Ed Dato of Data Recognition talks about creative ways of Fund Raising

Ed Dato of Data Recognition talks about creative ways of raising funding for hardware products, why he never entered entrepreneur contests, and why audited financial statements from the beginning help close the sale of his company.

Most people think there are only two ways to raise funding: a bank or an angel…OTM (other people’s money). But there are at least 2 or 3 other ways to do it. Your back pocket is one of them. (That is another blog to explain the very simple formula that allows you to spend no time raising money and all of your time selling).Your manufacturer or subcontractor is another. They could be your partner. It’s in their interest to work with you.

Do you know any manufacturers that look for that sort of deal?

Absolutely. There are all kinds of deals they look for. I’ve done it before. It was a small deal but they had to buy the tooling. I made an arrangement to give them a SPIF on every unit they made. I gave them sole source as long as they could make the volumes. It just depends on how creative they are. They are in the manufacturing business. They need one thing desperately, customers. If they get a SPIF on top of it, that’s great. The only way they lose is if they screw it up. It’s better than giving your equity away. It also incentivizes the manufacturer to help get the cost down by relaying out the boards, and redesigning the product so it goes through the manufacturing process faster and cheaper. Now you’ve got someone who knows the manufacturing side of it to help you improve the product. Then when a competitor comes in, and don’t tell me there’s not going to be a competitor, you’re prepared to drop the price if you need to because you have taken the cost out of it. Ironically, I stayed with them when our volumes justified outsourcing to Asia for lower prices. I did so because of their loyalty and commitment to me when I needed them. That is a partnership…and we all need partners to succeed!

You’re an entrepreneur by background. What were some of your early efforts to innovate?

I remember in the late 60s/early 70s, a drummer in my band and I who decided to build a nifty product – a digital alarm clock. They didn’t exist at that time. So we went down to Radio Shack to buy the parts and it actually worked. There was not any market for it at that time. No one was in the business then. I went to the Senior VP of TI and I showed it to him. At that point, I was 25 years old. He said it was really an incredible product but when TI, Casio, and National Semiconductor get into that business they are going to crush you. And that’s exactly what happened. They came out with alarm clocks, wristwatches and calculators and it totally crushed us. Fortunately, I listened to him and moved onto the next great adventure.

Are you doing any angel investing now?

I was until last week, but the stock market is just awful, but it’ll come back. I think I have some ideas that can help entrepreneurs. If you’ve never ridden a horse it’s hard to teach someone how to ride a horse. I’ve had my share of failures and successes. When I ran my own company back in the 90s, I never entered into any of those competitions that Inc. Magazine ran, and people asked me why. I told them that those things won’t generate one new lead for my product. It’ll only generate phone calls from attorneys and other service providers wanting to sell me their services. It would never sell another barcode data collection product or service. We marketed only to those who would buy from us.

When did the business start?

We started in business March 13, 1989, after 25 yrs. experience and 1 year of intense planning and modeling the business. We didn’t know from the beginning that we would sell the business. In fact, we didn’t think we could ever sell it to a 3rd party. But we sold it in 2000 to Brady Corporation. When they contacted me I knew we had 90 days to complete the deal. If not, they were going to suck my brains out negotiating the deal, taking my time away from running the business, and lower valuations because the chief salesman was in negotiations and off the job. What made a 90 day close possible and a cash closing on Feb. 29, 2000 was the fact that we had audited financial statements for the previous three years from one of the national firms. Soon thereafter, the national firms were significantly reduced in size and stature. That fact is evidence that behind every idea that is well conceived and executed, there is definitely the spice of luck that we all need to attain our goals.

Best regards,
Hall T.

The Rice Business Plan Competition 2008--Getting Bigger and Better

I participated in the Rice Business Plan Competition again this year. It’s my third year running and I must admit it’s quite impressive how the quality of the business plans and presentations has risen each year.

This year the program showcased 36 teams (28 from the USA, and the 7 international), with prizes totaling $675,000. About 20% of that is in-kind services. About 1/3 of the presented plans were companies that are up and running as a business. The surprising news from the conference is the number of previous year competitors who have gone on to launch a company. It was about 50%.

