Date: Mar 11, 2007 Author: Kevin Robinson-Avila Source: bizjournal
Definitive Bone founder and CEO Joe Cesarano hoped to get $6 million in venture capital after presenting at Technology Ventures Corp.'s Equity Capital Symposium last year.
Ten months later, he still has no VC commitments, but he might have gotten something even better. He's about to sign deals with strategic partners to purchase some of his ceramic specialty products and to finance further research and development.
Cesarano produces synthetic material for bones with proprietary technology he developed as an engineer at Sandia National Laboratories. As a scientist with few business skills, he assumed the technology would sell itself to venture capitalists at the TVC symposium.
"It turns out the technology is only about 10 percent of what it takes to create a successful business, but when you're at the laboratory, you think it's the opposite, that the technology is everything," Cesarano says. "The TVC helped me mold a solid, feasible business plan. It also showed me that going after venture capital is not always the best path forward, that there are other alternatives."
In fact, since the symposium, Cesarano created a totally new business -- Robocasting Enterprises LLC -- to move ceramic production forward while he continues to develop Definitive Bone as a viable company. The latter will require clinical animal trials and Federal Drug Administration approval before he can produce synthetic material for human bones, so, in the meantime, he's creating specialty ceramic products such as filters for diesel engines that can be brought to market much faster.
"I'm about to sign a contract with a North Carolina company to buy the ceramic filters, which will mean about $1.5 million in sales over the next two years," Cesarano says. "We started production this week and I'm planning to hire five new employees. That contract will keep us going while I finish negotiations with another strategic partner -- a medical business -- that is interested in funding $2 to $3 million to move the animal studies and FDA approval process forward for the bone scaffolds."
Many of the 18 companies that presented at the 2006 TVC symposium are taking solid strides forward, but only some of them are doing it with venture capital. TVC estimates that 30 percent of all symposium presenters actually get venture capital. It can take up to two years before they sign final deals for funding, says Andrew Salazar, TVC director of project development.
"It's usually 12 to 18 months or more before investors make a commitment," Salazar says. "That's pretty consistently the experience of companies who present at the symposium."
Of seven presenting companies from 2006 interviewed by the New Mexico Business Weekly, only one has, so far, received venture funding -- Altela Inc., a water desalination firm that received a $1.2 million round of investment led by the Verge Fund.
Three others are still in negotiations with venture firms:
Enerpulse Inc., which developed a new generation of spark plugs that are far more powerful than traditional plugs, is still seeking $5 million in venture capital. Altira Group has committed $2.5 million, but CEO Dan Parker says he's looking for other investors to put up the rest.
Flexible Liner Underground Technologies, or FLUTe, is negotiating terms with a couple of VC firms for $2 million, but owner Carl Keller says he also might sell the company to interested buyers. FLUTe manufactures flexible liners that line bore holes and measure contamination in ground water.
Symphony Acoustics -- which uses optical sensors to make small, high-quality microphones -- is negotiating with two potential investors, one that could provide up to $10 million, with $2 million to start, and a second for $5.5 million, with $1.8 million to start. Both investors are from other states, says CEO Michael Camp.
Two other firms -- Santa Fe start-up PaceIgnitions and Roswell-based Focus Energy Corp. -- opted for other alternatives rather than pursue venture capital.
PaceIgnitions, which produces remote-control devices for cars that allow parents to program rules and regulations for teenage drivers, is self-financing the production of its devices, says founder and owner Mike Phelan. PaceIgnitions formed a strategic partnership with road safety outfitter Sanctions and Solutions, which is now distributing the remote-control device through its statewide retail network.
Focus Energy, which uses 3-D computational modeling to identify and locate millions of barrels of bypassed oil in complex geological formations, is substituting debt financing for venture capital, says founder and CEO James Manatt. The company is seeking $8 million in debt from investment banks in Houston and New York to begin work on a maturing oil field.
"Instead of selling equity or stock in the company to venture capitalists, we'll get debt equity by selling a part interest in the oil we produce to the banks," Manatt says. "If we don't get the full $8 million we need, we may still try to make up the rest with venture capital, but for the moment, we're not actively pursuing private equity."
Manatt says the immense amount of information demanded by venture capitalists before committing funds makes the search for private equity an agonizingly slow route to pursue.
"They need an excruciating level of detail, justification and financial scenarios," Manatt says. "It's tediously slow, and with fluctuating oil and gas prices, we have to keep presenting a whole new set of data every time we meet with them."
But even if few of the firms that presented at the 2006 symposium have yet gotten venture capital, most company executives say the TVC forum greatly helped them firm up business plans and be more prepared to negotiate funding and strategic partnerships.
Keller, for example, says he learned a lot despite 11 years of experience running FLUTe.
"I suppose I'm not the usual VC client because I've been in business for quite a while, but it was an extremely useful exercise for me to address issues that are important to investors or buyers," Keller says.
Cesarano of Definitive Bone says TVC transformed him from scientist to businessman.
"More than anything, it taught me how important it is to understand the business side of commercializing technology," Cesarano says. "I'm a lot better prepared now to approach investors or strategic partners."
