Entrepreneurs get a lesson in start-up 101

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New tech can find a proven boost with venture capital connection

By Roger Snodgrass

Can technical innovation chase away the recession blues?

In a high tech, scientific community like Los Alamos, it’s a local question with global implications.

Technology Ventures Corporation had some of the answers this week at a motivational lunch that also supplied a jolt of practical information.

A couple dozen aspirants gathered at the VFH hall to see if they might avail themselves of some of the counseling and mentoring available for companies in the early stages of fundraising. The top candidates would qualify to make a presentation at TVC’s annual venture capital symposium.

Two serial entrepreneurs who have survived and absorbed real life lessons gave talks about seeding a start-up business. John Elling and John R. “Grizz” Deal’s misfires and mistakes were far enough behind them to seem more amusing than painful and their more recent successes in commercializing technologies out of Los Alamos National Laboratory made the chase to create a commercially valuable business actually seem real.

Elling had a list of companies he had tried to get off the ground and said he was a successful entrepreneur only because a few of the more recent companies worked out well.

“As entrepreneurs, you should aspire to make your first company a success,” he said.

A former technical staff member at the lab, Elling quit his job to start a company called Bioreason, based on what seemed like a sure fire deal  — with a lot of confidence in the prospects. He hired people, opened an office in Santa Fe and started burning through cash.

When what seemed like a surefire contract evaporated, he switched to plan B, did an angel round of funding from family and friends and went through $7 million developing the property without a contract.

Along the way he learned not to work with investment advisors who took commissions, because, he said, nobody wants to invest in a company when a bunch of their money is going to some person who is incidental to the business.

“Start with a customer,” Elling advised. “Consider getting a customer as a part of start-up.”

A customer does wonders for a new business. The customer provides income, or as Elling put it, “non-dilutive dollars.”

The customer adds credibility to the business plan, value to the start up, focus to the technology and deadlines to the otherwise dithering tech team, he added.

Another lesson: “Always take the money,” he said. When you need the money or think you have just enough, negotiations will take six days longer than you are going to last.

Deal, the CEO of Hyperion Power Generation, is developing a small nuclear reactor that will, according to the plan, supply a bargain worth of clearn energy for a fraction of the cost. The plan is to sell 4,000 of these modules at some $25 million apiece.

Deal said, that despite the hard realities of the downturn, he was seeing a much more vibrant activity in the venture capital community. He cautioned patience.

“It takes a full year to find capital, 90 days just for the paperwork,” he said. “Nobody was doing anything until about March (2009).”

Among his important lessons learned was the need to make a business plan a living document and adapting to the changes as they come up.

“Legal fees will be excessive,” he said.

The speakers had suggestions on how to protect the early investors during the initial rounds of investment and how best to protect the founders’ share of the company’s value throughout the process.

Among the participants at the meeting were new faces and veteran entrepreneurs.

Melvin L. Prueitt said he has 19 patented inventions and 10 more patents pending. A company with an office in White Rock has been formed to commercialize some of his ideas, including new technologies related to water and energy conservation, and sustainable and renewable energy products. Prueitt is the chief science and technology advisor of the company, SolTerrah and has an office in White Rock and a Website, www.solterrah.com.

According to a 2009 Global Insight study, venture-backed companies accounted for 12.1 million jobs and $2.9 trillion in revenue in the U.S. in 2008.  A global venture capital survey by Deloitte Touche Tohmatsu (DTT) Technology’s Media & Telecommunications industry group found venture capitalists to be a resilient and optimistic group.

Albuquerque-based TVC, began in 1993 to help spin off technology from Sandia National Laboratory. In 2002, the nonprofit group that connects venture capitalists with promising new technologies, added Los Alamos and Lawrence Livermore national laboratories and Nevada Test Site. Last year, Idaho, Argonne and Oak Ridge national laboratories and the Savannah River Site were among the DOE laboratories joining the TVC consortium.

The Equity Capital Symposium takes place May 19-20 next year in Albuquerque, and applications or business plans to participate are due Jan. 8. TVC promises to connect promising entrepreneurs with business advisors and marketing consultants to help them make the best possible showing.

More information on TVC is available at www.techventures.org.