Wednesday, January 16, 2008

Austin American –Statesman Article on Angel Investing

Not too long ago the Austin American-Statesman ran an article on angel investing in its TechMonday section. I was glad to see the extensive coverage which drew on survey information from the University of New Hampshire. CTAN fills out their survey forms regularly as we support the information they gather about angel investing. The Angel Capital Association is also engaged in a similar effort to provide data and stats about funding, membership, etc.

The article highlighted two companies CTAN recently funded: Minggl, a social networking site, and Displaypoints, an at the restaurant table digital media play. Both companies have solid product offerings and strong management teams behind them. According to the stats, Angels funded 24,000 companies last year compared to 1822 by venture capitalists. That’s quite a difference.

It’s interesting to note that the data shows a flat to slightly down trend for angel investing across the USA. This is a little surprising as CTAN continues to see strong deal flow and increasing investments. I’m not sure what caused the numbers to slow. Angel investing runs in five to seven year cycles. We had a strong cycle starting in 1994 and then closing in 2001. Starting in 2005 the cycle started again. We currently see about thirty deals a quarter submitted to our website from which we can choose four deals to present. Of the four deals that present we typically fund two of them. Next year we plan to increase the number of presentation meetings so we can view more deals.

Best regards,
Hall T.

Monday, January 14, 2008

Leslie Price –an Angel Investor Profile with an Outlook for 2008

I recently had the pleasure of interviewing Leslie Price, a new member of the Central Texas Angel Network who recently moved from Dallas to Austin. Here’s her take on angel investing and the outlook for 2008.

What is your background?

Corporate communications. Developing communications strategy and programs for technology companies. I was over corporate communications at Sabre Holdings out of Dallas, a travel technology company whose businesses include Travelocity. Before that I worked many years at Texas Instruments. My last position there was VP of strategic communications, which involved the external positioning of the company during a time of major transformation. Before that I was over communications for TI’s European operations for more than four years, living first in France and then Belgium.

One area where I’ve gained a lot of experience is in acquisitions and divestitures – which is where I also developed my interest in working with startups. When I came back to the U.S. in 1997, TI was in the midst of its transformation to primarily a semiconductor company, selling off several businesses and buying in a number of small technology companies. In a three-year period, I worked on more than 20 acquisitions and divestitures, and more later at Sabre.

These communications are very involved, and multi-phased. One critical element is determining how to best integrate the newly acquired company and build that brand going forward. Given the entrepreneur’s personal investment in their company, it may be challenging to see any change to their company’s identity -- which I can understand. But you have to look at how to bring the most clarity to customers and how the acquiring company can best generate that new value. Sometimes that will mean maintaining the existing identity, and sometimes the decision is to fully integrate into the acquiring company’s brand. But there has to be a framework in place to guide those decisions.

Why do you like startups?

I have always admired entrepreneurs – people who have an idea and take the risk to go off and start a business and get it going. It’s exciting to see them succeed. We have a culture here in the U.S. that encourages some level of risk taking and innovation. I haven’t seen that everywhere – there is a lot more understanding here if a company doesn’t succeed.

What do you look for in an angel deal?

I look at the management team. I think the quality of the management team is so significant. You have to determine if they can take the product idea all the way through and make it successful. And other factors include the market opportunity, the technology, what differentiates them from what’s out there.
You recently invested in Displaypoints. What did you like about them?

I think they have a strong management team as well as a great idea. They’ve met their milestones and progressed very well. I think they’ve found a niche that has some real interest as seen by the companies who are in talks with them. They’re at an early stage but progressing well and getting a lot of interest that is helping them refine their product and expand their customer base. They’re about to roll out version 2 of their product, and they’ve just gotten approval for a pilot program with a national restaurant chain. I think we’re going to be hearing a lot more about them.

What is your day job?

I work at Edelman, which is a global public relations agency, the largest, independently owned PR agency in the world. They’re family owned and have been in business for over fifty years. It really combines the best of a boutique – local presence, specific expertise – with the resources of a global company. I focus on technology companies.

Why change from the corporate world to the agency world?

I like the idea of applying my experience to many companies, and I admire Edelman’s creative history and how they continue to shape the PR profession.

How does Edelman work with startup companies?

We recognize that there are unique needs with a new company. We recently designed a PR model that’s specifically for companies at this stage – to help smaller companies get noticed. We’ll work with these companies to help develop their initial communications platform and build that early buzz that they need. The level of support the startup needs is different from a more established company, and we offer a lot of flexibility with this program.

