is involved in the deal you can create a larger return by working with their milestone payments.

In each deal I do, I’m looking to make a return of 3-5x on a $250k-$500k investment. While this is not the typical VC target of +10x return, my risk is much lower than a traditional VC. The number of losing investments in my portfolio will be minimal due to my unique investment structure, shorter investment duration, and my liquidity events will be clearly defined.

How is it different?

Traditional investors will look at a gaming company and try to come up with a valuation for the company as a whole based on cash flow projections and a terminal value at some future event. What I do is make an investment based on a game project no more than 30 months out with a clearly defined revenue stream and terminal value. If a publisher does come into the deal great, I get a cut of that money too. The investors get their cash back out more quickly because they don’t have to wait for the company to be acquired or the studio to issue dividends. Movies are funded somewhat the same way. From an investor’s standpoint, this model works and is not simply based on the commercial success of the title.

How many projects are in the pipeline?

I currently have 6 very promising projects I’m actively looking to fund. There are another half dozen on my desk I still need to vet. Once I close my fund and word gets out I have $10M-15M to invest, I have no doubt the studios with the best projects will come looking for me. This industry needs an alternative funding model and I believe I have it.

Best regards,
Hall T.

Monday, December 22, 2008

Jonas Lamis and Kevin Koym of Tech Ranch Austin Talk about Their New Incubator

Jonas Lamis and Kevin Koym of Tech Ranch Austin Talk about Their New Incubator

What’s new with Tech Ranch these days?

Tech Ranch Austin is a newly launched incubator in Northwest Austin. We are focused on accelerating pre-seed and seed stage technology companies that can change the world. Our team has expertise that spans software, hardware, alternative energy and emerging technologies, and we currently supports start-ups like Piryx and IPX among others.

We had a great “launch” last week where we made three big announcements:

* Collaborate with Tech Ranch executives: Pre-seed and seed stage start-ups can sign up for “office hours” to discuss their start-up issues and challenges. They will learn processes for moving their venture forward and make contacts to support funding and growth initiatives. More details at

* Incubator space for technology start-ups: Tech Ranch Austin is now seeking pre-seed and seed stage technology ventures in central Texas to become residents of the Tech Ranch incubator facility in North West Austin. Team rooms with collaborative work spaces and shared services are offered at favorable month to month rates. Contact:

* Join the Tech Ranch partner network: Tech Ranch invites value added service providers from the Central Texas community to join the Tech Ranch partner network. The Tech Ranch Incubator works with some of the most exciting technology start-ups in America. We connect our partners with these start-ups to provide services that help them reach their growth and funding goals. Contact:

How are you different from other incubators?

Tech Ranch Austin’s mission is to accelerate game-changing technology ventures. The Tech Ranch team is focused on rolling up their sleeves and stepping into key roles with our portfolio companies to help them get to the next critical success level – be that revenue generation, funding, or monetization. We do this for a share of equity, and generally focus on risk and reward sharing with the start-up.

What are the services you offer?

We have space so startups can bring their teams together to work and collaborate. We also bring provide hands on guidance in areas of sales, marketing, bus dev, finance and operations – depending on the needs of our portfolio.

One of the best ways to figure out if Tech Ranch is a good fit for your venture is to sign up for one of our free “Office Hours” where we can talk about challenges and potential solutions.

How many companies do you have so far?

We are currently working with three fantastic seed stage ventures. In 2009, we hope to work with about a dozen companies.

What are the criteria to get in?

There are two complementary tracks for interested companies. We offer office space, shared services and a collaborative environment for start-up teams to work out of our incubator. If companies are interested in this, they should come by and get a tour of our facility.

For companies that believe they can take advantage of our business expertise and network, we will mutually evaluate whether there is a strong match before we engage with each other.

Can you tell us about one of the companies already in the incubator?

One of the most exiting companies in Austin right now is Piryx. Tom Serres, co-founder and CEO of Piryx noted about working with Tech Ranch, “Piryx is a seed stage venture that is out to change the world of politics by empowering everyone with a cause to run for office. Jonas Lamis and the expertise of the Tech Ranch partners has provided invaluable assistance to us as we launch our beta, build our team and move towards series A funding.”

Best regards,
Hall T.

Wednesday, December 17, 2008

Jonathan Gilliam of OneAccord Talks about his Startup Experiences

How did you get to Austin?

I attended UT-Austin and was one of the lucky few who got to stay after graduation. All my college buddies in Dallas and Houston are envious. But there are sacrifices – execs in Austin know to do well here usually means you’ll have to travel.

What is your background?

I am a business development guy, sales and deal-making are in my DNA. During the 90’s like many Austinites I morphed into the tech business and have hung around it most of my career. It’s a lot of fun.

What was your first startup?

I was a co-founder of Hush Communications. We provided encrypted email service that was end-to-end, meaning only the sender and recipient could read it. At the time, Bill Gates was defending his email in court and people were starting to realize the Internet was not as private as they had thought. We promoted “privacy” as a right and were a bit ahead of our time, it took a while for people to really care about their security online. The company is still doing well, more focused on businesses now.

Facebook changes all that, of course. I think people have just given up on privacy and are more concerned now with controlling their personal information rather than trying to hide it.

Later I spent 6 years at Deloitte in their data forensics group leading national business development for their fraud detection product, and then to another company in town doing large-scale data mining for the government.

So I sort of went from “fighting the man” to “being the man”, career-wise at least! I still believe privacy is something to be cherished, especially having seen it from the other side.

How did you get your startup funding?

We closed our last round of funding two weeks before the tech crash of 2000, and promptly moved the business to Ireland where the encryption laws were more friendly.

Interestingly, our last round was through an “online investment bank” called OffRoad Capital (get it?). We were one of the last deals they did before the crash, our “road show” was streamed online – imagine the video technology back then– and our deal actually went to a unique auction phase giving us something like a 25% higher valuation than we expected.

Wonder when someone’s going to bring that back! It was great for startups.

What are your current interests?

With OneAccord I’m focused on helping companies ramp their revenue and build out their sales and marketing strategies. I recently joined an awesome online marketing agency called Idea Interactive and last year founded an association for complex sales professionals called the Society for Business Development Professionals. So it’s been busy!

I hear you’re a blogger. What do you blog on?

My blog until now has been a grab bag of my thoughts on a number of start-uppy business topics, but more and more I’m focusing on information for companies wanting to “blow out” their top line.

What are the top three trends in the business development space?

It is an incredible time of transition for going to market. The days of calling someone you don’t know up and getting them to spend a lot of money with you are simply dead. Try calling an CIO and selling them something today; voice mail and email filters mean never having to talk to a salesperson again.

All companies need to take a hard look at leveraging new “Sales 2.0” strategies to have a chance of succeeding. This is actually a wonderful opportunity for those willing to be creative, invest and step up to the plate. More than ever it’s about relationships and trust-building and leveraging networks.

Another trend is the rising need to be information savvy. It’s less and less what you know but who you know and how to quickly find out what you don’t know. It’s just as important to have a search window at our fingertips as having an encyclopedia in our heads. This changes not only customer activity but business activity in general.

I recently blogged about another opportunity in the chaos of the financial crisis. As competitors do the drill of reigning in spending and scaling down, smart companies are stepping in and acquiring other companies on the cheap, gaining market share and taking advantage of more favorable terms. This crisis is one of those rare game-changing opportunities, if we can overcome the fear and hype.

Best regards,
Hall T.

Monday, December 15, 2008

Eric Stumberg of Tengo Internet Talks about Tengo Internet and Municipal Wi-Fi Implementations

What does TengoInternet do?

We provide high speed internet management services for outdoor parks and campsites.
It’s mostly amenity internet with added business applications, so we provide members all the deployment and management and support networks.

Do you cover the Texas Parks & Wildlife?

We are operated a 3 year pilot with them. The pilot proved that their users wanted it; but the state parks decided that they wanted to actually manage that project internally.

Do they pay for it?

We’re ran a guest-supported pilot for three years. We use satellite to handle the remote locations. Normally when you are remote like that, you need to share the back haul costs with your regular applications. The back haul is a big component.

Sounds similar to municipal Wi-Fi. What ever happened to that?

The business model is challenged. No one wants to pay for it, except for municipal services. It’s consistent with a lot of the municipal Wi-Fi deployments – there is no quality of service or revenue guarantees - EarthLink tried to use an advertising and subscriber model in a couple of areas. They failed. If you have an anchor tenant it works. If you don’t, it won’t work.

What are you working on these days?

The extending the reach of WiFi into our customer’s networks, expanding our media platform for advertising directly to our subscribers, integrating social networking tools into tech support – such as Twitter, and others..

Where do you see Tengo Internet in 5 years?
Bigger and deeper in an expanded space. We will become the dominant player in outdoor hospitality network management services.

Best regards,
Hall T.

Wednesday, December 10, 2008

Jamie Wallace of Childproof Straw Talks about Her Startup

How did come up with the idea for a childproof straw?

