This is part of my Series on Angel Investing.
There is a rather large missile rapidly approaching America's innovation culture. Predictably, it has been hurled in the most careless of manner by a group of uninformed politicians and their staffers in the form of Senator Dodd's sweeping Banking Bill. Putting aside the merits and thrust of the Bill itself, (which ostensibly seeks to regulate the banking industry), there are two provisions in it which, if not removed ASAP, will essentially wipe out a large chunk of one of America's engines of innovation- namely angel investing. These provisions will raise the bar on the definition of an 'accredited investor' from $1M in net worth or $250K in annual income to $2.3M in net worth or annual income of $450K! It will also hamstring angel investing by slapping any such investment with a 120 day SEC review.
If this concerns you, you may want to call your congressmen and educate them on this issue.
For more in depth condemnation of these stupendously destructive provisions, I refer you to the following cacaphony of frustrated voices emanating from the startup and investment community:
NY Times: Angels Rebel Against Dodd Bill
For the next post in this Series, click here.
This is part of my Series on University Entrepreneurship.
Entrepreneurs and venture capitalists know all too well that launching a successful startup is perhaps one of the most challenging and difficult of all human endeavors. (Please note my stress on the word "successful"). We've also learned that only a small sub-section of the human population are actually suited for this line of work. (They all must share some rare strain of DNA yet to be identified!)
I also like to say that there is actually an even more difficult endeavor. And though I say it in a tongue-and-cheek way- it's actually true. In my opinion, launching a successful university spinoff is much harder.
The higher degree of difficulty has everything to do with the fact that the entrepreneur/vc/angel has the added hurdle of navigating the oftentimes arcane atmosphere of a given university before he or she can "spin-out" the technology. And depending on the particular university, this process can take anywhere from a couple of months to over a year!
You see, unlike a "normal startup", launching a university spinoff involves such steps as identifying and validating the university intellectual property, cultivating a strong relationship with the professor and the students in his lab, building a relationship with the appropriate people in the university's technology transfer office, and ultimately negotiating a license agreement and stock purchase agreement with them. This will entail agreeing to diligence milestones, sub-licensing fees, minimum annual royalties, reimbursing patent costs incurred by the university, paying royalties back to the university once you have a product and often making the university a minority equity partner in your venture.
It takes a special kind of person to pull all of these moving parts together and it is more than many seasoned entrepreneurs and/or investors can stomach. "It takes forever to get anything done there.... Why should I pay royalties to the university? ... The IP is just sitting there in the lab and I'm the one that's going to create all the value!", are all common refrains I have heard many times.
Mind you- these reactions are totally legitimate and natural without a doubt. For many, it may certainly not be worth the effort. Yet these criticisms always overlook a couple of key points about the nature of university technology that should be mentioned. First, some of the best and most commercializable work going on within the academy is world class and has often been under development for years- in some cases for almost a decade. Second, it is often the case that hundreds of thousands, even millions of research dollars have already gone into the underlying work by the time the entrepreneur/investor shows up for the first time. In many such cases, there is enormous value waiting to be unlocked. This would no doubt have something to do with the stunning historical IPO rate that university spinoffs enjoy.
Probably the most important and overlooked point of all, however, is the fact that the professor has often devoted his or her entire professional life to this work! In many cases these professors are world experts in this particular domain/technology. This can simply be a priceless asset! Involving the professor as your chief scientific advisor and equity partner can thus bring with it an enormous positive effect.
I've actually posted about bridging this cultural divide between VC, Entrepreneur and Professor before, and have advocated for cultural sensitivity on both sides. Upon reflection I've come to realize that this is really not enough. After four years and with some fifty plus university spinoffs under my belt, I now understand that something much deeper needs to occur, and in this sense, a university spinoff is no different from any other startup. It will always be a story of human relationships and how successful and enduring these relationships will be. So now we arrive at a university spinoff distilled to its very core:
It is the parable of the VC, the Entrepreneur and the Professor...
