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  Tech TrendsThe Secrets to Startup Success Dr. Paul Castella, a local entrepreneur, has a method to creating successful companies that commercialize technology. His “Secrets to Startup Success” are words of true wisdom to any new entrepreneur. From the Tech Startups Desk The Need for a Regional South Texas Economic Development Strategy ”Our community would benefit from a clear economic development strategy.” States Jim Poage, President and CEO of Startech and STRCIC in the first issue of the Startech newsletter. An important element in the strategy development is to also determine what NOT to do. As a stakeholder in the process, Startech stands ready to assist in the strategy development and tactical execution. ;
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Tech Trends The Secrets to Startup Success By Stephanie Palmer, Marketing Manager, Startech & STRCIC Paul Castella, Ph.D., M.B.A. is one of San Antonio’s most successful serial entrepreneurs. I recently spent time with him learning the “secrets” to his success to share with our newsletter readers. Paul has built and sold two biomedical companies, has two more in the works, and has formed a venture capital firm, Targeted Technologies, to help support biomedical developments in San Antonio. His companies have been built on technologies conceived and developed in San Antonio. He clearly represents the promise and reality of what nurturing economic development through organic growth can mean to a local community. While growing up in London, he never dreamed that he would one day be starting new businesses in San Antonio, Texas. Paul believes, “Texas, and San Antonio in particular, has great people. There is a wealth of ideas being generated here that hasn’t yet received the interest and funding they deserve,” He added that “Texas offers a lower cost of doing business than many other parts of the country and has ample intellectual property being generated. With the appropriate investment infrastructure, this community holds enormous potential.” Paul first came to Startech seeking funding for the second company he started, CardioSpectra. CardioSpectra was among the first to receive investment from the Texas Emerging Technology Fund (ETF) and became the first ETF success story in the state when they were purchased for $63 million. Since then, Paul has started two additional biomedical ventures, BiO2 Medical and SurModics. It is my hope that you will be inspired by Paul’s experiences, implement his “secrets" and seize the day. His expertise is biomedical, but his approach applies to any technology start-up. The Secrets to Startup Success Paul has many qualities similar to other successful entrepreneurs. He has deep knowledge and experience in his field, is risk-tolerant, has a talent for recognizing opportunities, and does not hesitate to seize them. Clearly, these qualities have contributed to his achievements, but there has to be more. Upon review of Paul’s ventures a clear pattern emerges. The pattern boils down to four key steps that Paul uses to target a particular technology. He refers to them as a “Due Diligence Checklist,” but to me they are more aptly titled: "Secrets to startup Success"
These key steps Paul learned on his journey of entrepreneurship and he still uses them today to determine what science he wants to take out of the lab and bring to mainstream medical practice. Let’s look at how Paul implemented these steps in the development of his businesses. In 2001, he recognized an opportunity with a unique technology that was developed at the University of Texas Health Science Center at San Antonio (UTHSCSA). That technology had not yet secured funding, so Paul licensed the technology and started his first business, Xenotope. The technology became a rapid test for a global disease, Trichnomonas. Xenotope aced Paul’s due diligence checklist because Trichnomonas was a disease without a quick and easy diagnostic test. He discovered a path using UTHSCSA IP that could conceivably produce such a test. The Intellectual Property he acquired was unique, with an immediate application, a worldwide market, and there were limited barriers in the distribution channel or to the end user. As for risk mitigation, all risk factors were very favorable including financial, patent protection, technical development, and clinical and regulatory approval. Xenotope was started, founded, and the development proceeded rapidly. Xenotope was sold to Genzyme less than 18 months later.
The CardioSpectra story, while different than Xenotope, does employ the same four “Secrets to Startup Success”: Intellectual Property that addresses a significant issue, a large Market -heart disease is the leading killer of Americans. In Texas alone, there are 450,000 deaths a year attributed to heart disease. User Adoption – the assembled team of employees and advisors for CardioSpectra had industry experience and know-how to provide a product that would be usable with limited barriers. Risk Mitigation – they had the financial, patent, technical and clinical resources available and the risk minimized. There are countless ideas and opportunities available, right here in our backyard. Paul continually filters through many of these with his targeted approach. And, now that you know the secrets, what are you waiting for? |
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From the Tech Startups Desk The Need for a Regional Economic Development Strategy By Jim Poage, President & CEO, Startech & STRCIC Our mission at Startech is to Inspire, Create, and Grow new technology businesses from biomedical to telecommunications in the South Texas area. To do so, we collaborate with our entrepreneurs, private companies, institutions of higher education, private non-profit organizations, local, state and federal government entities, chambers of commerce, and others. There are a number of Economic Development initiatives in our area with varying goals and objectives. It is difficult to discern what is being accomplished and who should be credited for results because much of it is “under the radar” and collaborative in nature. One has to be “in the game” regularly to understand who is accomplishing what. Our community would benefit from a clear economic development strategy. This strategy would set out our priorities, the major milestones we want to achieve, strengths, weaknesses, opportunities, threats, and measurements of our progress. An essential element in strategy development is also determining what NOT to do. I feel fortunate to have spent considerable time working on corporate strategy for F100 companies. In my experience, creating such a strategy requires research, focus, time and money. It involves a broad cross section of stakeholders whose eventual alignment in support of the strategy will result in an action plan for successful tactical execution with agreed-upon metrics. Stakeholders will accept and support the results of a well-conceived and transparent decision process. We have many unique and differentiated strengths that are advantageous in winning the economic development races we enter. A clear strategy will also help us focus our resources on the races we have a higher probability of winning. The question of how we organize to achieve our strategic objectives comes at the end of the process. Organization is a tool to help achieve a strategy once that strategy is in place.