I have three toddlers! They all love yogurt and due to lack of time, I started stabbing a straw straight through the top of the yogurt container! It worked great but I got sick of the spills all over the house from the straw falling out . Same problem with juice boxes, milk cartons, drinking cups… The concept hit me out of nowhere and I grabbed some “tools” around the house and built a straw with offshoots. The addition goes through the top (or lid) and the offshoots prevent removal!

Have you done any patent searches on it?

We’ve checked and there’s no prior art. We have a provisional application filed.

How are you pursuing the market?

We started a survey to get feedback from the market. It’s went to 29 states and 5 countries in just four days. It’s overwhelmingly positive. My goal is to get it to all fifty states. This helps validate the market.

What’s the next step?

We plan to license the technology to the food/drink companies such as Coca-Cola, Pepsi, Kraft, General Mills, major straw manufacturers and more. We want “The Childproof Straw” or “Secure Straw” to be on every super market shelf, served with every child drink, and an addition to Juice or Milk cartons, pouches, boxes…

How is that going?

It takes time to work your way through the system at these large companies. Also, we have found that typically the manufacturing is ending up in China.

You may want to start with smaller, local companies to build up a base.
I agree, we are going to start focusing more of our energy that direction going forward.

What are some of the interesting feedbacks you’ve received from the survey so far?

People have been overwhelmingly excited about the idea. The product seems like a no-brainer to parents. We literally have hundreds of comments on why they like it. Here are some of my favorites!

“I could see this straw being handy for the elderly and for use in hospitals. I would not limit your marketing solely on small children.” Cedar park, TX

“Why not just replace the stupid straws on the market now with the smarter straw described here!” Pacifica,CA

“This is the kind of thing that would make a restaurant or certain brand of drink stand out above competitors. This is something moms would recommend by word of mouth as quickly as possible! "...and they even have these amazing kid friendly...!" Austin, TX

“Solves a very common child related dilemma in a seemingly easy and inexpensive way.” Vienna, VA

“My son has speech problems and is supposed to use straws instead of sippy's (for the muscles around his mouth), but I am so tired of all the spills. Thanks!” Monroe, OH

Best regards
Hall T.

Tuesday, December 9, 2008

Michael Agustin and Tommy Tran of Gendai Games Talk about their new product GameSalad

How did you come up with the idea for GameSalad?

The idea behind GameSalad is to give people the ability to make their own games. It’s very easy to use. It’s a drag and drop interface. We have a social community and it’s easy to embed the game into other programs such as Facebook or your own blog.

Is it up and running now?

Parts of it. We are currently in closed alpha but all the tools are there to make your own games.

What kind of games can people make?

Right now, we focus on 2D games. We have developed our own engine and plug-in. We chose to go with our own plug-in rather than Flash so we can also support the iPhone. With our engine, people can make their games once and play them in a Web browser or iPhone.

How do you charge for it?

We will sell premium games through micro-payements, similar to how the App Store and the xBox360 charges $0.25 to a $1 to play a full game. For free games, we plan to make additional money with advertising. We will offer a free creation tools for beginning game designers and a pro version that lets people make games for the iPhone as well.

When will you start charging?

Sometime at the end of Q2, 2009. We also plan to make our games from the tool and sell them ready to run, over the iPhone App Store. By making our games we plan to make additional revenue and we’ll learn how to improve the tool itself.

How do find the local gaming community?

Austin has a pretty big industry, and developers here are quite helpful.

What platform does it run on?

The game engine runs as a plugin in Web browsers on all platforms. The tool will be initially Mac-based because there are statistically more designers on the Macintosh. We also like the tools on the Mac such as Xcode and Cocoa, which allow us to build rapidly and provide a polished interface.

Can we hear your Fastpitch?

Gendai Games is a game creation for the rest of us. The games market is over $2.25B worldwide with over 200M users there are more players online than all the video game consoles combined. For the long tail of game developers, it is difficult to create and publish their own works. Gendai Games is an open platform for user-created games that are playable on mobile platforms and the web. Non-programmers including designers and graphics artists make up the majority of game developers. Our tool lets them embed their game on the web and mobile phone in the same way that YouTube can be embedded. The company will use micro transactions to charge for game playing. The product is in alpha and is under evaluation by game companies like Disney, Sony, and Electronic Arts.

Best regards,
Hall T.

Wednesday, December 3, 2008

David Hooper of Minimus Spine Talks about his new Startup Using Ozone for Spinal Disc Herniations

David Hooper of Minimus Spine Talks about His New Startup

What is your background?

I went to Case Western Reserve University and then the University of Iowa for a Ph.D. in Biomedical Engineering. My dissertation was on spinal mechanics and I was fortunate enough to have Dr. Vijay Goel as my advisor and Dr. Jim Weinstein on my review committee. I spent three years in England setting up a biomechanics lab and evaluating patients after knee reconstruction. From there I came to Austin and took a position at Spinal Concepts in 1999. That was a fantastic entrepreneurial company and we did really well. When I got there, there were about 30 people and under $10M in sales. We built the company to about $80M in sales and sold to Abbott Labs in 2003. I left Abbott in 2006 and started this later in the year. Several of the physicians and executives I worked with at Spinal Concepts have invested money in Minimus and helped get the idea off the ground.

What was your primary job?

I was Abbott Spine’s VP of Emerging Technologies. In that capacity I was responsible for our Class 3 product development (non-fusion devices) and involved in identifying technology for potential acquisition or investment. I was the company’s liaison with FDA and responsible for designing clinical trials and preparing regulatory submissions. I worked with physician investigators around the country and had a team of engineers, research monitors and data managers to execute clinical trials and regulatory specialists to participate on design teams and prepare FDA submissions.

Why is there so much activity in the spinal area?

A great deal of money has been invested in spine because these patients need devices that improve their quality of life. The market is moving towards minimally invasive surgery and non-fusion but the outcomes still aren’t as good as with hips or knees. Opportunity breeds innovation.

Many of the products are relatively inexpensive to design and build and can be sold with good margins. Over the last few years, some of the regulatory hurdles have been eased- specifically with devices known as fusion cages. Since 1996- at least four companies completed clinical trials on cages and they made a great deal of money. Many other companies tried to do clinical trials but struggled with enrolling them- so no approvals. FDA down classified cages a couple years ago from Class 3 to Class 2, meaning that clinical studies are no longer required. Since then, there is a host of companies fighting for their piece of the pie and competition is fierce.

Artificial discs have been hot because the market started turning away from using cages as stand alone devices and the idea of maintain motion is appealing. Just like cages, the first disc companies getting through FDA trials were handsomely rewarded but later entrants have struggled with enrollment. These disc devices haven’t yet met expectations because it’s debatable whether or not they actually improve patient care, they introduce new risks- and they are expensive. Products like that are going to struggle in today’s health care environment.

One recent problem in spine is that many of the new technologies look very similar to one another. There was clearly a herd mentality surrounding artificial discs. Spine still has great potential but the products that will be successful must be differentiated, have clinical data showing they really do improve patient care- and ideally- save the health care system money. Minimus hits on all these fronts and that’s what compelled me to start the company.

What exactly is your proposed technique at Minimus Spine?

We’re working on a procedure for injecting ozone gas into a herniated spinal disc. There’s a stack of peer-reviewed literature about an inch thick that describes this technique. It’s being done every day in Europe, Asia and South America. The gas oxidizes the herniation and allows it to shrink in size, relieves pressure on the nerve and provides the patient relief from pain. Contrast that to steroids. Steroids address inflammation of the nerve but do not address the herniation. That’s why patients often have multiple injections and many go on to surgery. I believe Minimus can effectively treat patients with just one injection and reduce the number of patients that progress to surgery.

Why isn’t this available in the U.S?

The main reason that this isn’t available in the U.S. is because there is no regulatory approval. It takes a significant investment to go through the FDA and the technology has needed a better business model to justify that investment. We have the model figured out and once we go through the FDA process we would be the only injection treatment available- except for steroids which don’t’ work that well and don’t have FDA approval for spinal indications.

Our device is quite different from those being used overseas. We’ve been able to make improvements that should position us well with the FDA. Some of our angel investors are clinicians in Europe and the Middle East who are already using ozone. They feel that our patent-pending designs will revolutionize the existing market- particularly once we have FDA approval.

How long does the effect of your procedure last?

One of our surgeon advisors has been tracking a group of almost 100 patients he treated in 2002. In that group, only 15% of the patients went on surgery within 5 years, which is about half of those who receive steroids. Less than 2% were given a second injection, which is much better than steroids where the average is 2.5 injections per patient. If Minimus can cut the number of injections and the number of surgeries then we’re in great position because it’s better for patients and saves money.

Do you need a new code for reimbursement code for this procedure?

