Regional Cooperation in Action

The ARCHAngels collaborates with a number of NEO Economic Development resources. We especially like working with like-minded people like Jim Cossler, Chief Evangelist of the Youngstown Business Incubator. Here's a taste of Jim's wit and enthusiasm:     

“We are pleased to announce that YBI portfolio company, Eris Medical Technologies, has received a $100,000 investment from the Innovation Alliance Fund. The Fund is a partnership of Lorain County Community College, the University of Akron Research Foundation, and GLIDE, an Edison Incubator sister organization of YBI.   

Eris will use the proceeds to finish the Beta test trials and speed the commercialization of the firm's revenue integrity technology that identifies lost charge capture opportunities for hospitals and medical centers. You can learn more about the product at www.erismed.com. 

Akron and Lorain investing cold, hard cash in a Youngstown software company.   

That, ladies and gentlemen, is real regional cooperation.”     

Thanks to Jim, the Youngstown Business Incubator, Lorain County Community College, the University of Akron Research Foundation, and GLIDE for making this possible.  To find out more about Jim and the Youngstown Business Incubator, please visit www.ybi.org.

Higher Education in Science and Engineering

According to the National Science Board “Science and Engineering Indicators 2008,” undergraduate, graduate and doctoral science and engineering students are finding it more challenging than ever to complete their degrees. Science and engineering graduate enrollment in the United States peaked with 583,200 students in fall 2005 and has been declining. The report attributes this to declining foreign student enrollment. The number of science and engineering bachelor’s and master’s degrees also peaked in 2005 and has declined. The number of science and engineering doctorates awarded by United States academic institutions reach a new peak of almost 30,000 in 2005 with the largest growth in engineering and the biological and agricultural sciences.

Tuition is also a cause. In 2003-2004, the median level of debt was $19,300. Students are not getting government assistance either. Only 21% of full time science and engineering graduate students get their financial support from the government. Those that do get support are more likely to be in the physical sciences. Mathematics, computer science, social science and psychology are less likely to get support from the government.

With the facts above, it is no surprise that the number of science and engineering students are declining. With less money available to support students, and tighter visa standards, the numbers are on the decline. We should be encouraging students to pursue these fields. Intelligent, innovative science and engineering students are a large part of creating new, exciting business in the United States.

I found the following Executive Summary tips in an article in IP Marketing E-News, Tuesday September 16, 2008 edition.

Calling all angels: 11 tips for improving your executive summary

An executive summary is a great way to introduce a university start-up to potential angel investors, but not all of these documents are created equal -- and investors will quickly discard those that don't hit their hot buttons quickly. Here are 11 tips from Frank Peters, chairman of Tech Coast Angels, for getting the most out of your executive summary:

1. Limit it to two pages. Keep the presentation short, and angels will be more likely to respond.
2. Don’t use a fancy cover page or other "window dressing."
3. Create a “footer” on each page with your contact information, but forget the confidentiality notice or NDA. "None of us sign non-disclosure agreements; we just see too many deals to be bound by your concerns about trust; get over it! If you really do have some secret sauce, keep it to yourself for now; we can agree on a NDA if we go into due diligence," Peters says.
4. Make your audience feel they are getting a “sneak peek” for insiders.
5. Use bullets: Busy angels may just glance at the summary. "I want to be able to scan the 2 pages and see the most important issues jump off the page," Peters advises.
6. Get right to the point. Peters' advice: "Avoid the mistake of creating context; I don't need you to tell me how your opportunity fits into the history of the personal computer age. Tell me what this company is all about, quickly!"
7. Cover all the bases: "What are you doing? What's the product or service? How will you market the product? Got competitors? How do you compare? Create paragraph headings (another form of eye candy) to delineate these topics," he says.
8. Briefly describe your team, and your inventor. If you have an advisory board with top credentials, include that too. Recognizable names and institutions do impress investors.
9. Provide financial projections -- a five-year estimate, if possible, using tables but no fancy graphs. Include revenue, units sold, cost of goods, "but keep it simple," Peters urges. And don't overstate the potential. "Avoid showing us projections with 70, 80 or 90% gross margins. You think we'll start drooling, right? Wrong! We see entrepreneur naivete. With margins like that you obviously have no idea what it costs to run a successful business."
10. Specify the amount of money you are looking to raise, and make sure it's in the angel's range. "Like Goldilocks, not too much or too little," Peters says. "If you're asking for $6M then you're wasting my time, I'm an angel investor and our sweet spot is $1, $2 or maybe $3M; go to a Silicon Valley VC if you really need that much."
11. Include a pre-money valuation if you have one. If you haven't gotten a good ballpark number from discussions with potential investors, Peters says, "leave it for a follow-up meeting where there will be some give and take. Many, many entrepreneurs overstate their valuation; it's a hot button and a huge turn-off for investors," he comments.