Now, more than ever, our community needs to ensure both an avenue to accelerate the commercialization of intellectual property and helping promising technology start-ups get the assistance and funding they need to succeed. Our research data shows that these small companies have had the most positive economic impact on the area of any segment of our economy. That is why the City of San Antonio, Bexar County, the major educational institutions, key community organizations like the Greater Chamber of Commerce and the North San Antonio Chamber of Commerce, private companies and individuals, created Startech just a few years ago in 2000. Since that time it has become a model that other cities in Texas are copying. Businesses, successful entrepreneurs, investors, non-profit organizations, and political leadership in our community have recognized the potential economic impact of organic growth in this sector. This is commonly referred to as one of the three legs in the economic development stool. The other two being recruitment of existing businesses from outside our area and retention of those already operating here. To further awareness of our efforts, Startech has developed this newsletter, Tech Trends. We will issue the newsletter quarterly or as needed to provide you with information and developments related to technology innovation and commercialization. In addition to our cover story and the latest news in the community, the newsletter will have regular articles with timely information for entrepreneurs in Entrepreneur’s Corner, and for investors, in Investor’s Beat. It will also feature a series of sales tips by our Director of Investment Services, David Clark who happily shares his 20 years experience in technology sales and marketing management. You will find reminders of upcoming events and deadlines. We encourage all organizations with whom we collaborate to share with our readers their news and items of interest. As the need arises between issues, we will continue to make announcements of upcoming deadlines, events, or news. We hope you enjoy the first issue of Tech Trends and encourage you to share this newsletter with anyone who might be interested in the information. We welcome and strongly encourage your feedback and input. Please email Stephanie Palmer at sap@startech1.org. |
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Entrepreneur's Corner Three Steps to Value Your Startup Startech is approached by entrepreneurs at various stages of venture development. Some approach us when they are just at the concept stage and need information and consulting to get started. Some are seasoned entrepreneurs who have all the information and tools they need and come to us ready to file the application for funding. Most, however, have already filed patents and have a solid business plan, but need to learn what it takes to get invited to an investor presentation and Make It Count! Articles in Entrepreneur's Corner will therefore tend to focus on insight and advice to help you Get Funded!
Asheesh Advani, in an article published at Enterprise.com, provides a three step process for how to value your Startup: 1. You are what the market says you are. If investors are telling you that your startup is worth $1 million, then that's what it's worth. You might think it's worth more. You might even know it's worth more because your company may have more than $1 million is liquid assets, or more than $1 million in receivables, or more than $1 million in sweat equity. But if you're unable to raise money for your startup with a valuation above $1 million, then you'll have to accept the market valuation. However, this isn't always true. If you raise money from relatives and friends rather than professional investors, it's possible that your company has been overvalued or undervalued (more likely, overvalued). For example, if you persuade your father and your rich aunt to purchase shares in your business at $20 per share, it doesn't mean that future investors will pay more than $20 per share-even if your business grows and prospers. 2. But you can also tell the market what you're worth. Although this might seem to contradict the point made above, it's possible to tell the market how to value your company. After all, if investors think your startup is worth $1 million, it's usually because of something you've told them. By definition, startups don't have a history of financial performance on which to base a valuation. Therefore, it's up to the entrepreneur to develop a process for valuing the company based on comparables and financial projections.
