Larry Upton’s Edioma Brings Language Education to the Mobile Phone

Larry Upton originally from Mississippi lived all over the world as his father was a serial entrepreneur and came to Austin about five years ago in which he started work at MessageOne to develop their Latin America infrastructure. He left and about a year ago he launched Edioma which provides language translation education over the mobile phone. Idioma in Spanish means “language”. They transposed the “I” to an “E” and had their company name. They currently offer Spanish but plan to expand into Mandarin and Hindi languages in the future.

A linguist by education he got involved in IT development. He noticed that students today learn by digital media not traditional means. A few years ago he contracted some help to do some stonework at his house. In the process, he noticed that some of the workers didn’t speak English well, and that everyone had a cell phone. Over seventy percent of the workers don’t have access to the internet. From that experience came the concept of providing education over the mobile phone. Follow on market research indicates that over 90% of the respondents in a survey were interested in learning better English, and nearly half were willing to pay (up to $21 per month) in order to do so. They have about 30,000 downloads (in about 5 weeks) from their first partner, called Movida which is a Sprint company selling prepaid phone cards through Walmart.

The language education focuses on practical phrases categorized by various situations: banking, traveling, shopping, etc. It’s a J2ME application which lets the user select a text phrase, and then by clicking on it, it gives the translation in words and also a voice speaking over the phone. If the user can’t pronounce it, they just show the phrase on the phone to who they are talking to.

Over the next six months Larry and his team are proving out the business model. There are 40 million people in America that rely on Spanish as their primary language and 400 million in Latin America so the market is large and growing. He plans to roll out games to provide education as well.

Best regards,
Hall T.

Tom Ortman – Solar Energy Entrepreneurs Network (SEEN)

I met with Tom Ortman of Concurrent Design who recently started the Solar Energy Entrepreneurs Network (SEEN) along with Paul Ballentine of Freescale to foster networking among those working in the solar energy space in Austin and Central Texas.

They recently held their first meeting and received a greater than expected turnout -- over 150 attendees. Tom’s initiative catalyzes the discussion by focusing on solar energy issues and connecting people together to form and progress their business in this area. Tom plans to run meetings regular next year and is currently surveying the group to identify the needs.

There’s ample room for innovation in the area of solar energy. I recently tried to have a solar panel array installed on my residence. A 3.2Kw system goes for $22K but a rebate from the city cuts that price in half. And there’s also a $2K federal income tax credit on top of that. Unfortunately, my house had too much tree shading to make it worthwhile. In the end, I went with two solar powered attic fans ($700 each) that cut my electric bill by almost $100/month in the summer. I’m quite happy about that. In the area of solar energy p anels, I can see a number of areas in packaging, installation, and maintenance that could benefit from innovation.

Best regards,
Hall T.

Jared Slosberg –Experienced Entrepreneur Starting Angel Investing

I had the opportunity of talking with a new CTAN member today, Jared Slosberg, the President of ProfitFuel which sells online advertising primarily to small businesses. They’ve been doing this for over five years. They started by selling advertising on Yahoo! and later expanded to sell advertisements outside of Yahoo. They built a site called Clicksmart, which focuses on driving ROI for their small business advertisers.

Jared previously helped run HomeCity an online real estate company in which customer acquisition is done over the web. The company targets people moving to town and then provides all standard real-estate services. They have 50 realtors and recently expanded to Dallas. It was originally designed to serve corporate relocations but now includes private relocations.

Jared is not new to angel investing. He invested in Autowraptec a company that makes a machine that automatically wraps silverware for restaurants. A big restaurant in a casino will have full time staff for wrapping napkins, but even small restaurants will typically make their waiters and waitresses come in before their shift to wrap. The company is currently ramping up manufacturing to serve larger customers.

Angels bring startup experience to the investment process. An angel investor puts 5 to 10 hours a week into angel investing – finding deals, screening deals, presenting them, performing due diligence and so on. We look forward to Jared’s contribution to angel investing in Austin.

Best regards,
Hall T.

Tom Ortman – Solar Energy Entrepreneurs Network (SEEN)

I met with Tom Ortman of Concurrent Design who recently started the Solar Energy Entrepreneurs Network (SEEN) along with Paul Ballentine of Freescale to foster networking among those working in the solar energy space in Austin and Central Texas.
They recently held their first meeting and received a greater than expected turnout -- over 150 attendees. Tom’s initiative catalyzes the discussion by focusing on solar energy issues and connecting people together to form and progress their business in this area. Tom plans to run meetings regular next year and is currently surveying the group to identify the needs.
There’s ample room for innovation in the area of solar energy. I recently tried to have a solar panel array installed on my residence. A 3.2Kw system goes for $22K but a rebate from the city cuts that price in half. And there’s also a $2K federal income tax credit on top of that. Unfortunately, my house had too much tree shading to make it worthwhile. In the end, I went with two solar powered attic fans ($700 each) that cut my electric bill by almost $100/month in the summer. I’m quite happy about that. In the area of solar energy p anels, I can see a number of areas in packaging, installation, and maintenance that could benefit from innovation.
Best regards,
Hall T.