No, there’s an existing code we can use. There was a product released in the 1980s called chymopapain that was used in a manner similar to what we want to do with ozone. Chymopapain is an enzyme derived from the papaya plant. The product was hugely popular but there were a small number of well-publicized adverse events that caused the product to crash. Basically, the enzyme isn’t specific to the disc material. If it leaked out of the disc or was mistakenly injected into nerves, the enzyme could dissolve the nerve and leave the patient paralyzed. There were also some people who had an allergic reaction to the protein and died. Some clinicians still use chymopapain outside the U.S. but its not available here. Not that many doctors want to take the litigation risk. None of these problems have been reported with ozone.

Is there a patent on this technique?

They started injecting ozone into herniated discs in Italy over 15 years ago. It’s in the public domain. We have filed four patents on our product and believe that these patents will make it difficult for others to create a profitable product that can meet FDA standards.

The other aspect of intellectual property is the clinical data and regulatory approval. Some people have a misconception that once one company does a study and gets FDA approval, any future competitor can design a similar product and FDA will approve it without them having to do their own study. That’s just not true. Again, fusion cages are a prime example. It was over ten years between the first product to get regulatory approval and the eventual down classification. History has proven that the value of these approvals is great because it is always much more difficult to complete a study once there is already a product on the market. If you were a patient and Minimus had approval today, would you opt to take the FDA approved product or enroll in a study of another ozone product? Most patients will take the FDA approved product because there’s no need to take a risk on an unproven product. Likewise, most doctors will chose to use the FDA approved product because its not worth their time and energy to do an FDA clinical study. That generally holds true unless the new product is believed to be significantly better.

I’ve always said, patents are great but they are worthless if your product isn’t on the market. The spine industry changes so quickly, I believe there is just as much value in FDA approval and being early to market.

Wednesday, November 26, 2008

Henrik Johansson of Boundless Networks Talks about the Early Days

Boundless Network was recently named the second fastest growing company in Austin by Austin Business Journal and named the No 6 among “Best Places to Work” by the industry magazine The Counselor. I talked to Henrik Johansson, one of the founders and the COO of Boundless Network.

What does Boundless Network do?

We’re a technology-enabled services company that provide promotional products solutions to corporate customers.

What are you working on these days at Boundless Networks?

The first couple of years we were focused on growing almost exclusively through recruiting of industry salespeople and then helping those salespeople deliver value to their customers. We spent a lot of time and effort on developing a fully scalable back-office system that could handle our rapid expansion. Now we’ve evolved our technology platform to the point where it really delivers unique value to our customers, and that is increasingly starting to drive our growth .

What do you use on the backend?

We selected the Lombardi workflow product TeamWorks and have used it to streamline our supply chain and orders process. It is the foundation for the engine that is managing all the custom order needs and coordinating the activities in our supply chain. We also have invested heavily in as our CRM and marketing engine and customized it to our industry. I have been impressed with so far as they have really opened up their back end to external applications which have made it useful for so much more than just CRM.

Who funded you guys?

Initially we raised about a $1M from angel investors in town which converted into our Series A of $3 million from Austin Ventures and Silverton Partners. Later we raised $4M in Series B from those same firms. They have both been great partners to us. In an industry largely void of outside capital, having strong financial partners is a competitive advantage.

What did you do before Boundless Networks?

I co-founded my first startup Creditland in the Bay area in the late nineties. It was a lending marketplace and we partnered with many of the biggest banks in the US and provided them online credit approval capability. We used a heavy duty decision engine on the back end. After that I was recruited to another online financial services company in Austin called EverydayWealth. We built an online financial planning application, and grew quickly by signing up members through a network referral model.

You’re originally from Sweden. So how did you come to Austin?

I started as a management consultant with Andersen Consulting (now Accenture) in Stockholm, and got happily stuck here after a project in Dallas. I met my wife-to-be there and we moved to San Francisco where we stayed for about 6 years, before we decided to come back to Texas about 7 years ago, and then Austin was the only option. We love it here.

Best regards,
Hall T.

Monday, November 24, 2008

Scott Shane’s new Book "Fool’s Gold" Dispels Many Myths around Angel Investing

I found the book Fool’s Gold insightful as it confirmed many of my assumptions about angel investing such as:

1. Most angel investing is done alone by individuals who are supporting a family or a friend and in such cases treats their investment more as a donation.
2. The majority of these investments don’t come with due diligence, terms, or other basic investment supports.
3. Most never see a return.
4. Most cannot help the company they invest in because they don’t know enough about the industry or the company.

As a director of any angel group I encourage people to join for education and deal flow. An angel can spend all day finding the deals but then must spend all night investigating those deals. I had the chance to speak with Scott Shane the author of Fool’s Gold.

In your chapter on why people do angel investing you list several factors such as to make money, to help the community, and more. Which factor do you think will be the driving force of angel investing in the coming years?

I think that it is to help the community. With a slow IPO market, a lot of acquirers slowing down their operations, and general economic malaise, I don't think the next couple of years will be the golden age for angel investments. I think the people who will do this and be happy with it in the next few years are the ones doing it to give back or to stay involved with startups.

I understand angel investing in total is just a little larger than VC investing. Within angel investing, family and friends money outweighs angel group funding by a factor of 13 to 1. What can angel groups do to support the "family/friends" money effort short of having them join the angel group?

I don't know that there is much angels can do to support the friends and family money. I think the best thing to do is to stop thinking in terms of this financing lifecycle model where the entrepreneur puts in money, gets money from F&F and then angels and then VCs. Very few of the businesses that get F&F money are appropriate for angels. So rather than supporting the F&F money effort, I think the issue is to figure out which F&F money is the end of the financing money and which is in companies that seek further rounds. You want to separate out those
for whom the F&F is a stage rather than an end.

You mention that only 5.9% of companies started each reach "gazelle" growth rates of 20% or more per year? Aside from industry is there any data that indicates which companies will grow that fast?

There is. Founder experience, IP protection, business strategy are a few. But none of this is for angels in specific. The study that needs to be done and that I have wanted to do for years because it would be so helpful is to look at all the deals that go into angels. The deals would be tracked and we could see what leads to higher performance. This approach is specific to angel deals and therefore
of great relevance to angels. Moreover, it can tell you if angels are picking winners or losers.

You write about the importance of "staging" funding for angel investments. What more can you tell us about that?

Angels generally think in terms of putting in money in one block and that's it. Staging, putting money in over time with milestones is a better way to monitor companies. So angels should think about how much time it will take to achieve a company's goal - say get the product on the market. Then they should create milestones to get there and give out money on achievement of the milestones. This is essentially the VC way and seems to be done by sophisticated angels,
but not all.

You indicate that angels receive 1.7x on their investment but that the data is hard to judge without time frames. If you separate out the family and friends money which is more a donation than an investment - what multiple would you expect to see?

I don't have the data to look at actual returns by typical angels. The book gives numbers on actual returns for angel group members, expected returns by typical angels, and actual returns by all informal investors. In general, I would say that we can infer that the typical angel neither has the return expectations nor the returns talked about by sophisticated angels in groups.

You indicate that financially successful angels look at the industry of a company to determine its potential value. You show a list of valuations for six-year old companies by industry and they range in valuations. Does this correlate to the maturity cycle of the industry? What other factors drive it?

That's a book in itself. Industry maturity, the nature of production, IP protection, firm size, and a host of other things drive the numbers. The purpose of the chart was to say industry matters and angels need to pay attention to that. They should investigate why industries are attractive or not.

You conclude that state tax policies aren't that helpful and the most practical support the government can provide is to foster the growth in the number of angel groups? Why?

Angel groups allow you to get people involved in investing in start-ups who have lower net worth. That enhances the pool of angel capital and gets the novices working with and learning from the experts. While everyone likes a subsidy, the state tax policies don't seem to actually move many non-investors into the investor categories because state tax rates aren't that high. So taxes aren't as effective. If the federal government created an angel tax credit that might be

How would you encourage the investors to join an angel group?

I would suggest groups go out and look for accredited investors and try to bring them into the group. I would also encourage government programs to get these groups started. There is a bunch of effort that needs to happen in the beginning for which subsidies help and get paid off later.

How do you see the current economic climate impacting angel investing?

It's hurting. Angels invest their own money. They have to limit that to a portion of their net worth. If their net worth drops by one third, the amount of money for angel activity, on average, goes down a third. The only silver lining in this is that people might be allocating a greater portion of their wealth to angel investments. If they are going to lose a lot in relatively low risk low return activities like public equities, they might as well risk losing money for a big winner in a start up.

You list Austin as a good place for angel investing since the number of firms receiving external equity per million population actually puts Austin above San Jose? What should a city like Austin consider doing to improve its position here?

Focus efforts on building and maintaining angel groups. The system is working in Austin. So it is a matter of maintaining the top position. That means keeping the angel groups going. That's the thing under your control. You can't make new entrepreneurs emerge or new technologies be born. But you can make sure that the system stays there for financing them once they are born.

Best regards,
Hall T.