There are 170 judges of which 53 are from venture capital, 21 from an angel community, and 18 from private equity. I enjoy judging the competition because I learn a great deal about the industry from talking with the other judges and listening to the questions they ask.

I judged the life science competition and have done so for the past two years. Two years ago, almost none of the plans had a strategy for achieving FDA validation. Today, most have a fairly sophisticated plan for how to do it at the lowest price possible. Two years ago, most plans sought $2M with the goal of creating a pharmaceutical company which was completely unrealistic. Today, most plans focus on partnering with a pharma company for clinical trials and then licensing the technology after trials finish. Today, some of the plans still emphasize the science, but the winners are those who can present a business case including productization, go to market strategies, and financial numbers with some backing.

Business plan competitions have grown substantially in the past few years. There are quite a number of business plan competitions available to the student today. For a general list check out this link.

The top six finalists this year are:

Etoh Pharmaceuticals, University of Chicago—a triple drug combination for treating alcoholism.

Qcue, University Texas at Austin—dynamic pricing solution for concert promoters.

Enexra, Harvard University—reduces cost of silicon wafer-based solar cells by 30%.

Filigree Nanotech, Wake Forest University—improves battery performance through silver nanowire.

Klymit, Brigham Young University—noble gas-based insulation in clothing.

Microtransponder, University of Texas at Dallas—uses subcutaneous neurostimulation device to mitigate pain.

Best regards,
Hall T.

Jan Wagner of Yello Dyno Talks about the rise of Child Predators in our society

Jan Wagner of Yello Dyno Talks about the rise of Child Predators in our society, how to teach children to protect themselves, and the next stage for her company.

What is Yello Dyno?

It’s a proven, research-based program for protecting kids against child predators. We’ve reached over 3 million kids, and in Texas over 500,000 kids are taught the lessons each year. It focuses on the 4 to 12 year olds. Child Predators is a key topic today. In our society now, child predators are our modern Al Capones. Since we can’t catch Al Qaeda, we pick someone we can and that focus is on child predators. Since a third of Americans have been through some level of victimization, it’s clear they are going to protect their kids. In Jan’s workshops she reinforces what has been seen on Datelines “To Catch a Predator”, that the Internet is literally creating child predators.

What does the program teach children?

How to recognize and protect themselves from “Tricky People”. It’s not what people look like, their age, or if you know them – it’s what they ask you TO DO that matters. (Children learn to recognize deceptive behavior patterns.)

What is the background to the company?

I founded this company 20 years ago. Our revenues are under $500K per year. Our focus has been on research and development for the past few years. I’m currently looking for someone to take the next round of products to the market. In the mid 1990s NEST Entertainment licensed the rights to take Yello Dyno to the market. They put $1.8M into development back then. In 2000 they crashed in the Dot Bomb. During the 1990s we had franchisees who merged with the NEST Party Plan system. So when NEST went under we lost most of them. We were able to get the rights back to the property. Over the next seven years, I did this part time. We have one key Yello Dyno Director, a former franchisee, in New York who does around $500K a year in revenue.

What are you raising money for?

Our five years of independent research is completed and validated the exceptional effectiveness of the program. This research uniquely qualifies us in personal safety for children. We are ready to launch the products, curricula and training through a national marketing campaign. We also are ready to market to publishers and media the content for two new books for adults and a book and television series for children. Our well-established courses are ready to translate for the online Yello Dyno University to meet state and federal training mandates.

How many employees work at Yello Dyno in Austin?

We’ve stayed learn during this developmental and research phase. I have 2 employees plus we use specialists and consultants.

What is the exit strategy?