3. You're not really worth anything until you're profitable. If you're not profitable, your business probably isn't worth very much. That is, it doesn't have as much liquidity as it would have if it were profitable. Many businesses cannot be sold, since there aren't enough business buyers for every seller. Almost all unprofitable businesses cannot be sold for the same reason. This makes valuation particularly challenging for a startup. Since young businesses take time to become profitable, the trick of valuing startups is to focus on the future. First, determine how many years it will take to be profitable. A business with a long road to profitability will usually be worth less than one with a quick path to profitability. Next, determine how much comparable companies have been valued at when they reached profitability. A company that could be worth $5 million at profitability will be worth some fraction of that number at the startup stage, based on factors such as the likelihood of success, the time frame to exit and the quality of the management team. It's easy to get caught up in the excitement of valuing your company at the highest amount possible and forget that you'll one day have to deliver on the expectations of investors. It's also tempting to adapt your business model to maximize startup valuation. Be careful about overvaluing your startup with faulty assumptions; it will only make your life more difficult-particularly if your investors have governance rights, such as positions on the company's board. Much like artists, entrepreneurs need to use creativity in valuing their startup businesses. Traditional approaches to valuation based on book values and P/E ratios are akin to painting by numbers. If you want your startup to be a masterpiece, you'll need to use the right side of your brain as much as your left to determine value.View full article on Entrepreneur.com To learn more about company valuation and other training to assist you in preparing to get funded, we recommend you attend the Startech New Venture Forum which is a series of six three-hour sessions. The next New Venture Forum starts July 2, 2009. To learn more click here. |
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Investor's Beat Current News and National Perspectives In the current economic climate even many risk-tolerant angel investors are being cautious in these murky economic waters. We, like everyone else in the industry, wish we had the magic filter to sift through the murky waters and help our angels snag the right fish that will not just survive the recession, but thrive despite it. Suffice it to say that at this time, valuations, like stock prices, are down, providing a good opportunity to “buy low – sell high”. The best answer we can give to help you find the right investment is to pay attention to a breadth of information, engage in dialogue with fellow investors, and attend industry events. We are a member of many associations and organizations, but one, the National Association of Seed and Venture Funds (NASVF), does an excellent weekly compilation of nationwide news articles. We find it to be an excellent source of what is happening in the industry. In this issue we share the links to some of these valuable national news and perspectives. You can also find a link on our Home Page www.startech1.org that is updated when the current weekly NETNEWS from NASVF is issued. We encourage your feedback, suggestion, article submissions for Investors Beat in an effort to make this newsletter a useful source for the investor community. NASVF – NETNEWS
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Sales Tips Feature, Function, Benefit Analysis By David Clark, Director of Investment Services, Startech & STRCIC So . . . What are you selling? Oftentimes we assume that we know what we are selling -- whether it is a product, service, or a combination. It is useful to devote some time and mental energy to think about what you are actually selling to your customers and prospects. Use a low tech example of a wheelbarrow. If you really think about it, the customer isn't typically overcome with desire to buy a wheelbarrow. What they probably want to do is to move dirt (or something similar) from one location to the other. Once you understand the underlying requirement of the customer or prospect the task of selling becomes a lot easier. One way to approach this analysis of what you are selling is called a Feature, Function, Benefit analysis. Using the below chart, let's talk about our wheelbarrow:
From this analysis you can see that the real benefits to the customer are in terms of convenience and the ability to do more – not just that the wheelbarrow has a large hopper or pneumatic wheels. If you were to take each of your product lines and/or service lines and move through this analysis with each you should see several benefits:
Selling technology products and services is complex. Many times the customers are not technically savvy. They need to understand what you are selling in terms of benefits which resonate with them. This is a major element to getting and keeping a 'satisfied' customer. |
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No Kidding? Past Inventions Mistake Your Way to Invention the Einstein Way By Jim Poage, President & CEO, Startech & STRCIC
For this reason I am confident that we will find our way out of the current economic crisis. We all agree mistakes were made and in fact more are yet to come. However, while our spirit of transparency and step-wise-refinement may be painful now, this pain will eventually lead us to be a stronger, more robust and resilient economy than before. Have you ever made a mistake while trying to innovate a new solution? All the while thinking you had the perfect answer? Then finding out it didn't work, was wrong, worse or based on faulty logic? If you have, don't feel bad. One of the world's most renowned inventors and innovators, Albert Einstein, made his share of mistakes throughout his career. Hans Ohanian chronicles Einstein's 23 Biggest Mistakes in his book Einstein's Mistakes: The Human Failings of Genius. Now, go out and make some mistakes and when your mother yells at you, tell her your are just following in the footsteps of Einstein... Chronology of Einstein's Mistakes
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In 2005, Paul co-founded CardioSpectra. CardioSpectra developed a breakthrough optical imaging product new to cardiovascular medicine. Early studies showed, among other things; promise that the technology could help ensure the optimal positioning of arterial stents. Recent problems highlighted in a small number of patients show how important it is that the stent be visually inspected for optimal positioning to provide maximum effectiveness. 
At Startech, strategy development is one aspect of the assistance we provide to our clients and believe that an area-wide economic development strategy will enhance all our efforts in being good stewards of tax payer dollars. Our technology-based, home-grown clients have raised well over $100M in funding for their companies in the past few years. Startech represents the Emerging Technology Fund in South Texas, and it alone has injected almost $30M of external, hard cash dollars into the area in the past 4 years. With that level of impact on our economy, Startech and our clients believe we are key stakeholders in this process.
In this issue, we focus on the difficult task of valuing your business. The importance of this must not be overlooked because Investors will kick you out of their office if you are wasting their time with over-inflated, under-researched valuations. Throughout your funding traunches, valuation will be the key to determining equity percentages.
I have spent a considerable amount of my career, working in technology in Europe and Asia. Many people in the US do not realize how those who live outside the US, revere us for our continued cycles of innovation. It took me a long time to realize that in fact “failure” was a key ingredient in our innovation process. Great inventors and innovators worldwide learned and progressed thanks to their mistakes. The United States economy grew and became the leading economy in the world in a relatively short time span because our culture embraced innovators and risk-takers that were not afraid to make mistakes. Mistakes give them the opportunity to learn, correct and improve, all without suffering disc race. While not unique in the world, we are certainly leaders in accepting failure as the natural course of life and innovation.