Early Stage Funding in Israel

I had coffee recently with Amir Genosar, a very talented and creative Boulder entrepreneur. Amir has no less than three medical device start-ups underway; including aespironics and SteadyMed.

Having started his career in Israel, Amir now calls Boulder home. Why then does he, while surrounded by Boulder's angel and VC investors, still rely on Israeli investors to fund his businesses? Amir contends that Israeli investors are willing to accept more risk in return for lower valuations. These investors are more interested in the technology, even if unproven, than they are in the business model.

A business plan submitted to an Israeli investor for early stage funding must be heavy on technology and light on marketing and business model. How could this be? Are Israeli investors that unsophisticated? I have a few theories: there are many sources of funding for product development in this country such as the federal SBIR and STTR programs, state funding programs to commercialize university IP, corporate R&D or the entrepreneur's own resources. If a product does not receive funding from one or more of these sources, how viable could it be?

There are certain categories of products that provide exceptions to this. In new and evolving markets such as Web 2.0/social networking where products traverse their entire life cycle in a period of weeks, investors may take on less developed products simply to get in on the action. No federal program could possibly keep up with the pace of development in this arena, but the impressive valuations of Web 2.0 companies are hard for VCs to ignore.

In categories such as medical devices and enterprise software however, the number of developed products is high providing ample opportunities for investors to forego the risk of product development. Although valuations are higher, more capital is available than in a small country such as Israel.

It wouldn't surprise me that Israel does not have government programs that support commercialization and that this is a role taken on by private investors. Given the non-dilutive product development resources available to the entrepreneur in this country it may be less desirable for the entrepreneur to go the Israeli route.

CTEK Angels Live 2007

Time once again for the annual CTEK Angels Live! event, where the public is invited to observe entrepreneurs pitch and field questions from a panel of angel investors. And, most importantly, listen in on comments and criticisms from the angels after the entrepreneurs have left the room. For anyone involved in pitching to investors, this is an invaluable learning experience. This is the second year for this event and it appears popular enough to make it a regular event.

Three companies presented yesterday, all software based although quite different in their business models:

Myplacemat.com is a travel site specifically for frequent flyers. They aim to become the "amazon for travel" aggregating many travel related products in one site. They offer a frequent flyer points management system where a traveler can view the balances from all of their rewards programs in one display. Myplacemat intends to gather information on this valuable target market of frequent fliers and sell it to the travel industry.

Next up was Villij a recent graduate of TechStars and a cutting edge Web 2.0 company. Although the Web 2.0 community is alive and well in Boulder, this company is a bit of a stretch for CTEK. Villij is building a recommendation engine, they feel that the current state of art search, ala Google, will be replaced by a technology that leverages information on the individual performing the search to provide more targeted search results.

Last but not least was AWhere a business version of Google maps. The pitch was made by AWhere's president, and former director of CTEK's Boulder Venture Center, Jim Pollock. AWhere's technology combines a geographical information system with a company's business intelligence to present results on maps so that information can be quickly interpreted. The product is a desktop application sold to enterprises.

CTEK Angels is an angel investor network, pooling their resources to improve deal flow and screening, but each investor acts on their own. Each investor has his or her own criteria for investing based on their business background and comfort zone. This leads to some pretty lively discussions after the pitches where investors will express wildly divergent perceptions of the presenting companies.

The Three (or Four) P's of Entrepreneurship

The Colorado BioScience Association (CBSA) convened an all-star cast of Colorado biotech entrepreneurs yesterday morning for a Q&A session. On the panel were Richard Duke, President of Apoplogic, Larry Gold, CEO of SomaLogic, Steve Orndorff, President of Accera, Tim Rodell, President of GlobeImmune, and Jack Wheeler, CMO of MicroPhage.

All five were serial entrepreneurs; they had endured the highs and lows of entrepreneurship multiple times and had lived to tell about it. What does it take to be an entrepreneur? Jack presented his "three P's of entrepreneurship": patience, persistence and perseverance. To this Steve added a fourth P: passion. Since persistence and perseverance seem to be synonyms perhaps we should substitute passion for perseverance.

Patience is good, you've got to wait for the right opportunity, not act simply because of the lack of time (which is synonymous for money for the most part). You must persist in your endeavor despite obstacles that will indeed arise. If you tend to avoid difficulties and rejections, entrepreneurship is not the path for you. And what carries you through the difficult times is a true belief in what you're doing; a passionate belief in the product or technology.