Joshua Shipsey – An Entrepreneur Now on the Other Side of the Table

From time to time, CTAN receives a member with an entrepreneur background. Recently, Joshua Shipsey joined the group. Joshua has a background in industrial engineering and now has his own business. Over coffee the other day he commented how angels look at deals differently from entrepreneurs. Joshua came to our last presentation meeting and saw the four deals presented and then witnessed the questions the angels asked.

Entrepreneurs look at the possibilities of the business while angels tend to focus on the risks remaining to be solved. The presentation format gives the entrepreneur just 10 to 15 minutes to cover all the major points of the business – management team, product, target market, competition, financials, funds sought, exit strategy just to name a few. Some entrepreneurs would like to spend more time on the product/service they offer, but the angel is seeking to identify the risks remaining in the deal and how to solve them.

I thought this was a particularly useful insight.

Best regards,
Hall T.

Chuck Besondy – The Mad Scientist of Marketing

I had coffee today with Chuck Besondy who is a fellow blogger who writes the One Riot—One Ranger blog. He is currently co-writing a book called “Leadership On-Demand” which is about utilizing interim staff for sales and marketing management functions. This also helps for high workload seasons, filling gaps in the skills set, or when key people leave. The work is based on 20 interviews with CEOs.

One of the more interesting projects Chuck has done is director of marketing for the Austin Wranglers. He put together the marketing plan for ticket sales and sponsors. He’s also worked with David Altounian’s iTaggit and performed the initial market validation and market sizing.
As for market sizing, Chuck described his work at Boxx Technologies which serves the film and video industry. Chuck took the total available market and calculated the serviceable market by looking at the number of studios, number of projects per studio, and brand loyalty among other factors to get down to a much tighter number.

Chuck is called by some the “Mad Scientist” of marketing as he brings unusual rigor to the process of setting up sales/marketing funnels. This is a favorite topic of mine since I’ve seen how powerful it can be in galvanizing the resources of a company. A sales funnel essentially divides up the suspects (no interest but potential customers), prospects (interested potential customers) and customers (those who actually bought the product) and maps the steps one goes through from one stage to the next and even models how many go through the process.

Best regards,
Hall T.

Lisa Williamson – Upspring CEO

I had the opportunity to have coffee with Lisa Williamson, the CEO of Upspring. She comes from Pepsico and is now a serial entrepreneur with two startups behind her now. She’s almost finished with their equity raise of $2M and has a number of new products in the pipeline.

So how is Upspring going these days?
We are a consumer healthcare play targeting toddler care. It’s a heavily fragmented industry. There’s no innovation coming from the large players. We have only one product coming from outside the company. The rest of the IP comes from internally. We have a line of functional and diagnostics products which gives us some choices for how to grow the company. We have “Walking Wings” which is in national distribution and has strong revenue. The money we raised will be to develop new product innovations and grow existing products. We’re expanding our diagnostics product line beyond Milkscreen along with a new product called the Night Knight.

So how is Milkscreen going?
We’re in Central Market, select Whole Foods and independent retailers but with national distribution we’ll get more exposure.

It seems like your expanding into the diagnostics market first?
It’s more margin and a better multiplier and there is so much more growth because consumers are taking healthcare into their own hands and the Over the Counter (OTC) market is growing rapidly.

Where do you get ideas for new products?
The Night Knight is the only product that comes from outside our company, currently. We have so many internal products on our roadmap but we also have a steady flow of product ideas that people are bringing to us. We also have a partnership with a company in Sweden that has a great innovation and industrial design for their products that we may be launching in the U.S.

How do you protect all these ideas?
For the Night Knight we have a utility patent on the intended use of the technology. We are in patent pending with Milkscreen. We’re trying to broaden the patent to get more coverage. For all of these we filed PCT’s.

Your marketing is head and shoulders above others. Is that part of your IP?
Our goal is to be first to market and gain broad distribution quickly. My background is in marketing at Pepsico.

I was impressed with your PR on Milkscreen.
Our strategy is to generate PR throughout the first year, much less expensive than traditional advertising and more effective.

Do you sell on the web?
We sell Milkscreen directly, but not Walking Wings so we don’t compete with our retailers.