It is their story to write and it will be a human story about their relationships, their level of trust, their communication and their collegiality and fellowship.
If it is a story rife with avarice and smallness and conflict- all is lost and we have a failure on our hands. Time, money and resources will have been wasted. Years of people's lives. It is a tragedy.
On the other hand, if it becomes a story of respect, of trust, of friendship and cooperation, we have the necessary foundation upon which a successful university venture can flourish. I have not seen it work any other way.
For Part 25 in in this Series, click here
Top 10 Small Business Stories for 2009”
The Business Insider “15 Huge Ideas That Flopped This Decade”
WSJ “Peformance of 2009’s VC-Backed IPOS Boosting Investor Optimism”
NYT “The Justice League of Entrepreneurs”
Chris Dixon “What’s the Right Amount of Seed Money to Raise?”
Charlie O: "Five Ways to Generate Momentum In Your Venture or Angel Round”
VentureHype “Startups Creation and Tech Transfer”
As 2010 approaches, a few wishes and thoughts come to mind:
1) First, I want to thank you, the readers of this blog for all your encouragement, thoughtful comments and words of wisdom throughout the year. I wish you all much success and happiness in 2010 and look forward to our continuing dialogue.
2) I also want to wish the entrepreneurs and investors I work with on a daily basis all the best for the coming year. It is truly a privilege to work with so many enthusiastic and dynamic individuals in a city with such a close-knit start-up community and so many great companies. The New York tech scene is on a huge roll. Let’s continue to make it happen!
3) 2009 was certainly a tough year and the difficult economic climate may well persist. The keys for fledgling start-up companies will no doubt be to stay focused, flexible and ultra-determined. Stick to the basics of “getting from zero-to-one” at all costs so as to survive and thrive. Surround yourself with high-quality missionaries who are all about “making it happen” and run like Usain Bolt from everyone else. In this environment there is literally no time for mercenaries, negativity, complainers and/or bureaucrats any more. The stakes are simply too high.
This is part of my ongoing series on University Entrepreneurship.
The annual University Startups Conference put on by NCET was held in Washington DC last week and was well attended by investors and university personnel alike. Through the course of multiple panels and discussions, a good cross-section of venture investors from very reputable firms weighed-in candidly on both what they like to see and what they don’t like to see when they try to spin-out companies from university tech transfer offices. Many colorful stories were exchanged to say the least.
Here are some quick bullets straight from the proverbial horses’ mouth that may be of help.
VC’s like to see:
· Platform technologies
· Great faculty “stars”, great scientists, great science
· Rich entrepreneurial culture and community throughout the university
· A "go-to person" at the tech transfer office with entrepreneurial experience
· A tech transfer office that’s “all about throughput” and getting deals done quickly
· Deal terms that are flexible because "business models change over time"
VC’s do not like to see:
· Slow-moving offices that take too long to get a deal done
· "Mismatches" in terms of respective legal counsel (turn-around time, skill, expertise)
· “Greedy” tech transfer offices with onerous deal terms
· "Big egos" at the tech transfer office that get in the way of deals
· Business plans. VC's prefer to have a short summary and decide for themselves
For Part 22 in this Series, click here
Mark Suster: Both Sides of the Table: "Hiring at a Startup? Know Thy Weaknesses"
Fred Wilson: Musings of a VC in New York: "The Herd Instinct"
Martin Zwilling: Startup Pro: "Bootstrap Your Business to Retain Control"
Charlie O'Donnell: This is Going to be Big: "To Poach or Not to Poach"
Bethany McLean: Vanity Fair: "The Bank Job"
Paul Kedrosky: Infectious Greed: "The Case for Start-Up Visas"
Vivek Wadhwa: Business Week: "Let's Give Visas to Startup Founders"
Many of us who have the distinct pleasure to live and work in New York’s entrepreneurial ecosystem and/or Silicon Alley have no inkling of the staggering role its local academic institutions play in the realm of innovation, licensing, and start-up formation. I can tell you that until approximately six years ago I had no idea of the sheer scale of it all. It is certainly true that the majority of this output is in the realm of health sciences/biotech, but much is being done to stimulate entrepreneurship from engineering, computer science departments, the undergraduate ranks and the business schools. (More on this in subsequent posts).
