By Anna Lynn Spitzer
Irvine, Ca, June 13th, 2013 -- Academics, innovators, entrepreneurs and would-be moguls crowded into the Calit2 Auditorium last week to hear five seasoned pros divulge the finer points of creating prosperous companies from startup ventures.
Now in its eighth year, the semiannual Calit2 Igniting Technology event – this installment was “From Pitch to Rich,” – is sponsored by intellectual property law firm Knobbe, Martens, Olson and Bear. KMOB partner Michael Guiliana moderated the program.
Jeff Greenberg, CEO of UC Irvine startup Hiperwall, Inc., kicked off the presentations, citing one of the world’s most profitable companies to illustrate the difference between innovators and entrepreneurs. Apple, “one of the most successful startups in the history of the world,” was founded by one of each. Innovator Steve Wozniak created the technology but entrepreneur Steve Jobs turned those computers into a successful business, Greenberg said.
Greenberg is an entrepreneur. Armed with a master’s degree in computer science and an MBA, he partnered with Steve Jenks and Sung-Jin Kim, two of the researchers who developed the original HIPerWall as an NSF-funded research project in Calit2’s Visualization Lab. The three have built Hiperwall Inc. into a global company with several hundred customers who purchase the visualization displays for a wide variety of applications, including security, advertising, law-enforcement, medicine and education.
While Jenks and Kim worked to redefine the project and shape it into a market-ready product, Greenberg was meeting with potential customers, investigating the competition and devising a marketing strategy. “I had to learn about what people wanted and needed, what the competition was doing and how we could fit into the competitive landscape,” he said.
“A lot of people say, ‘oh, that’s just a little business stuff and I can do that,’” Greenberg continued. “But just because you’re an innovator who wants to become an entrepreneur, that doesn’t mean you have the skills that are necessary.”
Greenberg’s advice: hire business professionals. “Whether it’s marketing, manufacturing, accounting or sales … bring in people who are very different from yourself, who have the skills you don’t have, so you can make the transition from the lab to the commercial marketplace.”
Dr. Brian Wong is an innovator. The self-professed “ideas guy” is a UCI otolaryngologist/head and neck surgeon who has spun his research into a biomedical technology company. Praxis BioSciences, housed in Calit2’s TechPortal incubator, develops biomedical equipment, including a cartilage cutter, a sinus illuminator and a smart-device sound-amplification and hearing-test application.
Wong, who was an engineer before he went to medical school, said doctors and engineers share a common goal. “Ultimately, you want to work your way out of a job. You want to solve problems; you want to create things that eliminate problems for other people.”
He and his business partner often brainstorm together. They review ideas, discuss options and ponder the biggest medical problems or the latest technology. They have been known, he said, to open an anatomy book and pick an organ to discuss.
He echoed Greenberg’s remarks about relying on professional business advice, stating that he’s seen a lack of understanding about market dynamics among his medical colleagues. “All of my colleagues are brilliant … in their domain of expertise,” he said. But issues of cost, feasibility, market conditions and competition are different matters.
Market conditions, especially, are significant in this era of healthcare reform. “These changes are going to transform how drug companies and medical device companies behave, how reimbursements are made and how doctors practice.”
Wong likes to “bounce things off” of a select group, which includes those with expertise in business, marketing, regulatory requirements and media.
“Consult as much as you can, work with as many companies as you can, network in organizations like this, use a campus incubator and find a mentor,” he advised. “And step outside of your comfort zone. I’ve learned the most by dealing with things [in areas] where I have no expertise.”
Dev Bhatia, CEO of SRCH2, an enterprise search company, is a seasoned entrepreneur. SRCH2, another UCI spinoff, is his fifth startup, he told the audience. One of his previous startups was bought by Yahoo, while another “went spectacularly broke,” giving Bhatia a wide range of experience.
Previously called BiMaple, SRCH2 was launched in 2008 by UCI computer sciences professor Chen Li; Bhatia was hired late last year to guide the growing company. One of his first goals, Bhatia said, was to figure out the right metrics for evaluating market opportunity. In addition to talking with product innovator Li, he queried others outside of the company.
“An innovator will tell you all of the details. He loves each feature, because each is a part of him. But that becomes a challenge when you’re trying to pitch,” he said.
In the world of search software, Bhatia discovered, there have been nine exits of more than $100 million over the last 10 years; two of those were $500 million-plus buyouts, while a third brought in $1 billion.
That was a key metric for the new CEO. None of those companies reinvented search software, he said. “It wasn’t as if the software didn’t exist; it did. Each of those companies took it forward just a bit. And we think we are in that category. That’s an important metric: what’s happening in the outside world?”
