Go Big or Go Home

Are government grants a good source of gap funds?

One of the hardest phases in getting a start-up off the ground is obtaining "gap funds" to get from the lab to the point where the company has met enough milestones to be venture fundable.  If you know me, you'll always hear me say that most venture capitalists are NOT very venturous.  They tend to look for measurable milestones to base their investment on, like commercialized technology, early customers, management teams, etc.  Personal savings, SBIRs/STTRs, angels and early stage venture investors are the common sources of these gap funds.  Many entrepreneurs are swooned by SBIRs because it is viewed as "free money".  They don't have to get diluted, no new people on their board, they stay in full control.  If you learned early in life that nothing is free, take that same lesson into the process of considering and SBIR as a source of gap funds.  SBIRs and other government grants are posted to get the brightest innovators to work on the toughest technical problems the government has to offer.  The military, Department of Homeland Security, National Institute of Health are common agencies that post these grants.  In return for the grant, they expect deliverables and rights to the technology developed.  So, the money really isn't free.  SBIRs are a great fit for your start-up if, and only if, the deliverables required by the grant are directly aligned with your technology development plan.  If not, producing the technology for the government will only be a distraction and not help your start-up meet the critical milestones required to get classic venture capital funding.

The Value of Sharing: Social Engagement | ShareThis

First, and foremost - and most exciting for us - we found that sharing is growing. On a “per page view” level, we’ve seen a 200 percent increase in the shares per page view across our 125,000+ sites in 2009. This means for every page view consumed, the rate of sharing has doubled, meaning our publishers are getting better at optimizing their sharing and consumers now expect it to be there.

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This is the most comprehensive perspective on Social Engagement I have seen.

Paul Kedrosky and Brad Feld: Start-up Visas Can Jump-Start the Economy - WSJ.com

Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit www.djreprints.com

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this is so true. Combine this with facts that a significant percentage of PhDs are foreign. PhDs are usually funded by the University. We basically educate the world and then force them to go home. Not only more H-1B Visa, but the time frames need to be flexible to accommodate start-up cycles.

Great promo video on Champaign-Urbana Community

Funny, but true training story

Below is a real live email exchange between members of our triathlon club in Champaign, IL.  Names have been withheld to protect the innocent so to speak.  What I can say is that several members of our club are also police officers which I will call Cop #1, and Cop #2.  We will call the athlete in the email exchange Triathlete #1. 

 ----- Original Message -----
From: Triathlete #1
Date: Sun, 1 Nov 2009 17:42:30 -0600
To: Triathlon Group
Subject: kirby

I was out for an afternoon run, enjoying the weather and doing my usual
10 mile loop around Kirby/mattis/prospect/Duncan/Windsor/etc. finishing
up running down Kirby towards mattis and I see a man in the sidewalk
yelling into a cell-phone, brandishing a gun.  I quickly crossed the
street flagged a motorist to call 911 and then called 911 myself when I
got to Panera.  By the time I ran home, the police were at my house,
they had caught they guy and wanted to ask some questions.  I always
felt skittish running down that section of Kirby, and this time my
irrational instincts were made rational.  Just a head’s up.

Triathlete #1

 

 ----- Original Message -----

From: Cop #1
To: Triathlon Group
Sent: Sun Nov 01 17:53:26 2009
Subject: Re:  kirby

I saw you out today, little did I know you were "working!".  Job well
done, glad no one got hurt.

Cop #1

----- Original Message -----
From: Cop #1
To: Triathlon Group
Sent: Mon Nov 02 18:07:56 2009
Subject: RE: Re:  kirby

Triathlete #1,

I spoke to the officer that handled this call yesterday.  I am not sure
this will make you feel any better but apparently the individual you saw
yelling into the phone  was holding an airsoft pistol.  These neat
little 'toy' guns shoot little plastic pellets.  They look just like the
real thing so you had reason to be alarmed.  In fact, the officer
thought it looked real as well, so this fine citizen was ordered to the
ground at gun point.  Thankfully he complied without incident (we really
don't want to shoot people).

I think your route is safe, however, I would be alert around the house
where this individual lives.  He is obviously not the brightest person
in that block.  Really, you have to be pretty stupid to stand on Kirby
Ave., screaming into a phone, waving a gun around while you have weed in
your pocket.

Thanks for calling!

Ultramarathon Unvieled Start-up Lessons

I completed my first 50 mile ultra marathon at the Madison, Northface Challenge a few weeks ago.  I ran the race with my brother who had completed one prior.  I asked him, so what is our strategy in completing one of these things and he said, easy....we will not be overly aggressive for the first 25 miles and we will just keep moving forward at all cost. 