Just look at these hard numbers:
Annual Research Funds: $1872 million
Annual Inventions: 643
Annual New Licenses and Options: 193
Total Active Revenue Generating Agreements: 566
Annual Gross Licensing Revenue: $509 million
Annual Number of Start-up Companies: 20
Number of Start-up Companies to Date: 188
Source: New York Academic Consortium (NYAC)
For Part Twenty in in this Series, click here
This is part of my Series' on Venture Capital and Entrepreneurial Culture.
Over the years it’s been real privilege for me to mentor friends and acquaintances of mine who at one point or another in their careers have decided to make the leap into the start-up game. I happened to have had the particular advantage of starting early and so carry with me the proverbial scars on my back and psychic black-and-blue marks so reminiscent of the trade. It’s these same lumps that I always hope to help first-time entrepreneurs avoid.
Perhaps the most valuable counsel I can ever give to someone occurs right around the time they begin to raise capital to fund their company. This may well be the most vulnerable point of all in the life-cycle of a start-up for many reasons. One wrong move can literally mean the difference between success and a world of pain. Here’s truly where lack of experience, even in the smartest of people, can mean sheer disaster. I’ll start with the most important rule of all:
You need to know who you are dealing with.
Through no fault of their own, first time entrepreneurs fresh out of school, an academic lab or who have worked for years at big companies generally have no concept of the cast of characters that populate the early-stage ecosystem. If you have just emerged from this sort of cocoon, you no longer enjoy the invisible “protection” your old position or firm’s name provided and hardly realize how vulnerable you are. Essentially, you’ve arrived at a sort of Masked Ball, eyes wide shut, with no concept of who is around you.
Inevitably you will run into certain masked characters that may appear in any number of guises. Their firm might have the words “Capital” or “Ventures” in it, or they may say that they are part of a “group of investors”, and they will talk about the many startup companies they have “worked with”. Certainly they will discuss how much they would like to help you with your funding needs. But beware…
You may be in the midst of being initiated into the shadowy world of the “broker-dealer”, the “investment banker”, the “middle-man”. At some point you may well discover that he has no money to invest in your company whatsoever. Instead, he will want to “help you” raise capital for a fee, taking a percentage of the money raised for himself and perhaps a retainer and warrants to boot. It’s perfectly legal and I will say that there are indeed some reputable people operating in this business. But these are few and far between.
Jason Calcanis and Fred Wilson have recently published some posts, (here and here), describing yet another masked character on the scene- namely, the type of angel group that charges extremely hefty fees, (thousands of dollars), to entrepreneurs who wish to pitch them. This is definitely a character to avoid. Another type that needs to be vetted carefully is the one who tells you he's got a bunch of shell companies on the bulletin board stock exchanges and that with a flourish of his cape he can take your company public with a reverse merger. Warning bells should go off immediately.
The bottom line is that although there are some notable exceptions, most of these masked characters generally do not have your best interest in mind and I have both witnessed and been told of dozens of situations where unwitting entrepreneurs have been victimized by them. My advice is simple. If you are trying to raise capital for your start-up, ask around first, do your homework and talk to half a dozen or more entrepreneurs with funded startups about their experiences. Also, try to find a good mentor while you’re at it. In every community there are reputable angel investors, legitimate angel groups and of course a handful of early-stage venture firms that have money to invest if they like what they see.
This is part of my Series on University Entrepreneurship.
Above I’ve posted a graphic showing some of the many products that have been developed in whole or in part from the intellectual property emerging from Columbia University’s many labs. Almost all of these represent IP licensed directly to industry by my colleagues at Tech Ventures, Columbia’s Technology Transfer Office. One can see everything here from life-improving and sustaining drugs to BluRay technology to the technology behind the Iphone’s screens. With an average of 50 industry licenses, 100 sponsored research agreements, and 12+ spinoffs per year coming from Columbia alone, one can see that university tech transfer across the country has had an enormous benefit to society. The original vision behind the Bayh-Dole Act is definitely working.