Go to: The Frank Peters Show

Early-Stage Venture Capital in the Midwest

According to Midwest Venture Partners, early-stage venture capital is investment after angels and seed money, but before expansion / later stage Venture Capital firms. There is a strong need for early-stage venture funding in the Midwest. This region has the raw materials and resources to build successful companies, but lacks this integral round of funding. Additionally, Angels and Seed funds are noting the quality and quantity of the deals coming out of the Midwest. Right now, technology start-up companies are typically able to raise $1-1.5 million from initial investors. To get to the next level and attract national Venture Capital firms and partners, they need $3-5 million. This is causing the best companies in the region to go elsewhere for funding. What is the reason for the gap?

Funds invest their money based on the amount of capital raised. For example, if a fund raises $20 million, it can invest in 10 companies at $2 million per company average. The fund has an accepted period of time to invest the money, usually 3 – 5 years. There are roughly three segments of funding available to start-up companies. Angels or seed funds are small and typically invest early in the business with small amounts of money, in the $500,000 to $2 million range. Once that round has been completed, early-stage venture capital ideally comes in with larger amounts of money, in the $3 million to $5 million range. Finally, after the company has proven their product in the marketplace, and is ready to ramp up, National Venture Capital firms take interest and invest large amounts in the multiple millions.

Historically, it has been shown the early/seed funds outperform investment alternatives. Over the course of 10 years, they return close to 35% compared to the S&P 500 return of 5% in the same timeframe. As a fund becomes larger by attracting more investors, it becomes harder to invest in early-stage businesses. The average investment size has to get bigger forcing the management to look to later in the business cycle, which have larger needs. Early-stage funds are making up a smaller segment on the investment arena as the investors put more money into the successful early stage funds, making them to big to bother with small investments. The management is more than willing to participate in larger funds with higher fees and potential payoffs for them. Why not create more small funds to maximize the return, and make money available to more companies in this critical stage of development? If we are truly interested in growing entrepreneurial firms, this issue has to become a priority.

It Works

It Works!

I received a call from a college senior who, with some friends, is planning to start an internet business when he graduates next year. Not a cause for celebration, or even unusual. What makes this conversation noteworthy are the answers to my questions.

This budding entrepreneur was looking for advice on the business model, help with writing the business plan and presentation, and sources of funding available in Northeast Ohio. This crew is representative of the community's definition of the target of the new entrepreneur. They are in just the right life-stage to take the risk of starting a business: no baggage such as a mortgage and family with many mouths to feed; already in the mode of living like a college student (i.e. Ramen for dinner, limited wardrobe, no sleep) because well, they are college students; no credit rating to damage (probably no credit available); and finally, fewer distractions from others in their network like aged parents, problem kids, that brother-in-law, and so on. They heard about the entrepreneurial support resources available in Northeast Ohio and sought them out. This in and of itself is very encouraging, and could be the end of the discussion, but it is not.

What really gets me amped is that the support groups he talked with all shared a similar message and all are following through with face-to-face meetings and real actions, not feeding them confusing, disparate and mis-leading information or empty promises of help.

I always ask a prospective entrepreneur who they have talked to up to that point. In this case, he had spoken with representatives from GLIDE, JumpStart, and TechLift. The company isn't ready for JumpStart's process. Yet, after evaluating their story, JumpStart made referrals to other groups in a better position to help a pre-company, company. The entrepreneur has meetings scheduled with TechLift's appropriate Entrepreneur-in-Residence and with GLIDE. The entrepreneur was able to relay the advice to date was consistent between each source and he had what he believes to be a clear course of action, which he didn't have when he started. There wasn't the usual story of confusion, frustration, wasted time, effort and in many cases money that is a prefix to most of the conversations I have with entrepreneurs.