He also talked to many venture capitalists, not necessarily to request investments but to get their opinions about the company’s merit. Is this a big opportunity? Is it an area you would invest in? Is this a company you might invest in? “It’s important to think about the right metrics and some of those you don’t get from the innovator,” he stated.
Bhatia’s next task was to begin shaping the company’s opportunity by framing it in a specific way. Venture capitalists already have a “thesis,” he said, consisting of two to three core beliefs. It’s important to fit the company one is pitching into those parameters. “If I think I’m going to go to a VC and change his thesis, I’m doing it wrong. It’s really important for us to figure out what a VC believes in and then pitch to that and tell him how we are exactly that.”
It’s equally important to understand your company’s weaknesses and every company has them. “If I know what those weaknesses are in advance, hopefully I can pitch it so that the questions are never asked. We can address those in the pitch itself,” Bhatia said.
Since his arrival at SRCH2 several months ago, the company has raised money from 10 investors, including three venture capital firms. That effort is ongoing. “We know this is just the beginning,” he said.
The next presenter represented a slightly different viewpoint. Luis Vasquez, vice president at Orange County nonprofit OCTANe, oversees LaunchPad, the organization’s free-of-charge startup accelerator. LaunchPad utilizes a quantitative analysis that removes much of the subjectivity from the process of evaluating new company business plans.
The process starts out much like many other evaluations. Experts make suggestions, company owners make revisions, and the process is repeated until the business plan is (subjectively) three-quarters of the way to being presentation-ready.
At that point, OCTANe convenes an analytical evaluation panel comprised of community executives, serial entrepreneurs, subject experts and functional business professionals (lawyers, accountants, and marketing and finance pros). “Essentially, we get 10-15 smart people around the table and we have them evaluate the company we’re targeting,” Vasquez said.
But, he added, that process is subjective as well, so LaunchPad adds a statistical layer. Businesses are assigned to one of seven sectors, and each of which contains 25-35 different evaluation criteria. Evaluators must choose from four possible answers for each criterion, choosing the one that best represents the company at that time. “We rate every company that comes through on all of these metrics and on all of these scales,” explained Vasquez.
By tracking which companies go on to fundraise successfully and by comparing their metrics with those of the new startups, LaunchPad can help define where new companies should seek improvement. They can identify areas where those companies differentiate from the companies that have been funded, and suggest changes in the business plan or the VC presentation.
Additionally, companies can compare their status in five metrics – opportunity, investment opportunity, technical solution, overall plan and overall team – against both successful and unsuccessful startups that have gone through the same process.
“I am a firm believer in data-driven decision-making. I believe it is changing the world,” Vasquez said, citing baseball and politics. The entrepreneurs who have gone through the process appear to approve as well. “We get unbelievably good feedback. And as our data continues to get richer, I think our analysis will only get better.”
Venture capitalist Thomas Gephart was the program’s last presenter. The founder and managing partner of Ventana Global Venture Capital Group has been in the business for more than 30 years, during which he has seen many changes.
“When I started, there was no [how-to] book; there was nothing,” he said. After commending the progress made by groups like OCTANe in getting startups prepared to seek funding, Gephart stunned the audience when he said, “But let me mess up all that and say it doesn’t work. After listening to all this statistical information, guess what? The final act of every business decision is … intuitive.”
Further explanation revealed Gephart’s belief that metrics are indeed important but they are not the be-all and end-all. “We’ve developed a history that is a combination of analytics and lots of experience,” he said about Ventana. “We look at probably 1,000 business plans a year and invest in about four.”
His premise is that every large company started as a small company, beset by “hurdles, bumps, delays, collisions and setbacks of every kind.” Successful fundraisers must be great educators, speech-givers, writers and communicators; they also should be genuine, practical, flexible, hard-working and tenacious.
“It might take six months or a year to get your money,” he said. “It’s a journey; it’s a process.”
A great pitch starts with industry knowledge. New companies’ representatives should be able to synthesize maternal like value propositions, clearly articulate the business’s value, and know and engage the potential funder. “Talk to someone who really understands the subject area. If the guy starts to yawn during the meeting, hurry up and finish it,” he said to audience laughter.
Companies should also have a fundraising “toolkit,” he advised, which includes a cogent business plan; a creative name and logo; a clean, crisp business card; a mission statement; a two-to-four page handout; a PowerPoint presentation, consisting of seven to 10 slides; a short video; and a one-page executive summary. “Compress, compress, compress,” he urged. “Regardless of what industry, regardless of what you’re trying to accomplish, you can put it on one page. You’ve really got to organize your process.”
A lively question-and-answer session followed the presentations. Participants then networked with each other while enjoying a buffet dinner and visiting exhibit tables set up in the Calit2 Atrium.