The Rockies Venture Club Colorado Capital Conference began with a keynote address from Susan Casey, Founder, Chief Credit Officer, and Chief Operating Officer of Square One Bank. Square One, which specializes in providing financial services to entrepreneurs and venture capitalists, is a four year old bank with $1.2 billion under management, 180 employees, ten offices and a thousand customers. Casey spent the majority of her talk discussing two aspects of the bank’s genesis: the hardships involved in starting a bank in the modern financial system and the values inherent to Square One. In describing the latter, Casey and her husband (Founder and CEO Richard Casey) belabored for months over a suitable name for the company. When a friend offered Square One, Casey consulted a dictionary and learned one definition of ‘square’ was “to be genuine, clear and straight forward; to be accountable and take responsibility.” This resonated with the Caseys, who after decades in the banking business, “wanted [their] values to be active” within the new company. Understanding that “people make the difference,” the pair only sought to hire those who “exhibited Square 1 values” as they expanded, and upon exceeding 150 employees (year three) created Square One University to articulate the firm’s underlying identity to staff. Today, Casey maintains that “our loan portfolio remains strong,” although the bank experienced losses in its investment portfolio during the downturn. It was during the moments of the stock market in freefall when Casey offered leadership to her employees, instruction that should resonate with any entrepreneur: “We rallied our people and told them to stay balanced, maintain consistency, and remain confident.”
Morning Presentations (Angel Deals)
The first morning session offered feedback to the presenting entrepreneurs from a panel consisting of:
- John Backlund of Backlund & Associates (moderator of all sessions)
- Chuck Hodges of Zebulon Solutions
- Erik Porter of Waste Farmers
- Samuel Simpson of Wazee Energy
mShopper kicked off the day, presented by CEO David Gould. mShopper seeks to “democratize the retail sector” using its PriceCrusher mobile platform, a technology offering consumers real time price comparisons and reverse auctions as well as active alerts (like Priceline). In practice, a shopper enters data on a product contained in mShopper’s virtual inventory of fourteen million items and in under a minute receives “bids” from the company’s 120 merchant partners (which include Wal-mart, Gap, and BestBuy). These bids typically fall 10-40% below retail, averaging 15% according the mShopper website. Gould notes there are three potential revenue streams for mShopper: a commission on mobile sales, the potential to capitalize on both SMS and web advertising, and information sales because the company “is creating a data snapshot of retail activity that does not currently exist anywhere.” The firm has raised over $2M to date, and seeks investors to continue product development and boost consumer marketing efforts.
Green House Data was up next, presented by President Shawn Mills. Green House Data is a Wyoming-based collocation and managed services data center entirely powered by on-site wind turbines. Mills reports that the firm’s servers and storage equipment receive the geographic benefit of “240 days of free cooling,” one of several efficiencies that allow the company to offer prices 10% below competitors. Green House Data was recently chosen to present at the Data Center World Conference, likely due to an industry understanding that data centers consume so much energy that they will surpass the airline industry in carbon emissions by 2022. Within the $12B market for managed services, applications and storage, the company has targeted the $2B segment of small to mid-size enterprises and socially responsible clientele. Green House Data broke even last year and has applied for a $2.2M incentive grant from the Wyoming Business Council. An angel investment would be directed toward infrastructure and working capital.
Capitis China concluded the first morning session and was presented by CEO John Born. Capitis China has built an E-commerce platform for the Chinese market designed to offer value to hospitals, suppliers, physicians, distributors, and the government. China, expected to become the world’s largest healthcare market by 2010, is currently plagued by counterfeits which comprise upwards of 30% of medical products sold and threaten the nation’s social fabric. Born believes his company is ideally suited to serve as a nexus among Western suppliers, the Chinese distributors, and hospitals they serve, providing a virtual marketplace that reduces cost while mitigating the counterfeiting issue. For Chinese physicians the company offers a vast library of online product information and educational videos, having filmed over 250 procedures performed by thirty doctors. Capitis China would generate revenue through membership fees from suppliers, distributors, and hospitals taking part in the system. The company, which has been on the ground in China for three years, boasts an advisory board that includes former Secretary of State Alexander Haig, former Under Secretary General of the UN Maurice Strong, and several Chinese luminaries. The company is currently seeking angel investment and expects to close a Series A round of financing in the next six months.