We, the organizations dedicated to the support and nurturing of the people that are helping to build the new Northeast Ohio economy, are talking. We are sharing stories, identifying the best sources of help, creating and building the processes and methods that can shorten the learning curve and make the connections to get the ideas to commercialization and into the market faster, and in some cases getting them to failure quicker. This is great news! We should celebrate with a tall cold RooBrew. (More on that later)

The missing link

Whether we’re referring to evolution or ecosystems or experiments, most in the science community have come to understand that things don’t simply happen: they result. Changes in climate cause adaptation in animals or the addition of a catalyst to an experimental system results in a faster reaction. Yet, when it comes to technology transfer, to actually commercializing the patented products in which we have invested years of research and millions of dollars, we are too often content to wait for an industry opportunity to present itself. We assume, despite myriad evidence to the contrary, that tech transfer happens, rather than results.

In a 2007 paper on “University Licensing,” Georgia Tech University’s Marie Thursby and Emory University’s Jerry Thursby concluded that the recent growth in licensing creates a misleading picture, ignoring vast variations in licensing success among universities, scientific fields and technologies. Many universities do not make money on technology transfer, the authors asserted, explaining that the bottom 25 percent of universities reporting to the Association of University Technology Managers bring in less than $360,000 per year in licensing, while spending as much as $213,000 on legal fees alone.

According to the National Science Board’s Science & Engineering Indicators, within the United States:

• Universities account for about 75 percent of basic research, but complete only a fractional percentage of development
• Industry is responsible for about 90 percent technology development
• Universities derive 63 percent of their research budgets from government and only 5 percent from industry
• Overall, industry funds 62 percent of research compared to government’s 30 percent

Universities expect that licensing deals and successful commercial products will simply happen if they conduct careful and useful research. However, the widening gulf between universities and industry, which has resulted from mutual misunderstanding more than federal patent laws, can only hamper the transfer of technology from university labs.

To achieve the result of successful tech transfer, universities need to address industry needs, set up professional points of contact to carefully market their technologies and be a partner, rather than an adversary, in industry research. Universities also must work to combat misunderstandings about their ability to develop technology for industry and get creative in guaranteeing reasonable license rates for those that sponsor research.

If universities and industry become catalysts for moving technology from the lab to the marketplace, both will benefit by combining the power of universities to conduct efficient cutting-edge research as part of their educational missions and the strength of industry to access consumers and introduce functional products.

Patents and prosperity

I recently attended the Association of University Technology Managers (AUTM) Central Region Meeting in Cleveland and was particularly struck by an early panel on guiding faculty entrepreneurs to resources and success.

Robert Schmidt, founder and president of Cleveland Medical Devices Inc. and Orbital Research Inc., spoke in strong support of the intrinsic need for university support of small businesses as logical partners in the technology commercialization and wealth creation process. Schmidt stated that it is hard to get large multinational corporations to take technology directly from universities, a sentiment echoed by many in the university community. He also spoke of the strength of universities and small businesses as a team, saying that 38 percent of scientists are in small businesses and 19 percent are at universities.

Through the SBIR program, small businesses receive about 4.3 percent of federal research funding. With the help of this funding, smaller companies produce 5 times more patents per employee than large corporations and 20 times more than universities. While it is important to note that small companies can employ a higher concentration of researchers, because they often lack sales or support staffs and do not have additional responsibilities, such as education, in their core missions, the ability of small businesses to quickly develop patentable technology makes them an incredible asset to their surrounding communities. This fact becomes especially relevant when one considers the importance of patents to the wealth of communities.

Studying data from 1939 to 2004, Paul Bauer, Mark Schweitzer and Scott Shane cataloged eight measurable determinants of per capita income growth in the 48 contiguous U.S. states, including tax burdens, public infrastructure, business failure rates, climate and knowledge stocks. They found that “knowledge stocks,” in particular the number of patents per capita, overwhelmingly held the strongest correlation with income growth, even outpacing levels of educational attainment. At the time, Ohio fell squarely in the middle of the pack at 25th overall with an above average patent portfolio and existing industry structure.

Support of entrepreneurs, whether they come from inside our universities’ ranks or outside in the greater community, is a crucial way universities can advance their region and state. Schmidt’s advocacy sheds light on this fact, but he is certainly not the only individual putting forth the importance of engagement from university researchers.

Read more about Bauer, Schweitzer and Shane's research on "knowledge stocks."