Screening Judge: Banker John Freyhof

Investing Angel: John Ason

Investment Banker: Warren Bagatelle

The Competitors: btb.com & Cell USA

Geeps.com & Knite Inc.

Make Us An Offer

Nex-i.com & Veritas Medical

Corrections or additions?

Angel, Angel, In the Hall, Who’s the Fairest of Them All?

by Barbara Fox

Two years ago at the New Jersey Venture Fair, ITXC

won "company most likely to succeed." Back then ITXC was a

start-up Internet telephony company, based out of the founder’s home

on Library Place in Princeton. Since then it went public, moved into

large quarters at 600 College Road East in the Forrestal Center, and

last week floated another 4 million shares at $85.

Last year at this same venture fair, Paytrust.com — a fledgling

bill paying service — was voted "company most likely to go

public." Just last week its parent company, Secure Commerce Services

of 29 Emmons Drive, announced its IPO (see Life in the Fast Lane,

page 51).

With such a tantalizing track record, it’s no wonder that people with

innovative, start-up companies — as well as people with money

to invest in such companies — flock to the New Jersey Venture

Fair, hoping to walk away with the makings of a done deal.

"The beauty of these conferences is that, from an investor perspective,

it is good to spend a few hours in one place with pre-screened companies

ready with an executive summary," says John Freyhof of VentureBank@PNC,

who served on the judging panel to screen the entries.

"It is a one-of-a-kind regional event where entrepreneurs can

capture the attention of investors and entrepreneurial supporters,"

says Joe Allegra, chairman of New Jersey Technology Council

and president of Princeton Softech.

The New Jersey Venture Fair, sponsored by the New Jersey Technology

Council, takes place on Monday, March 20, at the Liberty Science Center

in Jersey City. The fair opens with a noon luncheon and a discussion,

"Help from the Heavens — How to Find Your Angel," featuring

five private investors. Barry Abelson, chairman of Philadelphia-based

Pepper Hamilton, will moderate the panel that includes John Ason,

Warren Bagatelle of Loeb Partners, Michael R. Cooper,

former CEO of Opinion Research International, Will Mayhall,

former president of Princeton Financial Systems (http://www.pfs.com), and Will Robins

of Q Financial Group at 457 North Harrison Street. Cost: $140. Call

856-787-9700. For sign-up information and directions see the Technology

Council’s website, http://www.njtc.org.

The NJTC received 100 applications for this fair, which had to be

winnowed down to 60 exhibitors. The screening committee included Ron

Hahn of Early Stage Capital (http://www.lsevc.com), Jim Marino of Dechert Price

& Rhodes, Freyhof, and Mel Baiada of Bluestone Consulting in

Mount Laurel. During the tradeshow part of the fair, beginning at

1:30 p.m., judges will evaluate the exhibitors. They will present

12 awards, including "Company Most Likely to Succeed" and

"People’s Choice." The fair concludes with a cocktail party.

If the past record holds, the outlook is good for participants to

get funding. Companies in New Jersey received what is termed an "unprecedented"

total investment of $815 million in 89 deals last year, according

to a survey by one of the venture fair’s sponsors, PricewaterhouseCoopers.

Additional sponsors are such consulting firms as Arthur Anderson and

Dechert Price & Rhoads; such venture funds as Early Stage Enterprises,

Edison Venture Fund, Penny Lane Partners (all of Princeton), and Update

Capital of Holmdel; banks such as Progress Bank, Silicon Valley Bank,

and VentureBank@PNC.

Other sponsors include these Princeton area law firms — Buchanan

Ingersoll, Drinker Biddle & Shanley, Morgan Lewis & Bockius, Reed

Smith Shaw & McClay, and Smith Stratton Wise Heher & Brennan.

Herewith some sketches of people and companies who will participate

in the Venture Fair:

Top Of Page
Screening Judge: Banker John Freyhof

John Freyhof served on the screening committee that

winnowed hundreds of applications down to the "best of the best"

or about 60 entries to the venture show. "We looked for companies

that had a product or service that was unique or different, that if

successful had upside growth potential," says Freyhof. Other pluses:

A solid management team — founders with relevant experience who

know what they are doing. And companies that could attract both institutional

venture capital and money from the private investor community.

Freyhof is managing director of VentureBank@PNC, the high technology

lending unit of PNC Bank. It offers capital market services to start

up companies in eastern Pennsylvania and New Jersey. A graduate of

Syracuse, Class of 1978, he has an MBA from the University of Pittsburgh

and was working for Carnegie Mellon University’s Enterprise Corporation

when he was tapped to help start this group nearly three years ago.

"We have been working pretty hard at this for the past four months,

but if you want to play in this space you’ve got to give something

back from time to time," he says. "If you work hard and help

companies out, you will get good deals over time." And yes, he

would hope to do deals with these companies at a later stage.

Still, little acorns become saplings, and the winner from 1998 —

ITXC — is a client of his. "We were working with them but

ended up banking them after the conference," says Freyhof.

Top Of Page
Investing Angel: John Ason

I‘d rather invest in something that is fun," says

John Ason, an angel investor who has put money into inventions ranging

from a "yappity yap cat dog" that sells for $29.95 to an Internet

site billed as the world’s largest beach party. Ason is an angel investor

with at least two of the companies entered at the fair, Make Us an

Offer and Xlibris, and will be a panelist at the Venture Fair luncheon.

Ason describes the investing sequence: First the founder empties his

or her pockets and then calls on family and friends to invest. The

"angel," the first professional investor following that friends

and family round, typically chips in between $100,000 and $500,000.