Friday, November 21, 2008

Gail Austin of Summerfield Talks about Her Startup

Gail Austin of Summerfield talks about her startup

How did you get into retail?

I have a degree from the University of North Texas in Interior Design and then I worked at places such as Sanger Harris. It was long ago and now they turned into two or three other entities. Now they are Macy’s.

What’s the idea behind your startup? What’s unique about this one?

So often one goes out to shop and doesn’t find what they’re looking for. I have an idea on how to create a better retail experience at a cost advantage over the competition.

How would you create a better experience?

Summerfield embodies the spirit of luxury, while showing the discriminating consumer an alternative to high costs: special offerings, special services.
Superior customer service: I have JD Powers awards for outstanding customer service.
Also, I am uniquely aware, because of my background, of low and high budgets and particularly good at mixing the two.

What would you focus on first?

Home interiors. I plan to hit the market between the Heather Scotts and the John Williams level. Specifically, I want to hit market trends in home offices and outdoor accessories.

One of the challenges with retail is scalability. How will this scale to be big? How you are going to get to be 5x in 5 year unless you are opening more stores ?

After the initial model takes off, we will open a second location in another Austin top zip code area for high disposable income—not currently served by this type of business. This business will expand with internet sales and marketing, similar to Furniture Land which is based in North Carolina. Their model is a retail outlet and huge internet sales.

How is your business model superior to others?

Same day deliveries, our door to yours.
Interior Design (1 hr.) will be complimentary with delivery of merchandise for add-on sales.
Better displays and suggestions because of my design talent.
Expansion into internet sales and marketing.
Marketing creatively, including realtor emails.
Owner is creative thinker.

How do you plan to expand the operation?

Internet Sales and Marketing, 2nd location, Interior Design Classes, mass emails to select groups.

So have you done a fast pitch competition before?

This is my first try.

Well let’s hear it.

I am Gail Austin. The problem I’m solving is that in the southwest Austin area there is not enough service furnishing homes and gifts locally. People have to drive 30-45 minutes to find what they are looking for. And people in that area have a significant amount of disposable income so as investors we should care that we can meet their needs, give them outstanding customer service and show their profit. So market size down there is wanting to be enhanced and expanded. And I am looking for $125,000 in addition to what I put in the business and we will have a lease, two employees and approximately $50,000 in merchandise on the floor at wholesale prices and the investor can expect a return on his income of about 10%.

The consumers will be amazed at what is at their fingertips: a luxury look at a value price.

Best regards,
Hall T.

Wednesday, November 12, 2008

Travis VanderZanden of QikCom Talks about His Startup Bringing Twitter-like Capability to the Business World

Travis VanderZanden of QikCom Talks about His Startup Bringing Twitter-like Capability to the Business World

So what is your background?

I worked with Qualcomm for five years in San Diego. I decided it was time to start my own company and thought Austin would be a great place to start it.

How did you come up with the idea for QikCom?

I had been following Twitter for a long time. It’s a great way to communicate. I think it makes more sense in the business setting. Right now, consumers use it for things like what they having for lunch. I think it fits better for business. It complements email.

What is your business model?

It’ll be subscription based at the company level. It will be free for employees to sign up to get grassroots adoption. We then plan to charge a subscription for additional Enterprise 2.0 applications in our TabStore. I want to stay away from the advertising model. Twitter is still trying to figure it out. I think they will eventually.

How is your micro-messaging service better than Twitter?

I think that micro-messaging for business needs to be more secure. You have to have a company email address to join. We can lock down the IP address to reside in a certain range. We also have SSL on top of that. It depends on what you’re using it for. We’re hoping they will pay for that.

How many are signed up so far?

We have over 500 companies signed up so far. We’ve identified the early adopters in each of those companies and now we’re trying to spread deeper into the organizations.

How did you find the 500 companies?

All word of mouth. We haven’t started marketing yet.

Where is the development done?

We did everything here in Austin. Nothing was done overseas. We’ll be ramping up quickly to finish our TabStore app platform.

How do you foresee the business user making use of your service?
QikCom is perfect for staying connected with other employees within your company. Micro-messaging is short, quick messages that provide a great alternative to email. We also see the TabStore providing a lot of additional use to organizations moving toward Enterprise 2.0.

Who is your competitor?

Yammer is our largest competitor, they launched a few weeks before us and won the TechCrunch50 award.

How are you better than them?

We’re different from our competition because we’re going far beyond just rebranding Twitter. We’re building a business application marketplace called “TabStore” for on top of our core micro-messaging utility. We currently offer three apps/tabs in the TabStore, ToDo List Management, Frequent Travel Management, and Competition Monitoring.

Travis can be reached at

Best regards,
Hall T.

Monday, November 10, 2008

Alan Knitowski of Curo Capital Talks about His Startup Experience

Alan Knitowski of Curo Capital Talks about His Startup Experience and the Move to Austin from Southern California

What is your background?

I was a Captain in the US Army Corps of Engineers until August 1996, when I was recruited to Silicon Valley to work at Northern Telecom (now Nortel Networks). I spent 5 great years in the Bay Area from 1996 to 2001, and without a doubt it was an amazing time to be in San Jose to experience both the first big wave of the Internet and the entrepreneurial experiences associated with the VC world on Sand Hill Road. During my time there I not only worked at Nortel, but I also founded, ran and sold my first company, Vovida Networks, to Cisco Systems in November 2000, and also founded my second company, Telverse Communications, which was ultimately bought by Level 3 Communications in July 2003. In 2001, I relocated my family to Newport Coast in Southern California and spent the last 7 years working on several companies there before moving here to Austin in July.

Why did you move to Austin?

I came to Austin for a lot of reasons, some personal and some professional. I have family in Texas and have always had a great time with my friends in Austin, some of which transferred here from the Bay Area. Additionally, I thought that it would be a fantastic environment to raise my four kids, all of which are under 10 and none of which had ever experienced growing up anywhere but coastal Orange County. On the business side, I was thrilled to realize that Texas has no state income taxes and that there would be no state capital gains on any future company sales of start-ups as had been the case back in California. Additionally, I came here to be more centrally located for my business activities on both coasts and to assist some of my current companies with their growth and expansion activities in the Midwest.

What are some of the big differences in the costs of living in California versus Texas?

In California, pretty much everything is more expensive than here in Austin: gas, food, state taxes, labor, office space, etc. And, while Austin may have 2.5% - 3% property tax on your home here versus 1% - 1.2% in Newport Beach there, it’s all relative as 2.5% - 3% of the home values here are still much less expensive that 1% - 1.2% of the home values there. There are certain things such as electricity and water that seem to be more expensive than Newport Beach, but in general things tend to be lower and you seem to get more bang for your proverbial buck.

What kind of work do you do now?

I still work building start-ups and young companies as I did before, but I now also spend more time managing small investment funds and assets both for myself and other accredited investors. Over the past decade I have created, built or advised about 16 companies with my partner Luan Dang, who is still based in Newport Beach. We were blessed to have had four of them sold after the Internet bubble popped, including the two mentioned above, vCIS, which was an anti-virus and security software company purchased by Internet Security Systems and subsequently by IBM, and Bitfone, which was bought by Hewlett-Packard. Two other companies are “Managers” for two additional companies that are “Funds” for accredited investors, including my business partner and I, predominantly focused on private company deals in one and publicly traded securities in the other. We tend to look for deals that we can get involved in managerially and that we can bring some operating leverage and some of our networks across the country to help companies grow quickly and efficiently. For the most part we have only made one passive investment, as we have had our best results where we have been directly involved on a daily basis. One of my current companies is called Caneum, which does business process and information technology outsourcing. Recently it was awarded both the Deloitte & Touche Orange County Fast 50 growth award and the #3 national ranking on the 2008 CRN Fast Growth 100 National List. Outside of Caneum, my partner and I have been extensively involved with Vootage, an online video site anchored with high school athletics and communities, Edgewater Networks, a communications networking equipment company venture backed by Palomar Ventures and El Dorado Ventures and Windspring, focused on data miniaturization technology and software for in-car navigation systems and personal navigation devices. I also have a personal LLC that my wife and I use for other business and investment activities, as is similarly the case with my business partner.

How do you find the funding environment here?

For the most part it is quite a bit different from California on the institutional side, as I sense from talking with many local CEOs that there’s not much VC funding going on locally at the early stages of new ventures. For instance, it appears that Austin Ventures has moved their investment focus a bit further upstream, so many local CEOs still seem to be flying back to California to explore the more traditional venture financing. On the Angel side, however, Austin and Newport Beach aren’t that terribly different as there appear to be quite a few people involved in investing as high net worth individuals or on behalf of family offices or small private equity funds. There are not as many companies in Austin as in the Bay Area in terms of Dell or Google like successes, so there is probably a little bit more investing on the west coast in absolute dollars and a little bit more redeployment of successful liquidity event monies in to new companies and ideas. However, I am hopeful that this will change over time and I am excited to now be here in Austin to be a part of that process. With all of that said, it pretty obvious due to the market and economic conditions that there’s no silver bullet or panacea available for raising funding for just about any young company, whether here locally or out in California. I find the current climate more challenging than at any point since I’ve been doing start-ups because people are confronted with whether to invest in new private companies or simply go out in the open market and buy mature, profitable companies with great dividends for as little as 1 times earnings or less than 1 times cash on hand. Between that, and the lack of meaningful corporate M&A of young companies and a closed IPO window, I think that we’re all looking forward to getting back to somewhere between the irrational exuberance that we had before and the irrational stupidity that we appear to have currently.