For Part Eighteen in this Series, click here
This is part of my Series on University Entrepreneurship.
In the coming weeks I’ll be discussing the popular Entrepreneur Office Hours Program we launched at Columbia University’s Venture Lab some months ago. The program is open to anyone in the Columbia community and is scheduled on a rolling basis by appointment.
In the meantime, for all you fledgling entrepreneurs out there in universities around the country and overseas, I thought I’d begin to post some inspirational information on some of the successful exits Columbia’s portfolio companies have enjoyed over the years. Here are a few examples below.
Aton Pharma (Acquired by Merck for $150 million; NYSE: MRK)
The company is developing cancer drug targets based on research from R. Breslow of Chemistry and Sloan Kettering technology. Lead candidate is in Phase I/II clinical trials. The company was acquired by Merck for $150 million on February 2004.
CallStreet (Acquired by FactSet for $7 million)
CallStreet is the leading provider of corrected and formatted transcripts of management conference calls to the investment community. Hundreds of leading firms rely on CallStreet for the most accurate, highest quality content available. The company was acquired by FactSet in May 2004.
Corixa (Acquired by GSK for $300 million)
Corixa is a biotechnology company involved in the identification of novel genes. The company develops immunotherapeutics that treat and prevent autoimmune diseases, cancer, and infectious diseases by understanding and directing the immune system. Corixa was acquired by GSK for $300 million on May 2005.
CoTherix/Exhale Therapeutics (Acquired by Actelion Pharmaceuticals; NASDAQ: CTRX)
CoTherix is a biopharmaceutical company focused on licensing, developing, and commercializing therapeutic products for the potential treatment of cardiovascular diseases. CoTherix went public at the NASDAQ for $30 million in October 2005 and was purchased for $420 million by Actelion in November, 2006.
Electro-Optical Sciences (NASDAQ: MELA)
EOS is a medical device company focused on the design and development of a noninvasive, point-of-care instrument to assist in the early diagnosis of melanoma. EOS went public at the NASDAQ for $20 million in October 2005.
Memory Pharmaceuticals (NASDAQ: MEMY)
Memory Pharmaceuticals, a biopharmaceutical company, is focused on developing innovative drugs for the treatment of debilitating central nervous system disorders, many of which exhibit significant impairment of memory and other cognitive function. The company went public at the NASDAQ for $35 million on April 2004 and was acquired by Roche in 2008.
Mycrocept (Acquired by Healthpoint)
Mycrocept develops, markets, and distributes a variety of innovative pharmaceutical infection control systems, its flagship product being an antibacterial surgical hand scrub to the hospital market. The company was acquired by Healthpoint for an undisclosed amount in October 2005.
Nephros (AMEX: NEP)
Nephros was founded in 1997 by Columbia University health professionals, scientists, and engineers to improve the quality of life for the end stage renal disease patient, while addressing the critical needs of the care provider. The company went public at the AMEX for $12.6 million in September 2005.
ParAllele Biosciences (Acquired by Affimetrix; NASDAQ: AFFX; Department-Genomics and Development, Eric Schon)
ParAllele Bioscience is now part of Affymetrix. Not only does ParAllele bring innovative assay technologies to the Affymetrix technology portfolio, but working with their talented team of scientists, Affymetrix can continue to build on the underlying molecular inversion probe technology while expanding the applications capability of the GeneChip® platform. The company was acquired by Affymetrix for $120 million in October 2005.
Pharmacopeia Drug Discovery (LGND: NASD)
Pharmacopeia is a biopharmaceutical company developing small-molecule therapeutics to meet the needs of large patient populations suffering from significant unmet medical needs. Pharmacopeia's programs leverage the company's immunobiology expertise and are focused on diseases such as rheumatoid arthritis, multiple sclerosis, and psoriasis. The company was purchased by Ligand Pharmaceuticals in 2008.