The second morning session offered feedback to the entrepreneurs from a panel consisting of:
- Robert Fenwick Smith of Aravaipa Ventures
- Kelly Burton of Investor Avenue
- Jim McCloskey of Catapult Growth Partners
- Steve Murchie of the Keiretsu Forum
Osmosis Pur Medical Skin Care began the second session presented by Founder Ben Johnson, MD. Osmosis produces a line of over thirty skin care products which are sold to the professional market of dermatologists, plastic surgeons, and spas at price points between $10 and $150. With eight patents pending, the Osmosis line boasts ingredients that boost penetration into the critical layers of the skin by 1000% over conventional products. In two years of business Osmosis has banked over $2.1M in revenue, and proceeds from an angel investment would be used to triple its sales force and expand the company’s trade show presence. Before founding Osmosis, Johnson had previously founded Cosmedix skin care, which he built to $10M in sales before selling out to partners.
American BioResources followed, presented by CEO Sue Kunz. American BioResources seeks to market turnkey algae production systems to farmers seeking entry into the biofuels marketplace. According to Kunz, “first generation biofuels have been less than stellar,” as one acre of soybeans yields only ~60 gallons of oil. Price/performance resulted in a 21.5 million ton shortfall of the raw material necessary to fill the refinery capacity dedicated to biodiesel. To close this gap, American BioResources offers to sell growers a self-contained algae farm and its supporting systems, virtually monitor the crops that are harvested daily, and then pick up the harvest and sell it to biorefiners. Algae is the ideal biofuel according to Kunz, given that it can be grown year round, carries no weather risk (when grown in an enclosed system), boosts water efficiency, and yields at least 2000 gallons of oil per acre. The company would derive revenues from sales of the systems as well as the transportation and sale of the raw material to the refiners. American BioResources would use an angel investment to complete full-scale proofs of concept, secure its patent portfolio, and round out its core management team.
Concluding the angel deal flow was Brian Dodd presenting the Data Storage Group. The company, founded in 2005, has developed the software-based dataStor technology that offers advanced compression by removing all redundant data on a network. What this means from a practical standpoint is that when backing up large quantities of data the software will only store the files that are changing (after an initial duplication), reducing required storage to 1/20 of the original capacity and accelerating network transfer rates up to 20-fold. Dodd expressed confidence that the product would enable large data producers the option of cloud-based storage, all at a fraction of the cost of what customers are currently paying for legacy systems. The Data Storage Group currently has eleven employees and sales in the seven figures, and the company sells the dataStor system directly, through OEMs, and through channel partners like Dell Computer. An angel investment would primarily be used to advance sales and marketing.
Lunch Program
Lunch began with a short pitch from Dave Drach of Microsoft’s Emerging Business Team, who explained the company’s BizSpark Program. BizSpark offers access to Microsoft’s tools and technologies to software and web development entrepreneurs in business fewer than three years old and banking revenues less than $1 million a year. Interested parties are encouraged to visit the program website.
The Lunch Keynote was given by Dan Caruso, President and CEO of the Zayo Group. Zayo, which in the South African language of Xhosa means “forthcoming and responsive,” is a telcommunications firm that offers bandwidth, voice, and managed services in 129 markets across 23 states. Caruso’s presentation focused on the evolution of the telcom industry, from the deregulation in the 1980s to the frothy days of the late 1990s to the industry meltdown of 2000. Caruso, who spent his career in leadership roles at firms including ICG Communications, Worldcom, and Level 3, believed in 2006 the demand for bandwidth had caught up with the overcapacity largely responsible for the crash. He subsequently conducted an analysis of potential firms to roll up, raised money, and bought five initial targets. The Louisville, Colorado, company now has over 300 employees and recently secured $128 million to fund further acquisitions. Caruso offered three takeaways from his talk:
- The internet changed everything. The free market, not the government, was the driving force.
- Nobody bailed out the telecoms during the nuclear winter (or meltdown of 2000)
- In less than five years, telcom went from nuclear winter through to recovery, and then to steady and profitable growth.
Afternoon Presentations (Venture Deals)
The afternoon session offered feedback to the entrepreneurs from a panel consisting of:
- Don Parsons, Appian Ventures
- Carl Ledbetter, UV Partners
- Stephanie Smeltzer McCoy, Meritage Funds
Allegro Multimedia began the afternoon with a presentation from CEO Chris Salter. Allegro produces the Piano Wizard software program that teaches users to play piano and read sheet music in a four-step, game-like format. The company, which already boasts over 10,000 customers, recently signed a deal with the Disney Corporation to produce a Hanna Montana version of the product, as well as a deal with the Hal Lenard Corporation that provides Allegro worldwide distribution and a library of over 100,000 online songs. Designed in a style that mirrors the popular Guitar Hero video game -except with real music and real instruments - Salter maintains that children using the software can learn up to twenty songs in a single week. The company has been banking sales of its initial product for the last three years and expects multiple revenue streams from sales of its plug-and-play instruments, co-branding opportunities, commissions on sheet music sales, and an iTunes-style song distribution system. While currently offering the Piano Wizard, Allegro will market Guitar Wizard later this year, with Composer Wizard and Drum Wizard to follow in 2010. Next year will also bring Foot Piano Wizard, a product fashioned on the over-sized instrument from the Tom Hank’s film “Big.” With venture funding the company will finance a direct marketing campaign in the US with partner the BCC news, fund development of new products, and allocate the remainder to working capital.
