A convincing case could be made for why government investment, particularly in the form of SBIR technology grants, is good for business (see U.S. 1, September 22). But an equally compelling case can be made for why it isn’t working out as well as you might think.
#b#Larry Roderick#/b#, a partner at Moorestown-based investment firm FIP Partners, worries that the United States is losing ground to China because whereas Chinese government investment often sees products come to fruition, far too many SBIR projects and companies here never end up going anywhere.
Roderick will present “I Want To Buy Into Your Company: Creating Value With A Management Investor,” at the New Jersey Entrepreneur’s Network on Wednesday, October 13, at noon at the Princeton Marriott. Cost: $55. Contact email@example.com or 609-688-9252.
A familiar problem Roderick sees in tech circles these days is the good idea. Lots of people have good ideas, some even good enough to get an SBIR grant to help develop it. But too often, Roderick says, such companies do not know how to practically bring their ideas to market. They get one grant but can’t figure out how best to use it. They contribute to more money being wasted on a good idea that goes nowhere. Or worse — they spend their entire existence being nurtured on government money rather than becoming self-sufficient entities.
FIP Partners is built to help companies across the developmental no-man’s land known as “the valley of death.” This, Roderick says, is that dangerous gray zone between funding and commercialization, where an idea is developed but there is no market — or at least no plan to get the product into a market. FIP steps into companies in the valley and invests money and expertise toward a more tangible end. Roderick wants to see companies that can be sold, not ideas that might come through.
#b#No angels in the pipeline#/b#. Angel investors and joint-venture capitalists are those that financially back young companies with promising ideas. At their core, these companies put money into a company and then start collecting their investments after a period of time, usually seven years.
Roderick and his partners are management investors, not angels. Their task is to find companies that have a workable product, put money into them, and act as consultants and promoters of the company’s technology. FIP’s return on its investment is a percentage of the company’s value (usually 20 percent) to be collected when the company sells.
FIP screens companies to make sure they actually have a workable product. Remember, the instantaneous teleportation booths from Buck Rogers were a good idea, but if that’s all a company is working on, it would not be a good investment for FIP. However, if in the company’s grandiose plans the partners see something that can be extracted and developed for commercialization, then game on.
Roderick’s eye for ideas that can be commercialized comes from a long career in the technology sector. Born in California and raised in Wisconsin, Roderick has spent his entire adult life in the field. He holds four engineering degrees, including two masters’ degrees from USC and George Washington University and a Ph.D. from Old Dominion University.
Roderick began his career with military aviation giant Northrup, from which he was recruited to NASA. He worked for the space agency for 14 years before moving to Boston for 11.
In Boston he got his first taste of transitioning a product from its military roots — rail guns, designed by MIT to hit Soviet tanks — to a commercial application. “The Wall came down so we transitioned it to oil drilling equipment,” Roderick says.
From here, Roderick went on to helm several smaller technology companies. In 2008 he took over as president and CEO of Magplane Technology Corporation, a joint venture with Inner Mongolia Chinese partners to develop an electromagnetic pipeline for coal transport. Roderick still holds this post and has an office near his Philadelphia home as well as one in Beijing and another in Mongolia.
At FIP he is one of three investors looking to help small, promising companies become real players and position themselves for sale.
#b#Losing ground#/b#. China worries Roderick. “If you’ve been there recently you’ll see they’re just booming,” he says. Investment is high and production is non-stop. And, for the moment, China is not so much innovating as it is building.
But that will change soon enough. Whereas we are all ideas and little production, China is all production, but is starting to see the value of innovation and technology. “We’re losing the leading edge,” Roderick says. “We’re still way out in front, but China will catch up before long. We need to be able to transition ideas into real products.”
But how? FIP finds companies through SBIR records, this way it knows there is some level of promise in a technology. From here FIP vets the company and, if it likes what it sees, invests capital in it.
The ties to straightforward angel investing end here. Roderick will take a vetted, funded company and start talking it up to potential market partners. Ideally, big companies have entire departments designed to usher small companies into their pipelines, and Roderick pitches the idea to companies looking for a certain type of technology.
The general idea is to get a bigger company interested in trying a smaller company’s product, Roderick says.
If that happens, FIP helps set up “manufacturing cells,” which can be expanded and altered to fit the needs of increasing production scale.
With the amount of ideas floating around in U.S. companies, Roderick sees a lot of possibilities. But to stay far out in front, of China or anyone else, the U.S. needs to invest more than money. It must also invest its expertise, and Roderick hopes to see more management investors help more companies into the pipeline.
“I don’t know what three guys can really do,” he says of his company, “but that’s what we do.”