To license the rights or to sell the company to a major player. These four options are not mutually exclusive. The rights could be broken up, such as we did with NEST whom we licensed the exclusive marketing right to but we retained the publishing rights. Here are the options:
1. I could hand it off to someone in the educational arena. The Discovery Channel, through Discovery Health, has an online program they offer to schools for $750/year. Our programs fits right in with what they are doing. Scholastic would be another good company to approach.
2. A prime candidate would be a company seeking a cause – some call it cause-related marketing. Any corporation could choose to do this. One category would be insurance companies; we had strong interest from All State in the 90’s.
3. Another company such as NEST Entertainment. In the past HBO also considered buying the marketing rights from Nest Entertainment. Plus PBS was working on a contract for a series of 24 animated cartoon shows with Yello Dyno with NEST .
4. A large non-profit that would like to offer our complete prevention program for communities throughout the United States. Our program has been offered by hundreds of small non-profits throughout the United States and meets the mandates of many charities. The programs have proven to be excellent PR for them. Plus, they have used it to attract funding to their crisis and recovery programs that are hard to talk about.

Can we hear your elevator pitch?

Hi, My name is Jan Wagner, President of Yello Dyno. We are child protection specialists. Yello Dyno arms educators and parents with the DVD's, CD's, curricula and training needed to teach and protect children, ages 4-12, from people who mean them harm.

We teach the Yello Dyno Method that is based on the Nobel Prize winning research of Dr. Roger Sperry and the internationally recognized research on the effect of violence on children of Dr. Bruce Perry. The high level of effectiveness of our programs is grounded in five years of independent research. This research uniquely qualifies us in the field of personal safety for children.

Over the last twenty years we have taught over 3 million children to stay safe nation-wide and in Texas alone we have over 500 thousand children being taught Yello Dyno’s award-winning program each year. There are hundreds of instances when children stopped child predators. In the last two years there are three Texas police documented cases of children ages 4, 5 and 9 in life-threatening circumstances with child predators who saved their own lives because of their Yello Dyno training.

We are ready to roll out our products, curricula and training through a national marketing campaign. Our market is targeted at 60 million children under the age of 12 and the caring adults around them.

We are also ready to market to publishers and media the content for two new books for adults and a book and television series for children. Our well-established courses are ready to translate for the online Yello Dyno University to meet state and federal school training mandates.

We are looking to raise $1 million that would be invested in stages. The investment and profit would be recouped by an exit strategy involving increased sales and licensing the marketing rights in the educational field, entertainment and/or retail markets.

Please consider bringing your expertise and financial strength to Yello Dyno to protect children from child predators.

Remember, when a child’s life is at sake this is what works.

Please visit www.YelloDyno.com to learn more.

Best regards,
Hall T.
***

Nasir Pirani of NGN Valve Talks about Bringing a Self-Regulatig Tire Valve to Market

Nasir Pirani of SumNett Inc. talks about bringing a self-regulating tire valve to the market, the challenge with ETF funding, and practices his elevator pitch for the upcoming FastPitch Competition.

What is your background?

I was part of a team that helped establish the first private university in Pakistan in 1983, the Aga Khan University, and was later responsible for raising $200 million for its endowment. . This university now has faculties in Afghanistan, Kenya, Tanzania, Uganda, Syria, Egypt and the United Kingdom. I’m an architect by training, and since coming to Austin in 1996 I’ve been working in real estate, mostly investment properties. I was appointed CEO of SumNett Inc. in July 2006 to help bring the NGN Valve to market.

What does NGN stand for?

No Gauge Needed.

What is the concept?

Filling air in car tires is a chore we tend to postpone until absolutely necessary, and that’s why 40% of the cars on the road have tires that are 30% below the recommended inflation. Besides being a safety hazard, it reduces tire life, increases gas consumption, and adds an extra 20% to car expenses. In dollar terms, with today’s gas prices, under inflation costs us an extra $40 per month. According to EPA estimates, 4 million gallons of gas would be saved per day if tires were properly inflated. That would help save a whopping billion and a half gallons per year in the US alone.

We have taken the humble tire valve, which has essentially remained unchanged since August Schrader patented it in 1896 (http://en.wikipedia.org/wiki/Schrader_valve), and turned it into a two way valve. If your car tires need 32 pounds of pressure, all you do is install 32 psi NGN Valves. Simply fill air and drive off. The valve releases excess air and automatically seals at 32 psi. It takes less than half the time, because you don’t need a tire gauge to check if you have filled enough air. By making it fast and easy to fill air, hopefully more people will maintain proper tire pressure and save hundreds of dollars for themselves, and help the environment as well.

How does it work?