What is your advice to other investors?

While I think that it’s important to be cautious, I think that people need to remember that the goal is to invest early in great companies that can develop and mature over the mid and long term to provide for meaningful returns and exits. Some of the greatest companies of the past 10 years came out of the post Internet bubble era and I would expect the same now that the credit and housing bubbles have popped this time around. Additionally, I would suggest that people should try not to be surprised by just about anything that can happen right now for start-ups in this environment. I had one startup not too long ago where the (now former!) CFO was convinced by Wells Fargo to put some of the company’s investment and working capital dollars in to State of Pennsylvania Student Loan Structured Investment Vehicle auction-rate securities via Merrill Lynch so that they could get an extra 70 or 80 basis points in interest on their money. The CFO thought that the suggestion was sound and quite safe because the underlying securities were AAA rated and implicitly backed by both Merrill Lynch and Wells Fargo. Needless to say, the credit markets froze for these securities and suddenly the start-up found itself without access to its capital to run and grow its business. Strange contractual items appear to be coming up all over the place these days, so please be cautious with your management teams and your investors’ investment dollars.

Best regards,
Hall T.

Wednesday, November 5, 2008

Aaron Murray of Tandem Games Talks about His Startup

Aaron Murray of Tandem Games Talks about His Startup and the gaming community in Austin.

Where are you from?

Northern California near Sacramento. I came to Texas because it’s a lot cheaper and my family can enjoy the quality of life.

What is your day job?

I’m a programmer for a leading online hospital staffing company; they call it vendor management. The company has 40 employees and the company successfully competes with some of the bigger players such as McKesson.

How did you get into Tandem Games?

I have a buddy that’s an artist and I’m a programmer so we decided to make a demo for the 2007 Independent Games Conference in Austin. We came in second, but also landed a contract to make a small game. We only made $8K for that game, but the deal was that the company would use it as the focus of their marketing campaign by giving it away on their site and at all of the major conferences on 1GB USB keychains. We did that game in about 6 weeks. The goal with that project was to give us some credibility in a market where many companies never complete their projects. That game went on to win the 2008 Intel Game Demo competition for best graphics.

What’s the next step?

We’re got an entirely new game that we'll be launching soon called Domain of Heroes. It is in public beta right now. The idea is to give people a fun online game to play while at work or school. We've been calling it "Covert Gaming."

How many users do you have?

A few thousand people have signed up to help play that game and give feedback so far.

What is it written in?

The server side is written in C# backed by SQL Server. The client is written in entirely in Javascript so it doesn't require plug-ins and can run on any browser.

How much does it cost?

The game content is completely free. There is a monetization method from Asia that is become increasingly popular in the U.S. called "Free to Play."

What is the “free to play” game market about?

It’s well established in Asia. It basically lowers the barriers to entry by letting players play the game for free, but allows them to make small purchases called micro-transactions as often as they want. We sell "Wishes" for our game. Players can use these wishes to customize everything about the game, as well as acquire many "convenience" features. One nice thing about this model is that it allows us to run ads (which can be removed for a Wish) without bothering players. The great thing is that it enables us to sell to players who don't want to spend more than a couple of dollars on a game, but we can also sell $40+ worth of Wishes to players who want to really have a customized experience. That is hard to do with the traditional fixed-cost single-purchase model. This way we can maximize the monetization of each player at an amount that they all feel comfortable with.

How do users sign up?

If they have an email address, they can register on and start playing immediately.

Do you have any help from the community?

There’s several known industry folks who've helped us out in various ways, including: Dr. Cat (Furcadia); Mr. Mike McShaffry (, George Sanger ("The Fat Man"), Billy Cain (Heatwave Interactive), and Matt Scibilia (Critical Mass Interactive).

Why did you call it Tandem Games?

Originally when we started last fall, I told my buddy I wanted to make a game that I could play with my kids. That concept grew into the idea that most people enjoy playing games of some type (Card, Board, Video, etc.), and that sharing that experience with other people was a happy experience. So the idea of playing games together became the basis for our name, Tandem Games.

How do you find Austin?

Austin has been great to me and my family. The people we've met here have been the most genuine, friendly bunch that I've met in my entire life.

Best regards,
Hall T.

Sunday, November 2, 2008

Wireless Seedstage Forum 2008—Moximity Wins the Best Pitch

The Wireless Seedstage Forum is hosted each year by the Austin Technology Incubator and the Central Texas Angel Network. The event kicks off the 2008 Texas Wireless Summit.

This year the Forum fielded applications from startups all over the central US and a total of nine companies were selected to pitch their ideas to experienced investors seeking investment opportunities in the space. They ranged from the more traditional enterprise software solutions to gaming to consumer applications. The nine presenting companies were Axelo, Denarii Payments, Gendai Games, MobiTX, Moximity, Ringful, ServiceFirst, SmoothStone, and Unwired Nation.

The audience in attendance at the forum was given the opportunity to select the best pitch of the day, and through that process awarded Moximity the “Best Pitch of the Forum”. Moximity is a free application currently in the iPhone app store which integrates users’ friends from online social networks like Facebook and Twitter with users’ location data. Moximity then overlays information about venues such as restaurants and bars near their location, so users can bring their social life back to the real world.

I’ve downloaded Moximity onto my iPhone and found it significantly improved over the beta version I tried a few months ago.
Bryan Jones was excited about the award. “We are proud to have been selected as the winners, and grateful to the Austin Technology Incubator and the Central Texas Angel Network for providing exposure for companies like Moximity,” said Moximity CEO Bryan Jones.

Best regards,
Hall T.

Monday, October 27, 2008

Richard Tieken of Prelude Dynamics Talk about the Clinical Trials Market

What is your background and what do you do?

I come from Aerospace. I was at Lockheed for a number of years. I started out at NASA and worked on demand and control problems with military applications.

How did you get to Austin?

I was raised in Shiner, Texas. It has a beer that is an amazing story. My grandfather would take us to the local beer-hall and would buy his one Shiner beer in the afternoon. For a lone time it was only available there. Now they include it on airplanes.

But how did you get into Prelude Dynamics?

Well, it's kind of interesting. There is a command and control software which is about building things that commanders make use of to understand their situation and so, there was guy that I knew at Lockheed who left the aerospace industry and went into a company that was trying to manage healthcare integration for competing surgeons. So basically the analogy is to trade-out the guy in a military uniform for a guy that wears a white lab coat. It's still the same problem. They have all this information, and after weeks, months and years what do you really know?

How did you get started?

We had a number of Lockheed employees who are high quality software engineers. We wanted to expand in Austin around 1996 after Lockheed closed down.

We decided to pursue the clinical trial industry.

Sounds interesting? What's the challenge?

Each trail is individual and you have to tailor the system to support a study. The companies that do this need a large amount of money to build these studies. And because the trials cost so much software doesn't impact their budget. So in the human world you have to deal with different privacy issues but in clinical trials there's no issue of people's identify - only data to deal with.

How do you accomplish that?

You are not allowed to know who the patient that the doctor is seeing. He knows but that's being kept deliberately blinded to me.

How is the data processing different in this area?

It's a small amount of data, so we can be really fast. We don't use the relational database systems but use an XML system instead. It's very flexible. Part of what Alicia Browner who works with me brought is the epiphany that a lot of our competitors are going down big Oracle or relational database systems as if they were a bank doing 10,000 transactions an hour. And we talked about most of the trials being much smaller than that. Why not just move the data into XML classes? XML has a lot of advantages too. We can add information while the trial is going on and adding a field to a form is trivial. With just five minutes of work I can add a field in XM and it automatically adjusts next time you go to that page.

What about Prelude Dynamics as a company?

We have run a good business niche it works quite well. But we want to scale up the business. We need more sales. We need money to bolster sales and marketing. We need somebody that we can add to our company that gets excited about making the sales.

So who is the target customer for your product?

Our niche is small to medium pharmaceutical companies, the biopharmas, and device companies that end up going to the FDA. Also, the CROs called
Contact Research Organizations. When a pharma has a new compound they need to go out and hire a Contract Research Organization to help run the clinical trials.

How long does the study usually go?

They can go anywhere from 6 months to 5 years.

What's the average length?

They are always at least 6 months. I mean, there are studies that go for a few weeks but most of them with any consequence go for at least 6 months and some of them like a cancer study might go for 10 years.

Best regards,
Hall T.