This is the same advice I have given start-up companies over the last year and a half as they have struggled to make it through the recession.  It is critical for start-ups to know the right time to kick it into another gear.  I have seen many companies fail because they try and scale before they fully understand their business model and how it works.  Start-ups often think they need to run with the competition even though it may not be their time.  At the beginning of the race many guys passed us who I knew we could beat.  My tendency was to pick up the pace when they ran by, but Gus held me back assuring me we would see them again later in the race.  Sure enough, we passed everyone that passed us in the first 10 miles of the race in the last 10 miles.  We knew the right time to pick up the pace. 

Second, is that as a start-up you need to push through your darkest hours, or as we say in the running world is pushing through the wall - it is always better on the other side.  Resiliency is an extremely important start-up characteristic.  Live to fight another day we always say.  You can't compete if you are not in the game.

One Llama Pumpkin (www.onellama.com)

Most Valuable Private Companies

US Laps the World in End User Innovation

How Twitter Will Change the Way We Live -- Printout -- TIME

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Bottom's Up!

If you’re planning to enter a business-plan competition, most judges are looking for you to really demonstrate and understanding of your businesses, which of course can come from actually getting it started. Here are the top six elements they look for:

1. A clear upfront explanation of exactly what the product does and who benefits from it. If      you can’t tell me what you do in one slide with a couple bullet points, you’re in trouble. Everything else      you tell me up to the point where you say what you do, I will forget.
2. A clear definition of a need and value in the market. Do customers really      want what you’re planning to sell. Do they need a better mousetrap, or do they already have something      that is good enough? Why have you      chosen to offer this particular product or service—simply because you know      how to do it, or because consumers really want it? Finally, why do they      want it from you? Do customers      already see greater value in what you have to offer versus your      competitors?
3. Evidence of direct contact with customers and suppliers. How many potential      consumers have you talked with—10? 50? 100? It’s a continuing frustration to encounter students from the best B-schools who haven’t bothered to reach out to anyone in the marketplace to gather intelligence from the people      who will actually use the offering or to identify the cost of selling the      product. Not only will this kind of      contact help produce a better business plan, but it will help create a      better product or service by incorporating features most important to the      potential buyer.
4. Do you have a real customer or some in the pipeline? If you already have people you’ve sold      to— or at least people you’ve talked to about the product and its price—it      demonstrates you’ve done your work on building your business, and your      odds of succeeding go up.
5. A bottoms-up approach to sizing the      opportunity. Have you figured out      what customers are willing to pay and how many customers are available? Just Googling the marketplace and      looking for analysts estimates is not sufficient research. You must talk to people to determine a      price point, the urgency of the need and the breadth of the market. Multiply the number of potential      customers by the price, and you come up with the true addressable      market. You should also build 12-month      financials with this bottoms-up strategy. How many people will it take to deliver your product to the first      five customers? The next ten? How much sales and marketing support      will you need? It also tells judges      you have a realistic understanding of how to build your business.
6. What’s your funding strategy? How much do you have to accomplish before      you can raise or borrow money? Does      the product need to be ready for market or only the first phase completed?      What do you need to accomplish with the initial capital you receive to go      back in 12 months or 18 months for more?

 
Explore the market, not just your mind, and you’ll have a far better likelihood of emerging from your next competition and into the real world as a winner.

A Business Meeting on the Bike?

Is Triathlon the New Golf? | Amateur Endurance | Editorials

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Eden Park Wins Award

Eden Park Illumination, Inc. Awarded 'Red Herring 100 North America'

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Twouble with Twitter

"Twouble with Twitter" sous-titré
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Creative Financing in Tough Times

Your bankers won't answer the phone, the venture capitalists all have alligator arms and your start-up needs cash.  However, you are generating revenue and have a solid sales pipeline.  What do you do?  Get creative.  The best advice I ever received as an entrepreneur was from one of a wise board member of mine in 2001.  He told me know matter how many great opportunities you have in your sales pipeline, no matter how unique your technology is, no matter how solid your management team is, no matter how great your company is....you are out of business when you are out of cash.  There is no future if your run out of cash today.  Plain and simple.  Unfortunately sometimes good businesses go out of business.

All is not lost.  Tough times sometimes require creative solutions to financing cash flow gaps.  Below is an excerpt from an email I received an astute entrepreneur who is considering implementing a creative solution to raise cash.  He is running a successful SaaS software business and is business is strong enough that he probably could raise venture capital if he had to, but terms would be onerous in these times.  He is doing exactly the right things to keep his business alive to fight another day when things turn around.

We have basically two revenue streams, our recurring monthly subscription fees and a setup fee when we bring on a new customer.  We are not yet profitable, our cash burn is not substantial but our runway is getting tight.
 
