Brothers Weather Tough Times for Entrepreneurs

Times Staff Writer

Gene Wang has always looked out for his younger brother, Yulun, whether lining up a date for him or lending him his Mazda RX-7.

But these days, he has been passing on something even more valuable: his insights as an entrepreneur.

The brothers Wang (pronounced "Wong") are pursuing parallel dreams along the Southland coast: Gene, 45, heads Bitfone Corp. in Laguna Niguel, which is developing software to wirelessly update cellular phones. Yulun, 42, runs Santa Barbara-based InTouch Health Inc., which is building a robotic videoconferencing device to help provide care for seniors in assisted-living facilities.

"You hear about siblings starting a company together," said Yulun, "and you hear about family companies that are passed down through the generations -- but not usually something like this."

Amid extremely harsh conditions for entrepreneurial fund-raising, the Wangs have scored something of a sibling coup: Bitfone raised $19 million in September in a second round of venture capital financing. Meanwhile, InTouch Health in December landed $1.5 million from "angel" investors -- wealthy individuals who are willing to take risks in start-ups. Now, Yulun said he is taking Gene's advice to heart as he considers going for a first round of venture funding this year. Recently, Yulun said, his brother looked over a "term sheet," or nonbinding financing offer, that a venture capital firm had submitted to InTouch Health. The elder Wang expressed concerns about several provisions in the proposal, including certain milestones that had to be hit in order for the money to come through.

"Gene congratulated me for getting a term sheet but said, 'You've got to think about this, you've got to think about that,' " Yulun recalled.

Yulun says he's listening carefully to his brother's counsel -- and for good reason. Gene once taught a class at Stanford University called "The Art and Science of Raising Money."

The brothers grew up in the technology hotbeds of Boston and the San Francisco Bay Area, sons of a linguistics professor. They say they always were close, taking judo lessons, hiking and singing in the San Francisco Boys Chorus.

For Gene, starting a business is old hat. After studying computer science at UC Berkeley and attending Harvard Business School, he learned the rudiments of fund-raising as an executive at a string of high-tech firms, including Gold Hill Computers, which he helped start in 1983. By 1988, the company had gone bust -- teaching him some valuable lessons in the process.

"As simple as it sounds, the No. 1 reason why small companies go out of business is they run out of cash," he said. "You can recover from a bad hire, a bad product launch or an unhappy customer. But cash is the lifeblood. We learned that the hard way at Gold Hill."

Yulun, for his part, is not exactly a novice when it comes to launching a company. He earned a doctorate in electrical engineering at UC Santa Barbara and briefly taught there before founding Computer Motion Corp., a robotic surgical device maker in 1989. Several years later, as he considered taking the Goleta, Calif.-based company public, he tapped Gene to help lead the way, bringing him in as chief executive.

After holding 60 one-on-one investor meetings as part of a two-week promotional "road show" in 1997, Computer Motion raised $40 million in an initial stock offering.

That night, Gene and Yulun celebrated with co-workers at the Palace Cafe, a local Cajun restaurant. Gene, who plays flute and alto sax, led the company band, the RoboRockers, in a jam session.

"Taking a company public," said Gene, "is the most fun thing I've ever done."

After leaving Computer Motion, Gene went on to start PhotoAccess Inc., a digital-imaging company. He left there in 2000 after its hardware business was sold to Agilent Technologies Inc.

Shortly thereafter, he turned his attention to Bitfone.

The company's main product is its MProve software, which is designed to help update cell phones with features such as digital photography and Web access.

Gene said he was looking for $15 million in September to keep the company's product development moving forward. As things turned out, the financing round -- which was led by high-profile St. Paul Venture Capital -- was oversubscribed, meaning more investors than expected were interested. Also taking part in the round were Nokia Venture Partners, Bitfone's original backer; Nexit Ventures; and 3i, Europe's biggest venture capital firm.

"Bitfone has earned credibility in the investment community," said Rod Randall, general partner at St. Paul Venture. "Raising this level of capital in the current market climate is a testament to Bitfone's team and technology."

Now, Gene is negotiating for an additional $3 million, which would be tacked onto the venture round, bringing the total to $22 million.

"One thing I've learned is that when they are serving dinner, you sit down and eat. You never know when the next famine is going to come," he said. "The other thing I've learned is the time to raise money is when you don't need it. We still had several million dollars in the bank. We were not on our knees, so that gave us a stronger position."

In particular, that "stronger position" helped Gene resist so-called milestone-based financing -- the very thing he would warn Yulun about.

In deals structured with milestone financing -- a technique that helps venture capitalists limit their downside risk while maintaining their upside potential -- money is meted out in stages if targets are met, such as a certain product launch date or sales level.

The financiers "thought about" going with this approach, Gene said with a chuckle. "I don't think that's a healthy thing for a company. Every company should have their own performance milestones, but that kind of funding is a little like holding an ax over your head."

Gene said he plans to be "miserly," keeping his payroll small despite his fund-raising success. "Hopefully, we're going to make it through the valley of death on this one tank of gas," he said.

As for Yulun, he hopes that the angel financing recently won by InTouch Health will get the company through testing of its flagship Companion device early this year. That process is expected to take about six months, starting with a pilot program at Silverado Senior Living Inc. facilities in Calabasas and Salt Lake City.

The videoconferencing device allows health-care professionals -- or friends and relatives of an assisted-living facility resident -- to provide advice or even companionship long-distance. The device is mobile, so doctors and relatives can remotely maneuver it with a joystick.

For assisted-living companies, the robot should enable them to leverage their limited personnel as they serve an aging population that is exploding in number, Yulun said. In the next 10 years, the number of Americans over 85 is expected to grow 38%, and the number of seniors requiring health-care support is projected to double.

InTouch is building half a dozen Companions, now in its third version after refinements, at a cost per device "in the low five figures," Yulun said. The company is considering when to make key hires such as a top salesperson (probably soon) and a chief financial officer (perhaps later).

In the meantime, Yulun is honing his marketing pitch -- something he says he had a lot of help on from Gene. "You've got to create a big vision," Yulun explained. "You could say it's a little robot that scoots around ... or you can say it's a solution to the aging population situation."

As he seeks new financing, either from venture capitalists or other private equity investors, Yulun is sure to turn again to Gene for advice.

"Gene's job," said Yulun, "is to make sure nobody is trying to take advantage of his little brother."

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