Wednesday, October 22, 2008

Christian Reed of EastWest Alternative Assets Talks about his view of Austin Alternative Energy Policy and His Investing Interests

Are you a native of Austin?

I am from San Diego. In December I will be here three years.

What brought you here?

Austin was voted a top “Green” city and the overall thinking is very progressive. When we decided to establish a US presence for our carbon trading and alternative energy companies we settled on Austin for this reason and the fact that it is the capital of a state that is leading the way in alternative energies, is progressive in the adoption of alternative energy and provides a great investment climate.

So you are interested in Angel investing?

We have done some start up investing. Right now we’re interested in alternative energy such as next generation batteries, solar start-ups, bio-fuel plays and any other progressive technologies that will help reduce our dependence of foreign sources for energy. While Austin offers rebates for solar panels I think the city is missing an opportunity for real financial benefit within the current rebate program. While aggressive compared to many other cities, it could be more progressive. Currently the city pays the rebate amount in cash, up-front, calculated from the “plate rating” of the system that is being installed. Many factors cause this to be inaccurate and not fair for the city of Austin, conversion inefficiency, shading, orientation to the sun to name a few, all these will impact the actual production of electricity from a solar array. Right now because The city should be paying for electricity generated and placed back on the grid, not just equipment installed.

I have proposed that a ‘FIT’ or Feed-In-Tariff program be explored as an option to more accurately track and fund solar installations, not only would the cash up-front be significantly reduced but the amount payable would be accurate and calculated off of actual energy produced by a system.

I’m working on building my case for this. Whatever the plates on your solar system say, then that’s what you are going to get back as a rebate. Well, if your panels are shaded then you are not going to generate anywhere near that amount of energy. In some brief discussions with Austin Energy we have a few things to tackle before we could move forward, first to satisfy the “de-regulation question” and there are also some system ownership issues. As a financier of Solar Installations for large commercial projects East West Alternative Assets has an interest in owning the system and selling the power. If we become the seller of power within Austin Energy’s area the argument is that by default they are “deregulated.”

What else do you invest in?

I believe water conservation is also important. When you see that some of our major rivers are not reaching the ocean I think one must realize the machine is broken. If the rivers and oceans are not able to do the job then the earth is not going to operate how it is supposed to, water is the vital part of all life and it should be an issue that everyone takes seriously. Not long ago, the Colorado River failed to reach the ocean. That means the cycle of water returning to the ocean is broken. The system cannot cleanse itself.

Perhaps angel investment can help with that.

I think there will be great opportunity for good companies with ideas on how to conserve water and we would welcome the opportunity to help them along.

What other areas do you invest in?

We are involved in oil & gas exploration, carbon reduction/green house gas reduction projects, carbon credit trading, real estate, technology, and various other areas including solar finance and project management.

What are your investment requirements?

What we look for mainly is the ability to add value to our investments personally. We don’t take a shot-gun approach and hope one in ten investments work out. We take a personal role in nurturing investments along with our input and contacts and other investments all working synergistically to help one another.

Best regards,
Hall T.

Tuesday, October 21, 2008

Tim Keyes of Keyes Capital Talks about His Startup Experience in Austin and His New Endeavor

What do you do?

I work for two different family offices. The first is Lubar & Co. which has its primary office in Milwaukee and the second is Keyes Capital which is based here in Austin. Both groups are focused on buying existing, profitable operating companies and also investing in real estate.

What is a family office?

Family offices invest money on behalf of the families they represent. They are similar to a private equity firm or real estate fund but do not typically take on outside or institutional money. This provides them with great latitude in what they can invest in and allows them to exit investments only when appropriate and not a predetermined time frame.

How did you come to Austin?

I worked in Austin in the late 90’s for a start-up company I helped found. When things dried up here in the early 2000s I went back to Wisconsin where I was born and raised. The best part of my first go around in Texas was meeting my wife who I had to drag up North. After too many cold winters we decided to moved back to Texas and start Keyes Capital and expand the footprint of Lubar & Co. Although based in Milwaukee, Lubar has been a significant investor in the energy space and has numerous holdings in Texas.

What kind of investments are you guys looking to make?

We make primarily invest in established operating companies and secondarily real estate. Lubar looks at companies that have between 5 and 20 million EBITDA and for Keyes our target range is 1 to 4 million of EBITDA. Since both our family offices, however, we have the flexibility to go smaller or larger for some deals. Lubar has been operating for over 30 years. We made about 5 investments so far on the Keyes side.

How do you decide which deals to pursue?

We pursue deals in which we can add value from our network of contacts and our experience in working with small private companies. On the Keyes side that means primarily leveraging the relationships my father has as the ex-Chairman and CEO of Johnson Controls and currently on the Board of Fidelity, Navistar and Pitney Bowes. Both groups prefer to partner with existing management teams or owners who are looking to gain some liquidity and continue to grow their companies.

You were in Austin the 1990s. Who did you work with?

I was co-founder of a software company called AIM Technologies. We developed software that ran loyalty programs for sports teams and entertainment venues while simultaneously allowing advertisers to target ads, market research questions and coupons to our members based on their demographic profile. At our peak we had over 1 million members signed up in the programs from more than 100 different venues.

What did you learn from that experience?

Like many companies in the late 90’s we grew too quickly and did not do a good job matching revenue and expenses. Despite having some operational success, when the funding dried up in the venture community we were not able to raise the adequate funds to get to profitability.

What would you do differently if you had those days to live again?

We would have not tried to grow so quickly. Given the acceptance of our program by teams and members we probably could have survived by not taking on so many venues at once. Each venue was a large capital outlay which generated profits in the outer years of our contracts. We took on so many with the belief that funding would always be there and when it was not we were stuck.

What do you find most enjoyable about Austin?

We have two children age 8 and 5 so they keep my wife and I very busy. Unlike Wisconsin we can enjoy the outdoors year round and try to take advantage of that with them. I also have lots of friends from my AIM days here in town so it has been great to get back together with some of them and see the success they have had in other companies.

Best regards,
Hall T.

Wednesday, October 15, 2008

Non-Starters in Angel Investing

When the Conversation is Over Before it Begins

I have an espresso each morning at the Priom360 coffee shop in the Arboretum. It’s part of my daily routine. I often meet entrepreneurs and angels during that time to hear their story. In this blog you read about the up and coming companies and the story behind the people making it happen. What you don’t hear about are the non-starter discussions or as I call them, the conversation was over before it began. Here are some examples:

“We’re raising money to build a software system to . . . “

The angels look for the entrepreneur to spend their own money to get the initial software up and running. It’s okay to raise money to develop it further but angels aren’t going to invest money to build the software in the first place.

“We only need $8M to . . . “

The raise limit for the angel group is $2M. If it’s close to that then it’s a possibility but beyond $3M too far beyond that and it goes out of range.

“Our premoney valuation of $20Mis justified by . . . “

There’s almost no investment return in deals that start with a $20M valuation. I won’t say those deals will never get funded but it’s not far from there.

“The market is $10B and we only need to get 3% of it to . . . “

Revenue projections based on achieving market share have little connection to reality. A bottom-up list of accounts in the sales pipeline is much more convincing.

“We have an electronic medical records solution that . . . “

There are some applications that are so difficult to execute that it’s a non-starter. The electronic medical records space is filled with large competitors, an ever changing regulatory landscape, and a challenging customer base.

“Our product requires doctors to make only a minor change in their procedure . . . “

Getting doctors and/or patients to change their behavior is a major challenge. Doctors only change their procedures under great pressure or incentive.

“We only need $2M to run the clinical trials on our therapeutic drug . . . “

The cost of bringing a drug to market is typically beyond the angel raise and only covers a portion of the costs that go into creating the drug.

“We just hired our 14th employee and hope to complete our first customer sale later this . . . “

Startups with large headcounts bring the business plan into question.

“We are raising money to buy condos so we can flip them . . .”

Straight up real-estate deals are just that, real-estate deals. They are not angel investments.

The ultimate conversation stopper is “We just ran out of money and . . . “

If you didn’t manage the last round of funding what does that say about the next round.

Best regards,
Hall T.

Tuesday, October 14, 2008

Call For Contestants -- Fastpitch Competition at the Open4Business Conference – November 11

One of the most important skills an entrepreneur needs for success in a startup is the ability to deliver the ‘elevator pitch’. That’s the 60 second version of your business idea. The goal of the elevator pitch is the ability to generate further interest in your deal with a potential investor. I once heard an entrepreneur tell me that he couldn’t explain his business in less than 35 minutes. I asked him why would he spend 35 minutes telling someone about his idea or business without knowing if the investor is interested or not? The elevator pitch gives you the ability to screen potential investors. After gauging their interest, you can choose to spend more time discussing.