The beauty of the NGN Valve lies in its simple, low tech, but practical technology. Since the technology is well known and not esoteric, it also minimizes the risk of the valve failing. Each valve is precision calibrated, ranging from 20 to 120 psi, and suitable for all kinds of tires. If your car needs two different psi for its front and back tires, this can be easily accomplished, and you don’t have to remember the specifics. After filling air the valve self adjusts to its designated pressure. When the pressure inside the tire builds up beyond 25% of its designated psi, the calibrated spring compresses, air is released, and the spring once again seals the valve. We have also designed NGN Caps, that you can screw onto a regular tire valve, converting it into an NGN Valve in seconds.

How much does it cost?

The cost of the valve is practically the same as a regular valve. Its choice should be a no-brainer because for a few pennies more you get vastly improved convenience, safety and economy.

What is your channel?

The consumer is generally not the decision maker when it comes to buying tire valves. The tire retailers usually install new valves along with new tires. New cars will hopefully have the NGN Valve preinstalled. However, caps will be available for purchase at auto retail stores.

Did you try to get ETF funding?

Yes, but we didn’t make it. Our project went through the due diligence and approval of all the review committees, but at the final stage the decision of the Governor, Lt. Governor, and Speaker has to be unanimous – and it wasn’t. In many ways this was a blessing in disguise, because one of the requirements of ETF funding is that the product be manufactured in Texas. It turns out that 99% of the world’s valves are built in China. I think manufacturing it in Texas would have been much more expensive. They are able to do it for less than 10 cents a valve, whereas in Texas despite our best efforts, our projections could not bring the cost below 34 cents.

Are you going to manufacture the valve yourself?

No, we plan to license the technology to major manufacturers of tire valves, and let them use their production, distribution, and retailing experience to speed the phase-in of the NGN Valve. By major I mean companies that are already manufacturing over 100 million valves annually. There are only 6 or 7 such companies worldwide. In fact just two of them jointly produce almost 600 million valves. The annual global production of tire valves exceeds 1.3B, so it is a massive market.

How much are you trying to raise in funding?

About $300K for the first round. Later, we’ll need to raise another $400K. We’ve had a lot of interest from unaccredited investors, but what we are looking for are angels with expertise and contacts in the automobile and tire industry. Having them on our board would be very helpful when we start negotiating with manufacturers. When it comes to royalties, losing even one cent per valve can make a huge difference because of the volume involved.

What about competition from the new RF-sensors on valves that is coming out?

The NGN Valve can be easily adapted to conform to the Tire Pressure Monitoring System (TPMS) mandated by the government. The self inflating tire systems, available for high end cars, is a costly option upwards of $1000. Whereas, the cost of manufacturing the NGN Valve is in pennies.

I see you will be in the FastPitch competition on April 18th. Can you give us your elevator pitch?

I haven’t finalized my one minute pitch, and need to shave off at least another 10 seconds or so, but it goes something like this:

Filling air in car tires is a chore we tend to postpone until absolutely necessary. That’s why 40% of the cars on the road have tires that are 30% below the recommended inflation. Besides being a safety hazard, it reduces tire life, increases gas consumption, and costs an extra $50 per month.

My name is Nasir Pirani, and I’m the CEO of SumNett Inc. We have designed a tire valve that makes it fast and easy to fill air – without the need to check pressure with a tire gauge. It’s called the NGN Valve™. NGN is the acronym for No Gauge Needed.

After filling air, the valve releases excess air and automatically seals at its designated pressure. It takes less than half the time, because you don’t need a tire gauge to check the pressure.

Global sales of tire valves exceed 1.3 billion annually, and we have patent protection in the US, Europe, Japan and several other countries. The NGN Valve costs about the same as a regular tire valve, with vastly improved convenience, safety, and economy. We expect to take customer orders in six months time, and production is planned from 4Q 2009. Currently we are seeking $300,000 in funding, with a projected three year ROI of 1000%.


Best regards,
Hall T.