What about the price of Milkscreen?
We recently fixed the cost of goods for Milkscreen by reducing it significantly. That helped us set the right price point for it. We sourced a different chemistry which let us manufacture it ourselves at a lower price point.

How about your exit strategy?
We want to build a strong consumer brand and continue to bring true innovations to the market. As mom’s we are very passionate about our products, as business women we understand the need for a liquidity event to provide a great return for our investors.

You just raised $2M. What was the biggest challenge in raising the money?
We knocked on a lot of doors. The challenge was finding the right group. The majority of our company value is in the product roadmap, IP and the distribution. Because we had some revenue, it was a challenge to set the valuation. We offered equity with 1x liquidation.

Best regards,
Hall T.

WiredReach—Easy to Use File Sharing

I had coffee recently with Ash Maurya of WiredReach which makes dead simple file sharing software using a peer to peer technology. Ash has a background in the Telecoms industry in Richardson and found a need in the market for file sharing of large sizes. While most companies offering such services focus on the big three – music, videos, and photos, Ash’s company focuses on the “long-tail” of applications including Photoshop and AutoCAD users. Adobe Photoshop users and Autodesk CAD users are underserved segments which his company focuses on. They offer their software for a fairly low-price per month. They’ve been working on custom application projects for several years and are now moving over to a standard products offering – a key for scalability.

In reviewing deals, CTAN has its three basic criteria:

1. Are they based in Texas?
2. Do they have a complete/near-complete product?
3. Are they seeking $2M or less?

After that CTAN looks at the next three questions:

1. Do they have an experienced management team?
2. Can the product generate revenue yet?
3. Have they validated the market? Will anyone buy it?

It appears Wired Reach meets both sets of requirements. Of course there’s more work to do, but this is a great way to open the conversation with CTAN.

Best regards,
Hall T.

Recent ACA Survey – The Returns and Success Factors of Angel Investing

The Angel Capital Associated recently released a survey on angel investor returns. They contacted 276 angel groups of which 86 responded to the survey. In short, the average return to an angel investor in the survey was 2.6x the investment in about 3.5 years yielding an IRR of 27%. These returns align well with other forms of private equity investing.

The three factors that influenced positive outcomes included:

1. Due diligence – more hours invested yielded higher returns.
2. Experience – more experience in the angel yielded better returns.
3. Participation – those angels who interacted with the entrepreneur several times a month yielded better returns.

The exits ranged from 52% of the deals losing money, 48% making money and 7% making 10x return or greater. The average amount of time spent on due diligence was 20 hours per deal, but some spent up to 60 hours of due diligence and saw substantially higher returns. Where investors spent more than 40 hours of due diligence experienced exits of 7.1X.

Angels who spent time with the entrepreneur 3 to 4x per month experienced a return of 3.7x in four years, while those who spent time with the entrepreneur only a couple of times a year experienced a 1.3x return in 3.6 years.

This information certainly backs up my own personal experience. Where I invest in deals in which I know the industry and actively work with the entrepreneur on the business, I receive greater returns compared to those deals in which I’m a passive investor and don’t know the industry at all.

If you would like to read the full report you can download it from the Kauffman site here.

Best regards,
Hall T.

Austin Inventors and Entrepreneurs Association—Valuations Anyone?

I had the opportunity to speak to the Austin Inventors and Entrepreneur Association. About thirty people turned out to hear my speech on “How to Raise Funding.” There were several entrepreneurs with cleantech inventions and even a few medical device developments. Led by Chris Ritchie the group meets to share ideas and information about how to successfully invent and launch new product ideas. The question of valuations came up as it does in many conversations. The more risk the entrepreneur takes off the table (product, market, IP, etc) then the better the valuation will be. There are some classical models for calculating valuation. If you have a cash-flow stream coming into the company, that can be used to value the company. Likewise, asset-heavy businesses can make a valuation based on the value of the assets. Also, revenue-streams could be used. If there are no cash, revenue, or assets, then comparables can be used. By looking at companies recently purchased one can determine the value of a business by comparing to a recently purchased company. This information is often quoted in the press and with a little digging through a trade or market research organization one can find the particulars about the purchased business and then extrapolate onto your own business.

Often times a valuation is placed on the business by the entrepreneur that is calculated based on the money sought to be raised and how much equity the entrepreneur wants to see at the end of the funding event. Based on these two numbers, the “valuation” is derived. If the entrepreneur is not incentivized then there’s not much of a future for that startup business.

I’m a regular listener of the Frank Peter’s Show podcast which highlights the angel and venture capital world of southern California. Recently, Frank had Luis Villalobos on the show who made the comment, that he has invested in over 60 companies in his angel investing career and every investment required substantial negotiations on the valuation. It’s not an easy question.

Best regards,
Hall T.