More Capital Available, True, but Raising It Is Not Any Easier
What does it take to raise capital in Southern California? Blood, sweat, tears and, most of all, as Greg Levy can tell you, the determination not to give up.
Levy is chief executive of a small West Los Angeles company, ESP Electronics Inc., with a potentially revolutionary product--a 360-degree television that gives viewers standing anywhere around it a head-on view of the image on its screen.
The device is suited for commercial and industrial uses, and for high-end consumers. It might, for example, allow businesspeople attending a teleconference to sit in a circle, not theater-style. It could also relieve the congestion in front of the flight-information displays in airports, and give sports bars patrons more elbow room.
In the last four years, Levy has raised a little more than $1 million to finance ESP Electronics, all of it in amounts under $50,000. He needs a lot more than that now to get his machine into production and to market. And you might think that, given the expanding supply of capital available to start-up and early-stage companies in California, he should be able to find it.
That would be nice. As detailed in this space last week, private equity groups raised $85.3 billion last year, including about $17.3 billion targeting start-ups and early-stage growth companies like Levy’s, according to the newsletter Private Equity Analyst.
Those are big numbers, but readers should not take that fact to mean that money is available to them merely for the asking. Entrepreneurs will, as they always have, need to work very hard to interest private equity groups in investing in them.
And Greg Levy, to be sure, has worked very hard to raise the capital he has raised for ESP Electronics thus far.
In his first go-round he tried and failed to raise $2 million from deep-pocket investors. At the time Levy didn’t have much to show his investors beyond his own enthusiasm for a great idea, and he promised to return everything if he fell short of his goal. He fell short, raising something under $400,000, and to the surprise of some of his investors, returned the money with interest.
“We thought we could convince people that this idea would work,” Levy says. “But we discovered that we weren’t going to find any angels with deep pockets. We were going to have to go the long route.”
That meant scratching for money wherever he could. He got a break when one investor put up enough money to secure the patents on the company’s technology.
He got another when a late-night TV show devoted to technology gave his television some publicity. The device also got some ink in Europe. People wrote and phoned for information, and Levy built a small database of several hundred names, including those of the original investors whose money he had returned.
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Levy and his engineers managed to build a prototype--crude, with a fixed, not a moving, image, but good enough for Levy to launch a second round of money-raising. He tapped his database for potential investors, raising about $185,000 by selling shares at $1.50 apiece.
He and his engineers used the money to build a machine with a moving image, and they took it to the Consumer Electronics Show in Las Vegas last year. The device generated some interest, but the image flickered badly.
“We knew what was wrong when we got there,” Levy says. “It gave you a headache to watch it, but we hadn’t had time to fix the problem. It was crushing, and we had run out of money again.
“We cried--and then we told our shareholders that we were going to keep going.”
Three rounds of financing, mostly among the people in the database, took the total Levy raised past $1 million. He also talked to potential strategic partners, including the electronics giants Sony, Zenith and Philips; and even to Vulcan Ventures, the venture capital fund created by Paul Allen, one of the founders of Microsoft. He closed no deals. He is understandably wary of showing his company’s technology in too much detail to potential competitors, and they have thus been understandably reluctant to open their wallets.
Levy and his engineers refined the machine, and they now seek upward of $5 million to get it into production and take it to market. Levy knows it won’t be easy.
“People are starting to catch on to this,” he says. “We now have prototypes that show what the technology can do, and they should make it easier for investors to see the potential.
“We’ve been knocked on the canvas over and over again, and we keep getting back up,” he says. “We’re like the boxer Jake LaMotta in the movie ‘Raging Bull.’ We refuse to go down.”
Columnist Juan Hovey can be reached at (805) 492-7909 or by e-mail at jhovey@gte.net.