Center for Venture Research Releases 2007 Angel Market Analysis Report

The Center for Venture Research of University New Hampshire recently released its 2007 report on the state of angel investing in the US. The 2007 Angel Market Analysis Report shows a slight growth in funds invested in 2007 ($26B) over 2006. Over 57,000 entrepreneurial ventures received angel funding in 2007 which was a 12% increase over 2006. The number of angel investors increased 10% in 2007 t0 over 258,000 individuals. This means there are more investors putting the same number of dollars into more deals so the average size of each deal is going down.

The sector breakdown for those investments is as follows:

Software 27%
Healthcare 19%
Biotech 12%
Industrial/Energy 8%
Retail 6%
Media 5%

As for returns, over 65% of the exits ended with a merger/acquisition. The average return for those was 20% to 40%. Only 4% of the exits ended with an IPO and 27% of the deals ended in bankruptcy.

Best regards,
Hall T.

Robert Todd talks about the Education Publishing Industry

Robert Todd talks about the education publishing industry, the challenges in using off shoring, and why publishing science programs is more complicated than it used to be.

You worked at Holt, Rinehart and Winston, the publishing firm. What did you do there?

Yes, I was the VP of Editorial for Science and Health, and my department created educational programs for middle schools and high schools. The programs from my department created about $100M in revenue each year. Our expertise has traditionally been in developing books and other print materials, but today the educational needs of our market are moving towards more online and interactive materials. We’re finding that experts who can turn content into compelling, interactive formats for electronic delivery are slim, at least within our financial limitations. On one large project that I worked on, we were forced to go overseas to develop a new interactive science product.

How was your off shoring experience?

It turned out to be horrible. They had a great deal of difficulty developing appropriate interactive science content for the web.

Was it an expertise issue or just the wrong group?

The group we agreed to go with was disbanded immediately after we accepted the prototype. The manager took another job, so we ended up with a brand new team. They seemed to have excellent technical skills, but they didn’t worry about the science details. In publishing, if we get it wrong, we get crucified.

What does the education publishing landscape look like?

There are approximately 20 states that are considered adoption states. Each one has a state-wide adoption process which starts with bids and eventually ends with a selection committee that selects the programs that fulfill the curriculum standards published by the state. These selections are then approved by the Board of Education. This is how Texas adopts its educational materials.

I hear Texas is a large state and has substantial sway over the textbook industry. Is that true?

It seems like all the larger states says that. If your program is placed on the approved list, it can represent a substantial revenue opportunity, but the competition is fierce. California has almost twice as many kids as Texas. Then there’s also Florida which is also quite big.

What’s the challenge in science publishing?

Every state creates its own science curriculum which is an expensive endeavor. There are national standards, but there is nothing that says the states have to follow them. It used to be in middle school, which is a big market, you had life science, physical science, and an earth science courses. Publishers could produce a book on each of those topics. Now, more than half of the schools are going to an integrated science curriculum, which combines all three subjects at each grade level. It is very difficult to publish a national edition of a book that meets everyone’s expectations because there seem to be an infinite number combinations on how the states want their content. This forces the publisher into the process of customizing their programs for each state, which is difficult, time consuming, and expensive.

I really believe that the nation would be better served if mandatory national standards were established and individual states did not have the option of spending large amounts of time and money developing their own curriculums. I think this money could be better spent on schools, teachers, and teaching.

What’s your philosophy in publishing?

I still believe in the “publish or perish” paradigm.

Why is that?

Spend more time actually publishing programs than you spend talking about publishing programs.

Best regards,
Hall T.

Dewey Gaedcke of Minggl talks about a near Life-ending Experience.

Dewey Gaedcke of Minggl talks about a near life-ending experience, how a software application can go viral on the web, and why social networking software requires sophisticated programming techniques.

My story is the whole survival ordeal. I went out to Hawaii on a pleasure trip. My friend told me you have to hike out there and see the volcano. It’s just an incredible experience. They told me how to drive in and then hike out. I went out at night because the viewing is better and you can also see the lava so you don’t step in the wrong place. Coming back the moon went down, it got totally dark, and I got lost. It’s a 330,000 acre park and I had no water out there. I was missing for five days. They couldn’t find me. After three days they called off the search because no one has ever survived that long out there because there’s no water and because we don’t have vultures, we never find the bodies and we can’t do anything about it.