I am looking at offering our customers the ability to pre-pay their monthly subscription for a year or two and providing some financing incentives for them.   This would drag forward some cash but obviously reduce our monthly cash in take later on.  It seems like a nice way to solve some short term cash issues, but throws the whole SaaS subscription model on its head (at least from a cash flow perspective).
 
My guts says it’s a good way to help finance things, but I’m wondering if it’s a rob peter-to-pay-paul scenario.  Should I be more protective of the future cash flow?
 
I’d appreciate any thoughts you might have on this. 

IVCA Q&A: IllinoisVENTURES CEO, Managing Director John Banta

March 11, 2009 0:00 AM - IVCA

CHICAGO – IllinoisVENTURES is a seed- and early stage technology investment firm focused on research-driven companies in information technologies, the physical sciences, life sciences and clean technology.

Managing director and CEO John Banta has a wealth of experience in clean technologies, which are currently among the hottest investments for venture capitalists. The IVCA recently interviewed Banta to discuss IllinoisVENTURES, the current climate for green tech investments and the research that creates new enterprises.

---

IVCA: How did IllinoisVENTURES establish and distinguish itself as a seed- and early stage technology investment firm?
John Banta: We were born out of a conviction that competitive return can be achieved through investment in a portfolio domiciled in large part in Illinois and the Midwest. The impetus was a willingness on the part of the University of Illinois to attack a challenge in a creative and commercially powerful way.

We’ve developed a particular expertise in research-derived work and have developed a portfolio of industry-leading holdings in highly fundable domains. In the process, I think we’ve crafted a uniquely capital-efficient approach that has served us well in both good (and now with the rather bad) environments.

IVCA: The root of your company is in academia. What bridges the need between those academic roots and the venture capital community?
JB: Like any early stage venture investor, a significant aspect of our effort involves fostering successful co-investor relationships with leading firms that are active in our areas of technical endeavor.

Where we’ve excelled is in developing deep expertise in specific domains. When combined with our highly active approach, this allows us to act as “feet on the ground” for investors that may not have staff on the ground in the Midwest.

IVCA: In your development work with Midwest universities and federal laboratories, what type of research are you finding to be most attractive for investors?
JB: There are not a lot of new rules. As investors, we look for projects that start with a defensible advantage to allow sustained margins against scalable markets.

The trick when doing research-derived work is to focus on technology that can be made into a product in commercially relevant form and validated with real customers in a reasonable time frame. This is a requirement to achieve a competitive return. That approach tends to ring well with peers and has helped us facilitate the development of co-investor syndicates.

IVCA: Green tech has excited the investor community. What does IllinoisVENTURES focus on within the green tech realm that garners the most interest in the venture capital community?
JB: Beneath the trendy “green tech” and “clean tech” monikers are long-standing areas of work for us: industrial bioprocessing, advanced materials, device physics, etc. These happen to translate productively into applications like renewable biochemicals, water sensing, remediation and lighting.

That the venture spend has expanded so significantly in these areas is terrific, but as always, it’s critical to have a perspective on where the “puck is going to be” as it relates to current commitments while avoiding areas at risk of having become overfunded.

IVCA: How will the Barack Obama administration, which is committed to more science-friendly policies, help to expand the type of technologies IllinoisVENTURES is committed to?
JB: It’s clear that renewable energy research will continue to grow in key areas and that NIH funding will remain fairly stable. This bodes well for the continued flow of future fundable projects. Having said that, innovation would always occur even in tough environments as evidenced by Silicon Valley’s leading companies (many of which have roots in the malaise of the 1970s).

IVCA: Information technologies are a constantly evolving dynamic. What trends or areas of IT will garner the most interest in 2009 and beyond?
JB: Data. Data. Data. Over the last 10 years, the Internet went through several phases. The first phase was about commercialization and creating companies like Amazon and eBay. The second phase was about socialization through blogging, tweeting, Facebook, etc.

The next phase will be about helping make sense of all the data that is being created on the Internet through better understanding context, keywords and classification. Also, opportunities have emerged as information technology has met the power grid and has created the smart grid.

New challenges exist around monitoring, securing and protecting all the data.

IVCA: What advantages does IllinoisVENTURES have as a Midwest-based venture capital firm?
JB: We benefit from three factors. First, there were a limited number of truly early stage investors focused on research-derived investing in the Midwest. We are now among the most active.

Second, we’ve been fortunate to develop expertise in industries and technical domains that have emerged as highly fundable. This is a reflection of the nature of the vast high-quality research base in the Midwest and ashift in the venture spend. Finally, at the heart of all our projects are people. The human capital markets in many of our areas of focus are actually pretty rich in the Midwest.

Illinois Venture Capital Association

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