When it came to what the biggest stumbling blocks to success were, most stated the technical hurdles they had to overcome. Larry's company had overcome those hurdles and was now facing an even more daunting challenge: the U.S. healthcare system. How to get payers to pay for new diagnostic tests? Although the life sciences industry can be very entrepreneurial and open to new ideas and technologies, the healthcare industry is much different and imposes many obstacles for new products.

A Blessing for Angels

The Access to Capital for Entrepreneurs Act of 2007, (H.R. 578) was introduced to congress last January. This bill would provide a 25% tax credit on up to $500,000 in investments per year in start-up businesses. So far the bill has received favorable response from the Kauffman Foundation, the Angel Capital Association, Women Impacting Public Policy and the National Association for the Self-Employed.

The beauty of this bill is that it provides tax incentive at the front end of the investment, where the incentive is sorely needed, rather than the partial capital gains exclusion given investors now. The Wall Street Journal quoted Susan Preston of the Kauffman Foundation as saying that the bill would double the number of angel investors.

Will this type of incentive cause investors to throw caution, and cash, to the wind? Does spending $500,000 to buy $125,000 in tax credits sounds like a good deal to you? Although the tax incentive reduces the upfront risk, getting a return on the investment is still essential. But with the reduced risk, maybe more investors would be willing to pull their money out of CD's and invest in the next Google.

CTEK Angels Live

I attended the first open session of the CTEK Angels last Wednesday. For those of you who may not be familiar with CTEK (Capital, Technology Transfer, Entrepreneurship, Knowledge), it is an independent Colorado, non-profit group that assists entrepreneurs with the expertise, resources and capital sources they need to grow their companies to the next level. CTEK Angels are the investors associated with CTEK; a loosely associated group of independent investors that meet once a month to give entrepreneurs an opportunity to make a pitch and combine their experience to evaluate the pitches. Although the Angels evaluate the presentations made by the entrepreneurs, investment decisions are left up to the individual investors.

CTEK provides a very effective way for entrepreneurs to approach angel investors, a very elusive group for the most part, but nevertheless instrumental in funding a major portion of small businesses in this country. Although the CTEK Angels meet once a month, this was the very first time the meeting was opened to the public. And despite the first snow of the season and the difficult parking situation at the University of Denver (no valet parking for the angels!) the event was a sell out. I guess everyone wanted to see the entrepreneurs thrown to the lions.

Chatting with some people in the audience I met both would-be entrepreneurs and investors; the entrepreneurs were curious about the process and the investors... looking for deals the Angels pass on? This event went a long way to expose the process and perhaps reduce the intimidation and confusion factor. CTEK may be seeing an increase in the number of applications for their funding program as a result.

The presentations by the entrepreneurs were well done and demonstrated the coaching they received by CTEK advisors in preparation. We heard from Ashif Dhanani from X Inc., Michael Sitarzewski of Hypersites and Magic Home. All of these companies are selling products and generating revenues and are looking for revenue for marketing and business development to get them to that next level. We'll be watching for them in the coming year.

The Value of Evangelists

I had a conversation this morning with long time medical informaticist Rob McClure. Having been at the forefront of health IT for years, Rob has seen his share of companies rise and fall as the healthcare industry has struggled with its information issues. His belief is that our society values the evangelists over producers; that we are all too easily pulled in by the next great thing. He does admit that when he uses the word "value" he means "attracted to." Put that way, I tend to agree with him. If he meant "value" as in "invest resources in," all academics would be billionaires. But the days of throwing money at good ideas before they've been demonstrated are over as any entrepreneur can tell you. Nevertheless, ideas are sexy, and we'd much rather listen to someone telling us about the way their new idea will save us time, money and make our belly's flatter than to listen to someone tell us that nothing less than 1,000 sit-ups a day will do the trick.

I continue to be reminded of the film Envy (obviously left a better impression on me than the vast majority of the film going audience) where the Jack Black character comes up with a winning, although completely unproven, product idea and the Ben Stiller character dismisses the thing outright as inane. Sure enough, Black makes a mint while Stiller wallows in mediocrity. And sure enough again the whole thing comes crashing down when one LITTLE detail (as originally foretold by Stiller) was overlooked. Oh well, off to the next big thing...