How did you survive without water?

I got really lucky. I could tell the dehydration was throwing off my thinking. I crawled into places where the lava had cracked open since it had been rained on for a long time and had broken down. There were little drips on the leaves. They were smaller than the beads of sweat on my arms so I thought to myself, “I’m going backwards.” But while I was doing this, I happen to set my hand on the base of tree. I thought it was weird and wondered what it was. It turned out to be green moss. I rip it off the tree and squeeze it and water comes out. So for five days, I empty my flashlight of its batteries and squeeze water into it. I drank green muddy water to survive.

That’s an incredible experience. So how did you come up with the idea for Minggl?

I was dating at that time of my life and I thought how dating was like being stuck on that island. You can’t communicate outside the space that you are in. Hawaii is the biggest island in the chain, and there were people only 3 to 4 miles away from me, but I didn’t know how to get to them or communicate with them. So I started seeing internet social sites as walled gardens that you can’t move through. That was the genesis of the idea behind Minggl. It’s a way to move friends, data, and communication across sites.

So the idea is to connect social sites together. So how did you come up with the architecture of the software – the picture within a picture concept?

We were thinking about what’s going to go viral. Being a student of psychology, I thought about managing a list of passwords, and bringing your friends together, and how that’s just a productivity play. All of those features are cool, but they’re not going to drive you to tell ten friends about it.

What will drive someone to tell ten friends about it?

I realized, if I can do the secret note in the classroom, or the clubhouse in the tree so there’s some exclusivity, so people can see things that other people can’t get to see. If I can create content on the page that other people can’t see but that other people want to see then they get to feel like a VIP and they are on the in crowd. There’s a social, emotional hook to it. That was the genesis for the notes idea.

What is the key idea behind Minggl?

It brings users social sites together in one place and then feeds you the latest activities of your friends.

I understand the application is quite sophisticated. How many languages was it written in?

About eight.

Why so many?

That’s more a factor of how the internet works. It’s also a factor of the goals. I wanted it to be massively scalable. Persistent data needs to be in a database so I need a database language for that. Then you need services that are not tied to the interface or the database so it can arbitrate between the two. Then you need something to connect to the website which includes HTML and CSS. Then to do anything user-side you need either Java or an executable. So the fact that we have logic and architecture running at each of these layers and levels requires that many languages. It’s a very sophisticated piece of software.

What’s your background?

I worked on Knowitall.com, 13Colonies, and there were others.

How long have you been working on Minggl?

We’ve been working on it for 2 and half years.

What’s the next step?

We’re going out to market it broadly, now.

Best regards,
Hall T.

Jon Lebkowsky of Polycot Talks about the Early Days of Web 2.0

Jon Lebkowsky talks about the early days of Web 2.0, how Austin is evolving in the digital media space, and what he proposes to grow it.

So you were one of the early pioneers of Web 2.0. What was it like in the early days?

We didn’t call it Web 2.0. Back then we called it social software iIn the early 2000s, we started talking about social software. We had formed a Ssocial Ssoftware Aalliance that was a nationwide group. It was, though based primarily in Silicon Valley.

Was it made up of blogs and wikis?

Yes, the major blog companies at the time, like Blogger and Six Apart, were on board. The wiki part was byPete Kaminski of Socialtext, was the instigator of the Alliance. I was close to SocialText because I knew Adina Levin, one of the principals, who at the time was based in Austin.

What is Socialtext?

It’s a company which touted wikis as a social software for the enterprise. We formed the Ssocial Ssoftware Aalliance in 2002, before at the Emerging Technology conference for that year, which was in San Jose. But we didn’t hang together for too long because everyone went off to do their own thing,. We were going to push for and we realized the kinds of standards we were discussing were better supported through a standards body like the IETF -- the Internet Engineering Task Force which tends to generate a lot of the internet standards. The key issue at the time was that the blog companies (Blogger, Sixapart, and some others) were not crazy aboutanted more robust syndication than RSS. They thought it was a too limited format. They were working on something called Echo which later became Atom. It’s a pretty common format now. It was one of the key accomplishments of the Social Software Alliance.

What was it like in Austin in those days?