Progenics Pharmaceuticals (NASDAQ: PGNX)
Progenics is a biopharmaceutical company focusing on the development and commercialization of innovative therapeutic products to treat the unmet medical needs of patients with debilitating conditions and life-threatening diseases. Their principal programs are directed toward symptom management and supportive care, human immunodeficiency virus, or HIV, infection, and cancer. The company has four product candidates in clinical development and several others in preclinical development.
Renovis (NASDAQ: RNVS)
Renovis was a science-driven, biopharmaceutical company that sought to discover, develop, and commercialize therapeutics for major medical needs in the areas of neurological and inflammatory diseases. The company went public at the NASDAQ for $66 million in February 2004.
Sentigen (Acquired by Invitrogen; NASDAQ: IVGN)
Sentigen Biosciences, a wholly owned operating subsidiary of Sentigen Holding, has developed a proprietary drug discovery platform that has the potential to change the paradigm of modern-day pharmaceutical discovery and development. The company was acquired by Invitrogen for $26 million in September 2006.
SGX Pharmaceuticals (NASDAQ: SGXP)
SGX Pharmaceuticals is focused on the discovery, development, and commercialization of innovative cancer therapeutics. Its mission is to provide patients with life-changing therapies through the dedication, innovation, and excellence of its employees. The company went public at the NASDAQ for $24 million in February 2006 and was subsequently bought by Ely Lilly & Co. in 2008.
Skinetics (Acquired by Sirna Therapeutics Inc., which was subsequently acquired by Merck; NYSE: MRK)
Based on technology from Dr. Angela Christiano's lab in Dermatology, Skinetics focuses on hair loss and growth. The company was acquired by Sirna for $2 million in December 2004, and was subsequently acquired by Merck.
System Management ARTS (Acquired by EMC)
System Management ARTS is a leading developer of software to automate management of complex networked systems and identify network problems in real time. The company was acquired by EMC for $260 million in December 2004.
For Part Seventeen in in this Series, click here
2) NYTimes "Twitter Confirms New Funding"
4) This Is Going To Be Big "Retraining Wall Street"
5) Scott Anthony "My Best Innovation Advice? Be Promiscuous"
This is part of my Series on University Entrepreneurship.
Upon spinning-off 13 companies from Columbia University in FY 2009, we at the Venture Lab realized that we’d now eclipsed the century mark with over 100 spinoff companies historically. We were also heartened by the fact that over 30 of these had been venture-backed at some point in their life-cycle, over 20 had either been sold or gone public and among them they had created in excess of 1500 jobs and raised over $1 Billion in venture capital.
It’s a testament to all the great work being carried out by the faculty and grad students in the 7,000 plus labs at the University, by the business school’s entrepreneurship center and by the talented entrepreneurs and investors who stepped up to take fledgling ideas and transform them into commercial ventures.
It’s also just a snapshot of the emerging behemoth of university entrepreneurship being loosed upon campuses around the country.
(Above find just a few of Columbia University’s portfolio companies)
For Part Sixteen in in this Series, click here
Chris Morris (VentureBeat): "Is the Tech Boom Over for Entrepreneurs?"
Anthony Ha (VentureBeat): "New VC Marc Andreessen Joins HP Board"
Venture Hype: "How Successful Angels Invest"
This is part of my Series on University Entrepreneurship.
Another success story in the annals of university spin-offs hit the wires today.
Hearty congrats to MacArthur Genius Luis von Ahn and his colleagues at Carnegie Mellon School of Computer Science. Their spin-off company, ReCaptcha was acquired today by Google. You can find Google’s announcement here and additional information here.
The company came up with a clever and effective variation on traditional CAPTCHAs by using words scanned from old books and archives that computers find difficult to read. In fact, more than 100,000 sites are currently using this technology. Google will go beyond this initial application however and intends to use the technology to greatly improve some of its own text and archival scanning projects, including Google Books.
For Part Fifteen in in this Series, click here