What are some of the tactical ways a startup gets their message out there?

It really depends on their business needs and the markets they want to reach. Certainly talking with industry analysts and the media is key. And being visible at key forums – conferences, trade shows. But you need to first build a strategic PR program based on the company’s business objectives, and then a variety of tactics will fall in place.

PR is evolving based on technology. What do you see as trends for 2008?
Social networking and mobile marketing are going to be the key trends in 2008. It’s becoming more and more important to a solid PR program. Edelman has been on the forefront of this. For example, one client, a technology startup, needed help in building its name and customer base and countering misinformation about them. Edelman used social media – in particular blogs, and built up a program and trained execs and had it live in under two weeks, with great results. It allowed them to open up a dialogue and talk with potential customers, and clarify who they were. They were able to correct the misinformation as well as sign up new customers. It’s all about getting that initial conversation going rather than having a one way communication. Mobile marketing is growing too – but these programs must be opt-in. You have to earn the right to be on their handsets. These are complicated programs to develop, but it can be an effective tool if used in the right way.

Best regards,
Hall T.

Brewster McCracken of the City Council Talks about the Pecan Street Project

Brewster McCracken of the City Council Talks about the Pecan Street Project

How did the idea for the Pecan Street Project get started?

I was having lunch with BJ Stanbury, Steve Darnell, and Dave Bowen, over at Taverna on March 7. We were talking about Helivolt’s plans. BJ was very passionate about how our focus needs to be on the locally sited solar rather than big, remote solar panel farms out in the hinterlands. That’s how you create the jobs and make it directly relevant to people.

I got together with Isaac Barchas and Joel Serface and started working through it. If you have solar covering offices, homes, stores, then you would need to have thin-film or a building integrated material, and you would need to reinvent the way utilities deliver electricity.

We asked ourselves what success would like 20 years down the road. Imagine we have solar all over the city. What changes would be needed to make that system as reliable and affordable as conventional fossil-based power? Currently, solar is intermittent now and it’s subsidized, so what does it take to get it as reliable as polluting energy. You would have to connect the solar systems coating the buildings to 2-way wiring systems. In turn, the wiring would send the solar energy large, interconnected storage servers. It sounded a lot like the internet. We learned from reading that Google had already reached a similar conclusion about the future of clean energy—that you have to reinvent the energy system into one with the architecture of the Internet. Thomas Friedman and former Motorola CEO Robert Galvin are also is advocating for the creation of an energy Internet. Friedman writes that this is the most important thing we could do to promote economic opportunity and to address the world’s biggest environmental challenge, climate change.

So we had our first formal meeting on April 16 at MCC.

It was Joel Serface, Isaac Barchas, Rachael Proctor May, Marsha Inger of UT’s Advanced Computing Center, UT engineering professor Michael Webber, Jose Beceiro with the Greater Austin Chamber and Austin Energy General Manager Roger Duncan there. Shortly afterward, Joel moved away and Colin Rowan from I&O Communications and Heath Hignight from UT’s Engineering School joined us. We started hashing through it what we needed to do in Austin to lead in clean energy – both economically and from a utility perspective. It took us three months to develop the consensus plan that became the Pecan Street Project.

Why did you call it the Pecan Street project?

It was initially called the Austin Project but that name it was already taken. Interestingly, the Austin Project was the name for the the job training initiative from Sematech. We didn’t want to use a generic name like “clean energy project.” So we decided to call it Pecan Street Project because Pecan Street used to be Austin’s original main street. We felt it fitting because we’re talking about taking energy away from the hinterlands such as from a coal-fired gas plant and bringing it into Austin’s main street.

When Edison was building out the infrastructure for generating and distributing electricity he had a choice between centralized and decentralized. He chose centralized which many people say is now outdated.

The most direct analogy is the evolution of broadcast television to the internet. If you look at broadcast television you get your news from three networks that they broadcast from big towers (with no way to store it) and you had to be in front of the TV at a certain time. Later VCRs, cable, and other devices came along but the fundamental structure was still there. Then along comes the internet in which information is deposited into servers and the users can pull out that information at your own convenience and the user can also put information out there. If power were structured like the internet then users could put energy out on the grid or take it back off at their convenience.