Austin didn’t have much happening, and people here weren’t very aware of social software or social media. I came back from the Emerging Technology Conference where we had solidified the Ssocial Ssoftware Aalliance,. And oOne of my partners said that nobody would ever pay us to set up a social network siteblog. The vision hadn’t sunk in quite yet, though it wasn’t long before our work was mostly social software development, and people relabeled that movement “Web 2.0” after Tim O’Reilly and Dale Dougherty wrote their famous paper. At Etech, Tim had been talking about the Internet as an operating system… the thinking that went into the Web 2.0 paper and drove even more innovation. LiveJournal was one of the first to promote a standard way to present the information.

There’s a group of companies here in Austin that would like to see a more robust ecosystem behind the Web 2.0 space – Demand generation, SEO, and SEM companies. What can be done there?

Last night we had an Entrepreneur’s Town Hall meeting at IC2, which was developed by Kevin Koym. One of our brightest guys in the Bootstrap Austin group is moving to Palo Alto because he wants to do the semantic web and - there’s nothing substantial going on here now in that space, what they’re calling “Web 3.0.” That’s one thing. We really need to support cutting edge web R&D, testbeds etc., so that we won’t lose talent to other parts of the country – we want the key creative talent coming here, not leaving. The other thing is that in 2001, I was working in Whole Foods. WI was involved in e started an economic development initiatives with IC2, beginning with and a clean energy initiative. I helped them with that even though it wasn’t related to my web stuff, because there wasn’t much web business happening, and we needed to focus on economic development in several areas. After that, they I managed IC2’s Wireless Future project, which was a real boost for the wireless industry locally. Then they wanted to do digital convergence.have a project focused on digital media and digital convergence, the Digital Convergence Initiative, That waswhich was started by Alex Cavalli while he was Deputy Director of IC2. We filled the room with over 50 people.

The digital media Digital Convergence Initiative at IC2 was partly focused on the digital Digital media Media laboratoryCollaboratory, which still exists. Alex had a vision of doing a project, related to thatinitially focusing on digital media. Initially, we did a wireless futures project. We wereWireless Future was a first step, and was pretty successful in getting the wireless sector together into a trade association. That all came out of that year of development we did.We spent a year in meetings, working on a report, and developing a track for SXSW Interactive. We involved the city and we did well with that. That was the first step in what Alex called the Digital Convergence Initiative. They did a body of research where they inventoried the companies in the area related to digital media. As all media became data, it was quite disruptive. They found that it wasn’t just media that was going digital, but everything is going digital including medical, energy and most- pretty much any kind of data.
Back then wireless wasn’t well installedhad limited penetration, but today it’s in every coffee shop.

DCI is not working on an Electronic Marketplace, a technology If you can with which you can pull the various companies together and get them working effectively so they can have the capacity they need by being aware of each other and collaborating. My interest is to try and make this region competitive and it appears to be working at the moment.

What would you do for the Web 2.0 sector?

We have had an earlier initiative in which we’ll to build a web test bed with advanced web services. We need to revive that, and bring in more Web 2.0 and semantic web thinking, collaborative research and development. We think we can enhance the productivity of companies by getting companies them to work together creatively. We had a party at SxSW in 2004 and demonstrated some success. That later fell by the wayside and DCI had to rethink it. The history is that we did that web services piece and then we started talking about creating a network of web developers and web business people. From that emerged projects in which entrepreneurs worked together. DCI’s approach now is now looking at creating ist to build anthe electronic marketplace to allow companies to see available capacity in the region and come up with collaborative agreements. So if you are building a certain kind of widget and you lack some capacity, you can find the capacity hopefully find the capacity you need in through athe database that the Marketplace will evolve. There also will be structures for to support collaboration with technical and legal frameworks.

What is needed to get it going?

It’s an incubation thing. The traditional incubator takes a company that’s already pretty far along. What about the guys back in ideation that are basically in the kitchen trying to figure out what they can cook? How do you support those guys?
We need to create support ideation among those who have a passion for technology and connecting them with others in the same proximity a context where they can rub shoulders, do creative thinking together.