At the Open4Business Conference on November 11, 2008, the Central Texas Angel Network will hold a Fastpitch competition. Entrepreneurs are invited to submit a one-page summary of their business to the Director of the Central Texas Angel Network at (director The deadline for submissions is October 20, 2008. Contestants will be chosen from the submitted plans. Each contestant will get 60 seconds to pitch their business to a panel of angel investors. The winner will receive a one-hour coaching session with the angels after the event.

Best regards,
Hall T.

Wednesday, October 8, 2008

Craig Berlin of Texas Motion Picture Alliance Talks about the Austin Film Industry

Craig Berlin of Texas Motion Picture Alliance Talks about the Austin Film Industry

I understand Texas is falling behind in the film industry. What’s your view?

Yes, other states started offering incentives for people to shoot there. As a result of that, Louisiana went from $20 million a year from 2002 to $640 million in 2006 and that’s just features and episodic TV. They are literally lined up to make movies there and they have no infrastructure but now they are building it. They have lured enough business there to do it. Same story with New Mexico. Michigan is now offering 42% rebate on in- state spending which is insane. 3 years ago Bob Hudgins, Texas Film Commissioner kind of pushed the panic button and helped put together a nonprofit trade association which we named the Texas Motion Picture Alliance and whose purpose was to establish a board, raise money and help pass incentives.

What is your background?

I was an actor in high school and college, became a producer in college and worked as one for several years but now I basically sell the stuff that other people use to make films. Apple has the majority in market share in video editing and audio editing so we sell Apple as well as professional video and sound recording equipment and supplies.

So you said Michigan had a 42% rebate. What are other states doing?

Louisiana is at about 25%. Now their system is very convoluted with an income tax rebate. Since most people coming in don’t pay Louisiana income tax, they have brokers so you end up at about 20% after the brokers get their cut. New Mexico is up there in the 20-25% range. The additional thing that Michigan has is some Canadian- like features such as credits for on the job training and some other peripheral benefits that are very attractive. Now this is not sustainable but the flood gates are open with Drew Barrymore and even Robert Rodriguez headed there for starters.

What does Texas offer?

Other than our 5% incentive, dead last on the list of states with an incentive program, we have a sales tax exemption on production supplies, which has been around for a while. There is a hotel sales tax exemption after a 30-day stay and free use of state facilities in some cases.

How does that add up?

If I am producing something then I buy tape or supplies directly related to running the camera then its sales tax exempt, as would be a rental and certain equipment purchases. So you can say 6% of that amounts to about 3% of your net spend on average. Unfortunately, most people tend to look at the front number and everything else is sort of ancillary.

What is the Texas MPA doing?

Our first year of the TxMPA’s existence we were successful in hiring one of the best known lobbyists in the state. We all have the bad taste for lobbyists but the reality is in Texas, the Legislature meets every two years, they literally get 5000 bills put in front of them, and very few of them get past. You want your legislation passed so you hire lobbyists. We are coming up on Round II this session and there will be more opposition and we’ll have to have a strong grass-roots effort along with our paid lobbying efforts to make something happen.

Why did you join?

I got involved because it’s about the whole state economy, particularly at Austin and to a great degree in Dallas and Houston. By the time you look at the amount of money that we have lost it’s into the billions. We were successful in passing a very underachieving 5% incentive which puts us on the incentive list but at the very bottom of all the states. It’s basically maintenance and ineffective.

What are you shooting for?

I want to get at least 15% incentive with a $40 million allocation. Consider the 15% with our sales tax incentive and the other things that we have to offer, the amount accrued and talent that we have. That puts us kind of in the 20% range so people will be able to consider coming here. So it will make us an viable choice again, because now if you are a money guy in Hollywood, Texas is not even on your list of options. Robert Rodriguez lives here, is a major TxMPA sponsor and yet is producing his next project in Michigan. Getting a higher incentive will be tougher because at that level, we cannot rely on a “revenue neutral” fund from the Comptroller; rather we have to be partially on the budget as well.

So what is the name of the group that you are with?

It’s called the Texas Motion Picture Alliance, which is a 501(c)(6). They are technically considered a trade association as we do lobby. It is my belief that all we are trying to do is bring more business to our state and that then benefits everyone in our state. It grows the tax base and brings jobs here. When these guys are in town they rent apartments, they rent cars, they eat at restaurants, and they buy clothing. They live here while they are here and they spend money. Good for the economy.

Best regards,
Hall T.

Monday, October 6, 2008

Don Williams of Common Credential Systems talks about allowing Building Access for First Responders During Emergencies

Don Williams of Common Credential Systems talks about allowing building access for First Responders during emergencies.

What is your background?

We’re IT professionals. I was one of the initial founders of Lares Security Systems (now NovusEdge) about 12 years ago. Lares was one of the first companies to converge security systems with IT networking. Before Lares, access control systems were program logic controllers or PCs connected via direct building wiring. Lares was the first to build network-capable door appliances for access control security. Over the last three years, we’ve been working on our new company, Common Credential Systems.

What problem does Common Credential Systems solve?

We created the company to solve the Homeland Security emergency response problem. Consider one of our current projects, Duval County Florida, there are more than 100,000 first responders county-wide. That’s a big number. Most access control systems can’t handle that many IDs. And even if they could, the community’s diverse access control systems don’t know the responders. How do you prepare the County’s critical infrastructure doors to accept these responders when an emergency occurs – and only when an emergency occurs?

How do they do it today?

If the door is locked, they wait. They must have someone meet them at the facility. That not only heightens the danger - it’s also costly.

How do you propose solving it?

We’ve developed a common internet database so the whole community can prepare for emergencies beforehand. That database is then stored in our network appliance at any door in the community – even doors connected to diverse existing access control systems. When an emergency occurs, rules in our appliance allow responder access.

That was our first problem solved. Once we began to sign up integrator partners, though, we found corporations and military bases have the same problem - different access control systems from different vendors scattered across the corporation or across the military base. Our solution (CommonPass™) establishes a common set of rules and people across these diverse systems. The existing systems can still operate autonomously, but when an event occurs, CommonPass™ allows corporate personnel to access their branch locations or military safety and security officers to access their contractor operated facilities – utilizing their existing badge.

What’s the status of your system?

It’s ready to go. We completed our beta sides in 2007. We’re now conducting three high profile market trials – Duval County Florida and Palm Beach County Florida for Homeland Security responder access and the Federal Reserve System for corporation-wide business access.

How do you charge for this?

We charge by the door. We charge for the network access appliance and for the software system - by the door. We have 170,000 doors in our current forecast pipeline.

Have you sold any systems yet?

Yes we have. Our beta sites have paid for their systems and we are moving our market trial sites toward purchase orders.

In San Antonio?

In San Antonio and in New Braunfels and, as I mentioned earlier, in Duval County, Palm Beach County and Federal Reserve System Banks in Atlanta and Jacksonville.

Best regards,
Hall T.

Wednesday, October 1, 2008

Karen Bantuveris of VolunteerSpot.Com Talks about the Need for Volunteer Management through the Web

So how did you decide to develop VolunteerSpot?

I’m a business process expert and working entrepreneur and when my daughter entered kindergarten -- I wanted to find a way to be involved in her school. I quickly learned that the way volunteers are coordinated is an antiquated mess. The level of inbox clutter with reply-all emails and bad klunky signup tools just to staff classroom helpers -- I got overwhelmed. I thought this has got to stop!

So I got on the PTO board, and took over the volunteer coordination role as a way to get more working parents involved. I thought for sure I could fix the system -- but I found a lot of moms couldn’t use Excel, and were frustrated with Yahoo!Groups and other tools like Evite. They could RSVP to Evite, but setting one up for volunteering didn’t work.

Talking to friends that work in tech in CA, I said “you know, I think I stumbled across a need” and they said, “surely someone’s doing this.” – but after looking for a long time to find someone making volunteer coordination, signups and reminders a snap – I discovered no one was – so I decided to build the tool myself.

Cool. So you are using it now for volunteer coordination at Eanes Elementary?

We’re using it now with some pre-screened beta groups from Eanes and some other community groups. We’ve already posted a public demo of the system that uses the real tool and then we’ll be opening the doors to all in our public beta launch in October.

Where do you get the development done?

We’re using a diverse team of local and Seattle programmers. This was my big learning curve – pick the right developers! I had a false start in 2006 with the wrong vendor.

What did they get wrong?

I’ve never developed software before so I thought they could build it because they said they could -- the guys that I hired were more web designers than web developers and they subcontracted out the backend to somebody who was a programmer but not an architect. Whew – that was a learning curve. But now we’ve got a fantastic dev team – the back end is architected here and our UI team is in Seattle. All our developers are invested in the product and are getting equity.

So how do you plan to make money out of volunteer work?

We have a beautiful story -- most volunteers are women from 35 to 49 and they’re involved in their kids’ activities and advertisers can’t find us on line because we’re not sitting in Facebook and we’re not sitting online chatting and blogging all day because we’ve got other stuff to do. We give volunteers simple tools that they use in their real lives, we give nonprofits and community groups higher volunteer retention rates, and we give advertisers access to power purchasers and a forum to demonstrate their social responsibility. Win – win – win in a great demographic.

