How Little Companies Court Big Money
As he began his PowerPoint pitch to an audience of potential investors, William Simmons made a nod to the frigid fund-raising climate that he and other entrepreneurs are facing these days by recounting how another recent presentation to an investor group had ended.
“After the laughter subsided,” said Simmons, the chief executive of a Costa Mesa firm called Catalytic Air Technology Inc., “we cut our company valuation in half.”
Came the instant reply: “So what happens if we laugh again?”
The banter may be good-natured, but make no mistake: As this recent investment meeting of the Los Angeles chapter of the Tech Coast Angels showed, money is tight for those seeking funding for their young companies.
At their biweekly screening session, held in a borrowed classroom at UCLA’s business school, the Angels heard 15-minute pitches from four entrepreneurs seeking expansion capital in exchange for private equity stakes in their companies.
The group -- one of about 125 networks of so-called angel investors in the U.S. -- has 210 members in three chapters, including in Orange and San Diego counties. The wealthy individuals who take part in the Angels share opinions and research but make their own decisions and cut their own checks.
Just getting to the screening stage is tough. Only three in 10 applicants are invited to appear before the Tech Coast Angels, and only about one in 20 ultimately gets funded.
On this day, the 35 Angels in attendance -- all of them men -- first heard from Gene Currie, president of Irvine-based Tekia Inc., which makes lens implants to correct eye problems.
Currie used a laser pointer to highlight medical-device corporations that could potentially acquire Tekia. He also told the Angels that one of Tekia’s key products, a lens for treating myopia, was designed by Charles Kelman, “the Babe Ruth of ophthalmologists.”
Currie said that lens implants eventually could challenge Lasik surgery, pointing to some of the problems associated with that procedure, including halos, glare and poor night vision.
When the Angels started discussing their personal experiences with Lasik and other eye procedures, the screening moderator reminded them that Currie’s time was short: “Can we let him go on?”
With that admonition, they did let Currie speak some more before peppering him with questions.
Next came Kayvan Ardalan, chief executive of Pasadena-based CardioSun Inc., which is developing a noninvasive device for monitoring cardiac output.
Patients breathe into a mouthpiece to get a reading of the heart’s blood-pumping efficiency, making the device easy to use, he said. San Diego-based CardioDynamics International Corp. and a few smaller companies already have similar products on the market, but Ardalan maintained that CardioSun’s would work best when measuring the heart during exercise.
One Angel asked whether Medicare reimbursement approval had been secured. Ardalan said he expects to get it, but acknowledged, “Without that we’re dead.”
During his pitch, Simmons explained that Catalytic Air makes a gadget for retrofitting diesel engines. The technology cuts emissions, he said, but its main appeal is the fuel efficiency it provides: That could translate into tremendous cost savings for business customers.
“Worldwide,” Simmons told the Angels, “people will give the environment lip service, but they’re not going to spend a dime on it unless they have to.”
Toward the end of Simmons’ presentation, an Angel questioned why Catalytic Air shouldn’t simply seek an alliance with a major engine maker in exchange for a licensing fee. But Simmons rejected that notion, suggesting that a big company wouldn’t be willing to pay enough.
They’ll just try to “get it for pennies,” he said.
Making the final pitch of the day, Philip Potasiak, chief executive of Overture Technologies, threw around plenty of high-tech jargon in promoting his Irvine-based firm. Overture is developing software designed to help companies maximize sales leads through instant messaging with executives and other tools.
“We think it represents the next generation in Web-based sales,” Potasiak said. The need for real-time communication online, he added, “is mission critical.”
When an Angel questioned whether Overture was unique, saying he had seen instant-messaging features on company Web sites years ago, Potasiak replied that this was probably in a business-to-consumer context. “I have first-mover advantage,” he insisted.
At least one Angel at the meeting seemed to think Overture’s target customer base needed honing, however. And another muttered quietly that “Overture” was a nice brand name -- for somebody else. The Internet services firm formerly called GoTo.com, he pointed out, is now known as Overture Services Inc.
When all was said and done, Catalytic Air and Tekia generated modest interest from the Angels. (Both of these companies already had presented to the Orange County chapter, where they made it to the next step in the process: a due-diligence review.) The other two presenters, CardioSun and Overture, struck out.
Though he didn’t advance with the Tech Coast Angels, Potasiak said he learned several lessons from the experience that should serve him well as he meets with other angel groups, as well as with “seed-stage” venture capital firms.
He acknowledged that he needs a “sharper response” to concerns about whether there is more to his company than instant messaging -- for example, emphasizing other tools such as automating wireless communications between a company and potential customers.
Part of the problem may be that the Tech Coast Angels are looking for relatively mature companies in these skittish times, he said.
“The message I got was, ‘When you have a finished product, when you have a few customers, come back,’ ” Potasiak said. “What’s different about the angel environment is that companies like mine used to be the ideal fit. Now, it seems like the investors” want to buy into firms that are further along.
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Local Resources for Young Firms
Several California “angel” investing networks consider business plans submitted by entrepreneurs. Among them:
* Tech Coast Angels. Chapters in Los Angeles, Orange and San Diego counties.
www.techcoastangels.com
* Keiretsu Forum. Chapters in Northern and Southern California.
www.keiretsuforum.com
* Pasadena Angels. Focus on San Gabriel Valley-area companies, but not exclusively.
Pasadenaangels.com