DCI is at a point where it needs some funds to get an electronic market place up and running. It would benefit collaborative companies who would join and pay dues.

Best regards,
Hall T.

Angel Capital Association Releases Predictions for 2008

The Angel Capital Association (ACA) recently released the results of a survey on the angel’s outlook for 2008. In the report over half of the angel groups expect deal flow to increase in both quantity and quality. Exits in 2008 are not expected to be stellar. Also, a down trending stock market may slow some angel investments. The top industry segments expected to receive investment are:

• Software (83 percent)
• Medical Devices (75%)
• Industrial/Energy – including “clean tech” (64%)
• Business Products and Services (64%)
• IT Services (63%)

Additional ACA reports can be found here.

The ACA also did a nice write up about the Central Texas Angel Network. You can read more here.

Best regards,
Hall T.

Jeff Turk – The 4 ‘Cs an Angel Should Look for in a Deal

Jeff Turk of Formaspace Technical Furniture talks about his investment experiences and the four C’s he looks for in deals.

Congratulations on being nominated for Austin under 40. How does it feel?

I’ve been a bridesmaid twice but not yet a bride. I enjoy it. My friend Corey Bell won it last year. Corey wrote a recommendation for me this year so maybe that will help.

You once mentioned your 4 C’s for investing. What are they?

I went to the Kellogg School of Management to become an entrepreneur. While I was there I started a medical device company with the inventors. It didn’t go great. We ended up licensing out the technology. It could have worked out. It was all partner issues. I watched other Kellogg entrepreneurs and watched their startups take off from the seed stage. I wrote a research paper on the modes of success and failure. Many people think that companies fail because they run out of money. I think that’s the effect, not the cause. I wrote the paper on the 4Cs which are character, capability, commitment, and cohesion.

What’s an example of character?

I saw people try and cheat a partner out of a few percentage points. Some tried to squeeze a supplier at the wrong time. Overpromising is another example of an issue with character.

What about commitment?

People who aren’t fully invested in the idea are unlikely to succeed. I look for entrepreneurs to put their own money at stake in a deal or something besides their time. If not all of their money, then a substantial part of it. I’m fully invested in my own deals.

What about capability?

I split this into two parts --education and experience. I worked for a VC at the seed stage when I was in school. We would see deals in which the founders were either PhDs with no business experience or the guy didn’t have any education but had industry experience – the plumber that wanted to start his own company. Those entrepreneurs are the heart of small business, but in either case, the lack of some core capabilities is likely to impact their ability to scale the business.

What about cohesion?

I look at how well the team works together and have they worked together before.

What’s been your experience in investing? What’s been the most successful?

My own deals by far. I have not found great success in investing in other people’s ventures. I would like to invest in other people’s deals but I haven’t found a lot of success yet.

Any spectacular failures?

If they’re failures then they’re all spectacular. I just got done wrapping up a deal on the West Coast where an entrepreneur had a series of successes on a small scale. A lot of people invested in it. It was a parking lot technology. They installed devices in each parking space in a parking garage, and then the device could tell if your car was parked over it. The user then texted on his phone and it would automatically bill him just for the time he was there. It would reduce parking fraud, and only charge you for the time you were there. It increased parking lot efficiency which is important in cities like San Francisco and Chicago.

But they never got the magnetometer to work appropriately. I asked that question over and over again. I didn’t like the deal structure and I probably did the deal for the wrong reasons. I did it because I knew the people well. It was more friends money rather than investor money.

What was the deal structure?

It was a convertible debt deal which I probably won’t do again. As the second largest investor I should have been on the board of directors or at least on the advisory board.

Any advice for entrepreneurs?

That’s always a difficult question. Entrepreneurship is challenging, more so than most people starting a business would imagine. I would say, start with a really hard hitting self-assessment on the four C’s. Where are your strengths and weaknesses in terms of character, and how are you going to amplify your strengths and mitigate your weaknesses? Are you 100% committed, no matter what? Do you have all the tools you need to give you the capability to succeed, and how will you fill in the gaps? Are you able to pull together a cohesive management team? Once you’ve done that really difficult self-assessment, go out and do something you love and believe in.

Best regards,
Hall T.