So, is it an advertising model?

Yes, it’s an advertising model initially and the companies we’ve spoken to are super excited about getting their message out to this demographic – all the while supporting volunteering. Downstream we’ll also be offering premium subscription services, private branding and other services. We’re also pursuing some really high level advertisers and partners who want a white label.

And you’ve approached them already?

We’ve had meetings with Florida Orange Juice, Salvation Army, HEB and Michael Angelo’s.

How many users do you need for those groups to get interested?
We don’t need a lot, actually, we only need 10,000 – 20,000 highly-targeted users.

What nonprofits are you targeting?

Groups with volunteer-intensive missions like Habitat, United Way, Red Cross, PTA and Scouts. These groups have their own proprietary software for their employees – but committee members and community volunteer captains are left on their own to organize ground-level activities. We plan to create custom widgets for these groups to push out to their membership.

So how did you get this in front of those organizations?

My board is highly networked, Dr. Sarah Jane Rhenborg is a national expert in volunteering from the LBJ school. She’s one phone call away from many of these groups including the PTA. We’re mentioned in an article coming out in PTA magazine this Fall. Our board is also networked in faith-based volunteering and other nonprofit membership organizations.

But the other thing is that volunteers and volunteer leaders are highly networked. So if you’re involved at school, or if you’re involved with your kid’s soccer team, or church, you would likely be involved in four or five other group activities.

So you target schools and churches?

Schools, churches and non profits. We’re pursuing nonprofits to build our channel because we’ll be able to push our service quickly - such as creating a widget for a blood bank that they can push out to get people to sign up with a local drive at work or school. Our users are highly networked and if you get invited as a volunteer, you taste the tool. If you like the tool you find other places to use it.

Do you have events now or anything this fall?

We’re using the tool at Eanes Elementary school for cafeteria and recess volunteers. We’re seeking demonstration sites with nonprofits and events where we can prove our product (and cross-promote it with the cause).

Eventually we have plans to provide volunteer hours tracking because that’s important to be able to log hours for United Way and other recognition. But right now it’s a feature for the future. We don’t have a lot of money and need to refine development on our core feature set. Eventually we’ll do text message reminders and mobile signup as well.

Best regards,
Hall T.

Monday, September 29, 2008

George Giannukos of GameWager Talks about Enabling Gamers to Earn Prizes by Playing PC Games

What does GameWager do?

Simply put, we’re creating the “Dave & Buster’s” for online PC Games. Gamers earn tokens for kills and other in-game achievements (capturing the flag, rescuing hostages, etc.). These tokens can be turned in for the opportunity to win really cool prizes. In addition, we are adding a number of social community features and have many other innovative ideas in the pipeline.

What kind of prizes?

Seriously really cool ones! We’ll have daily, weekly, monthly and yearly drawings. Based on the drawing, we’ll award gamers anything from t-shirts and hats to video cards or a new laptop. We will be offering one lucky gamer a 2008 Ferrari!

How does GameWager work?

It’s ridiculously simple. Our sign-up process takes 10 seconds for a gamer to register on our site. Once they’re registered, they simply click on our “Play” tab and find game servers we’ve GameWager-enabled. We have approximately 20 game servers that are enabled which allows us to collect each gamers’ performance/statistics. Gamers can view their accuracy rate, favorite weapon, and other relevant in-game statistics.

What games are you working with so far?

It’s only PC-based games right now. We’re currently supporting Counter-Strike Source and Counter-Strike 1.6. They are First Person Shooter (FPS) games.

Is the system up and running?

Yes it is. We probably launched a little early, but we’re working very hard to add more features and flesh out the site. We wanted to get it out there and begin receiving feedback from the gaming community. Our philosophy is to release early and release often.

I see you are from Houston. How did you come to Austin?

We believe the first five or so people you hire in the company are the most important. We looked at Dallas, Houston, and Austin, and felt like the technical talent here made this the best spot.

Best regards,
Hall T.

Wednesday, September 24, 2008

Jessica Hanover of ATI Bioscience Talks about Moving to Austin

Where are you from?

I moved here from San Francisco. I had been working at a medical device company in Redwood City in California so when we moved here I thought I would do the same. There are several medical device companies in particular orthopedic companies here. After talking with Isaac Barchas, I decided to take up the position in the ATI.

What medical device company was that?

It was called FoxHollow and we developed and marketed an atherectomy catheter that essentially shaves plaque out the arteries in the leg and physically removes the plaque from the body. It was acquired by another company.

Where did you go to school?

I did my undergraduate work at Harvard and my graduate work at University of California at San Francisco. I met my husband while doing my PhD work in neurobiology. We lived in Chicago for awhile.

What did you think of that?

It was cold. We left because it was too cold. After three years we moved back to California. That was one of our criteria for moving. It couldn’t be cold. So tell me about CTAN.

We have 50+ members. It‘s a member-led group. We have 6 rounds of deal flow this year which includes a screening meeting and a presentation meeting. Every member writes their own check for how much they want to. We do have a Life Science subgroup which includes about 8 people with experience in the life science field. They preview the deals and make recommendations on which ones to recommend to the screening meeting.

What kind of deals does CTAN see?

We get a wide variety including medical devices, therapeutics, healthcare IT and more. We have a funding raise limit of $2M or less so that cuts out a number of therapeutics because they’re way beyond that level. Also, we see a number of electronic medical record deals but that’s pretty much a non-starter with the group because it’s a competitive space with large players in a changing regulatory environment. We do see a number of life science deals from San Antonio and Houston as syndicated deals.

So how many life science deals do you see?

We collected ten over the summer to preview. We get 5 more a quarter from San Antonio and Houston. Where do you think the life science growth opportunity is here in Austin?

The medical device sector is strong here. The diagnostics and tool companies are a key opportunity – such as LabNow. I think UT is a rich resource that we should explore more. I’ve talked with the CEO’s of many companies. They wish there was a bigger ecosystem here for life science companies. I bet in five years we’ll see many more companies here in the life science area.

What about bioinformatics?

I haven’t thought about it as much. What do you see?
Applied Biosystems bought Ambion and then moved their bioinformatics arm to Austin because of the rich software resources here in town. Just a thought.

Best regards,
Hall T.

Monday, September 22, 2008

Brian Ferry of JawDrop Development Talks about Split-shore Software Development

What is JawDrop Development about?

We provide offshore software development with an on-shore presence. We have done a good job about putting project management into place to manage each project. We’re now going to a direct business model. In the current climate where many businesses are cutting back but still need development, we offer them an alternative. The client doesn’t have to take on the overhead.

We have a pretty good run of customers and are getting significant value from our services. We offer 12 month contracts our experience shows that clients prefer to have dedicated resources and the comfort of our longer term partnership

How do you price it out?

We charge a monthly fixed cost, that ends up being less than half of the cost of a local developer. We provide statements of work to set expectations, deliverables and timeline, along with a local project manager, weekly reports and access to code. It’s based on a typical 40 hour work week.

How many people work there?

We have a seasoned team of developers with a range of skills sets on staff full-time in Lahore, Pakistan and here in headquarters in Austin,. We want to provide the local communication needs so the customer doesn’t have to deal with the time difference. Currently we have approximately 70 employees and we are in process of building our US based project management team.

Is it mostly web work?

Yes, we have expertise is custom applications, software mash up, and mobile platform work. Also, some firmware.

What software languages do you work with?

It’s a wide range but lately more Ruby on Rails work. It’s grown legs and there are more inquiries. Our development team is strong in JAVA, NET and Web 2.0 technologies with most current languages.

What’s driving the interest in RoR?

I think it’s the current flavor of the month. From what I know there’s no great advantage over Ajax or the others.

What do you code on the mobile platform?

Windows Mobile and now we’re doing more on the iPhone.

Do you take equity for work?

Sometimes. We can be creative.

What’s it like for a company to work with an outsourced programming team?

From the business perspective it makes sense. But people have had flawed experiences in the past. That’s the biggest challenge. We’ve doing this for several years in stealth mode, with a few companies, so we have the support team built up. We provide career paths for our development teams and most are UK / US-educated. Many of them attend UT for education and then when they go back they take their English-speaking skills with them.

What do you do that’s different?

We develop a partnership so we can provide agile development programming techniques rather than working on a project by project basis. Also, we dedicate a programmer to the same project rather than moving it around to different people. Our experience shows that the developer is much more effective working on one project, than boucning around trying to understand other applications.

What kind of collaboration tools do you use?

We use Montras which is a codetracker and debugger tool. Weekly conference call and written reports are part of the package too.

What are some success stories?

We’ve worked with Clearcube for four years. ReachForce is ramping up a bit with. Edioma is a longer term one. We have done projects in the financial and travel sectors too.

What is the next step for JawDrop?

We’re opening an office in Dubai.

Why Dubai?

That’s where the action is.

Best regards,
Hall T.