Body Beam Research, presented by founder William Cimino, MD, promises to upturn the body contouring (BC) market with a non-invasive treatment meant to replace liposuction. Currently, plastic surgeons conduct over 500k invasive BC treatments a year, generating fees in excess of $1B. Cimino believes that introducing Body Beam to the market – with “no surgery, no scars, and no anesthesia” – will double the number of treatments and more than quadruple the fees, given that doctors can charge a premium and the procedure can be administered by an office technician. The technology behind Body Beam involves the application of high frequency ultrasound, whereby a targeted beam breaks down the fatty tissue. Cimino believes he has properly augmented the focal structure of the beam so skin and muscle surrounding the fatty tissue will not be traumatized during the procedure. The company will sell the medical device utilizing a razor/razor blade model, with a central device and hand pieces requiring replacement after 32 uses. Cimino believes Body Beam will clear its clinical trials in 24-36 months and has applied for a patent on its technology.
Ed VanDyne of VanDyne SuperTurboCharger gave the final presentation of the day, discussing his company that is about to officially spin out of the Woodward Governor Company. VanDyne’s eponymous product combines the benefits of a supercharger and turbocharger, delivering the engine’s waste heat energy back to the crankshaft. The result is efficiency gains in automobiles of up to 30% and 6-10% in heavy trucks. But it’s the cost side where VanDyne has clearly excelled, as he claims to offer “the best value to cost ratio of any [piston engine] efficiency device.” The current market for Turbochargers is $10B, which VanDyne believes will double over the next six years as manufactures realize the efficiency potential in installing the technology. While VanDyne is ultimately aiming for the automobile market, it can often take years to penetrate this space given development cycles. In the meantime, the company has designed a retrofit kit for trucks that offers savings of $5000/year and has plans to work with motorsports racing teams. VanDyne, who announced that he’d sold prototypes to both a major automobile and industrial manufacturers, is seeking venture capital to sustain operations over the two years it will take to begin shipping product. The company holds a patent on it’s first generation device and filed a patent for its second generation in Aug of 2008.
The Conference concluded with a panel discussing “The State of Colorado Venture Capital,” moderated by Event Chairman Mark Weakley of the law firm Holme Roberts & Owen, the Conference’s Presenting Sponsor. Included in the discussion were panelists
- Stephanie Smeltzer McCoy, Meritage Funds
- Carl Ledbetter, UV Partners
- Joseph Zell, Grotech Ventures
- Bruce Dines, Liberty Global Ventures
On the question of macro-economic trends within the venture capital industry, Zell pointed out “there is less capital available to access” and “lots of tier-two funds are frozen.” On the upside, McCoy noted the “market in Colorado continues to be robust,” and Ledbetter opined that from the standpoint of launching a company, “there is no longer the same penalty for working in Colorado.” In discussing the profiles of companies most likely to get funding in today’s market, McCoy stated that relative to the recent past firms “are going to have to be more mature; have some meat on their bones.” Zell advised startups to maximize the precious moments with potential investors by conveying a clear value equation: “If I were you, I would spend my money bringing in a communications consultant.” Dines picked up on Zell’s answer and stated that companies need to spend less time networking and more time refining their communication: “We need to understand, ‘How are you going to win?’ This market is so competitive and technology gets commoditized so quickly, we need to understand” the company’s competitive advantage. The session ended on a mixed note as Weakley asked the panelists to prognosticate on Colorado’s future from a VC standpoint. Dines believed that, “Colorado has always been undercapitalized and I see this as getting worse,” while McCoy predicted “a shake out in the venture industry” because “if you look specifically at Colorado, the vast majority of funds don’t have money.” Yet Ledbetter offered a glimmer of hope: “If you look at this rationally, the American technology sector is just as robust as it was a year ago. We are expecting a pretty big bounce.”
Rockies Venture Club (RVC) was one of the first non-profit organizations in the country to help entrepreneurs launch and manage high-growth potential companies. Founded in 1985, RVC is the Rocky Mountain Region’s premier networking organization that connects entrepreneurs, service professionals, investors, venture capitalists and other funding sources. The next RVC event will be held on June 9th at the Denver Athletic Club, and discuss the topic of Space 2.0: The Entrepreneurial Frontier.