After the landline phone companies deregulated, that after twenty-five years later we’re basically back to one landline phone company. It’s a natural monopoly. It makes no economic sense to have duplicated line systems. It is likely that utilities will also be natural monopolies on the wiring side. Even in Austin, we essentially have a competitive market for the source of power, because we go out for bid on coal, uranium and natural gas. If you have a decentralized smart grid Energy Internet system and it’s just as reliable as from traditional energy sources, then it doesn’t matter from a systems perspective that the power would be coming from solar panels on people’s roofs rather than big power plants in remote locations This won’t just be an engineering and technology challenge. Developing an Energy Internet will also be a major software challenge. It will require the creation of a new business model for how utilities pay for solar panels and excess solar power coming from people’s roofs.

It’s too early to say what kind of business model will emerge from the Pecan Street Project. Duke Energy is paying put solar panels on its customers roofs. SoCal Edison is paying rent to building owners to place solar on their rooftops – that is a model similar to the cell phone tower business model in the mobile phone industry.

Christian Reed of E6 Capital made the point that Austin pays for putting in a solar panel system when it should pay for power put into the grid. How successful is the current solar power rebate project for Austin?

It’s too successful. The current way we do the rebate program will bankrupt the utility if we keep doing that because we’re spending more than we’re getting back. But we are sending our energy dollars outside of Austin in other ways, too. Right now as rate payers, we’re doing a massive export of our dollars out to Wyoming for coal and west Texas and Oklahoma for uranium and natural gas. Not only that but if you can get the technology for locally-sited systems to work as efficiently as carbon-based electricity then you could eliminate not only the several billion dollar cost of a power plant generating the electricity but also the inputs to that plant such as coal. About half of a customer’s electric fuel bill goes to pay for the cost of the fuel such as coal. With solar and wind, the fuel is free, so if we could develop a reliable, affordable delivery system for wind and solar, theoretically half the charge on your electric bill – the charge for the fuel to run the power plants – would be lopped off. It’s a long way off but that’s the vision.

What is the Pecan Street Project’s contribution to this effort?

We have everyone in Austin coming together to tackle this problem including Austin Energy, the City of Austin, the University of Texas, Austin Community College, the Environmental Defense Fund and leading technology companies, including SEMATECH, Cisco, Dell, Freescale, GE, GridPoint, IBM, Intel, Microsoft and Oracle .

As Thomas Friedman writes, creating an Energy Internet will require innovation in utility systems, building codes, land use policies and information technologies. It will require economic development investments. The City of Austin has all of the components needed to create and implement an Energy Internet – utility policymaking, economic development, building code authority and land use authority – integrated into one organization — the City of Austin. so We can, for example, change building codes to match the needs of the energy technology required to make this work. Utilities alone can’t do that. We can do this in one near-seamless body. We are likely the largest city in the nation and the largest public utility run by the same management – the Austin City Manager and the same board –the Austin City Council. That gives Austin an important differentiator in clean energy that can position us to lead economically and to make an important positive contribution to this national priority.

The vision is to have 100,000 homes and businesses in Austin equipped with solar. To make a vision like that work, we will need a reliable, cost-effective Energy Internet and a new business model – likely one in which we’re getting paid for the electricity we produce from our own rooftops. We can do make Austin the home for researching, developing and implementing this vision. Through the Pecan Street Project, we are bringing together the best in the nation to do precisely that.

Has anyone put up any money for it?

The corporate partners are dedicating 2 to 4 employees at 25% of their time for the next 7 8 months. On August 1st, we’re going to have recommendations from all our partners about what technologies and investments we will need to make to implement the vision.

How can angel investors help?

We believe there will be a tremendous amount of innovation and entrepreneurship coming to this effort. As we create in Austin an Energy Internet that makes it possible for entrepreneurs and innovators to introduce new clean technologies into the electric grid, many of which will involve the commercialization of university technologies, angel investors will be key to funding the innovators who will be making this vision a reality. We are talking about major opportunities for new applications in software, energy storage, solar, and home and business “operating systems.” Just like the internet created untold number of jobs, the distributed smart grid Energy Internet being researched, developed and implemented through the Pecan Street Project offers the promise of creating a tremendous number of jobs and startup opportunities. A distributed smart grid Energy Internet also offers the prospect of much lower barriers to entry for entrepreneurial start-ups to compete on the electric grid. We’re bringing the partners together to make this system work. Everyone involved in this project is tremendously excited about the future we can create – both environmentally and economically.

Best regards,
Hall T.