Generally the company is valued, at this point, at from $1 million

to $5 million. "That’s the sweet spot, where a lot of angel investing

is done," says Ason.

An angel gets equity and a guaranteed share of the company. But as

the company grows and devours more money, the percentage that each

angel owns will dwindle. That’s why most investment contracts give

the angels the right to maintain their ownership percentages by buying

into the next round. It’s the typical anti-dilution clause, says Ason.

What an angel doesn’t get is guaranteed income or profits. But with

great risk goes the possibility of great reward. "I expect to

see a 10 times return in three to five years," says Ason. He has

been investing for four years and has yet to see any return but "is

very close on several companies. Two of my companies are close to

being bought out."

His investments include:

Geometrix, based in San Mateo, making three-dimensional

models from two-dimensional video.

Goldman Toy Group, based in Cherry Hill inventing such

toys as a $5.99 phletball (throw it as a frisbee and it opens into

a ball) and the yappity yap cat dog.

Spatial Labs, formerly of New Jersey, now in Menlo Park,

California, three-dimensional Internet gaming.

Xlibris, formerly of Trenton, now in Philadelphia, the

on-demand web-based publishing company (U.S. 1, May 6, 1998)

Make Us An Offer, of Princeton, the haggling software

company (U.S. 1, December 12, 1999).

Bikini.com, Manhattan-based, billed as the world’s largest

beach party.

I-marketinsight, which measures advertising results in

print media.

Those are the successful companies. Three of his companies are

"dead," Ason admits. "That’s the business. It is the equity

play. You either make big or you lose it all."

A 1968 graduate of the Illinois Institute of Technology in Chicago,

Ason worked for Bell Labs for 27 years and invested in the stock market

all along. "All of my money came from long term holdings,"

Ason says. He met his wife, now vice president of intellectual property

at Lucent Technologies, in a Bell Labs carpool and they have a school-age

daughter and preschool son.

Ason says he generally responds to every proposal and with a chunk

of money "in the low seven figures" is constantly looking

for more investments. He prefers not to receive phone calls, "the

least efficient way to get hold of me." First choice is to get

an executive summary by E-mail, second choice by mail.

His priorities: "Good people, a fun market with large potential,

and we go from there. I am different from most other angels in that

I only invest in industries I know nothing about. It is more fun,

more interesting and challenging."

Top Of Page
Investment Banker: Warren Bagatelle

Warren Bagatelle, a managing director of Manhattan-based

Loeb Partners who is another luncheon panelist, says he generally

chips in $50,000 to $100,000, along with one or two of his partners,

to a variety of small investments. Personally, he has about three

dozen investments, and the firm has 10 times that number.

The son of a professional photographer, Bagatelle majored in economics

at Union College in Schenectady, Class of 1960, and has an MBA from

Rutgers and spent seven years with Arthur Andersen and 12 years doing

"workouts," taking over the direct management of handful of

industrial companies in Rochester, New York. For the workouts he was

hired by large investors, such as GE Capital, to be the operating

officer. "I did five or six," he says proudly, "and never

lost one. That’s why I can analyze management and product."

Bagatelle left line management for Wall Street in 1981 and was CEO

of a small New York Stock Exchange member firm, becoming one of a

dozen managing directors of Loeb Partners in 1988. This 75-person

full-service boutique investment banking firm is 96 years old.

Bagatelle has no real formula, "more of a gut feel." But he

takes these factors into consideration:

"*"Track record

"*"Growth objectives

"*"Management’s personal financial objectives

"*"Management’s philosophy

"I expect a reasonable personal lifestyle. Don’t drive up

in a limousine," says Bagatelle. "Don’t take all the money

we put in and spend it on things that don’t ultimately generate business."

One of Bagatelle’s investments is Fuel Cell Energy Inc.,

based in Danbury, Connecticut. One of his "almost failures"

was an electronic limousine reservation system, called Genisys. It

turned out to be an unfortunate business model, because limo companies

are notoriously averse to using computers. (A similar company founded

by Jeff Starr, GTN Technologies at 3131 Princeton Pike, came to the

same conclusion.)

The difference between the two companies is that Genisys changed business

plans several times and is now a success but is in an almost totally

different business. "The corporate travel managers — companies

like Exxon, Toys R Us, and Bristol-Myers Squibb — tried to convince

their limo contract service providers and they couldn’t twist enough

arms to give enough volume to justify the system. It just wasn’t building

fast enough," says Bagatelle. "So they expanded the automated

reservation system to include cruises and airlines." A website

(http://www.netcruise.com) now does the full range of Internet

travel services, acting as a combination independent travel agent

concept and an Internet travel agency.

One of the Genisys directors, Larry Burk, former head of a $1.5 billion

insurance firm, is now the president, but as Bagatelle says, "getting

the turnaround done has been hard work." In most cases Bagatelle

has no interest in staying hands-on with his investments. "We

can’t and shouldn’t run these companies," he says. "We typically

serve on some boards of directors, and we try to pick directors who

can be helpful."

"I’ll take an average idea with excellent management over a brilliant

idea with poor management. In some cases we have changed management

more than once before we succeeded," says Bagatelle.

"We tend to be old school. We deal with our investing the way

bankers used to in the movies. We look at people to decide — whether

they will pay their loan with interest. We try to assess integrity,

and interest, and intent. Whether they will succeed and make us look

good in the process."

"Where we have made mistakes — and my wife likes to hang my

failures on the wall — in every case the management failed to

adjust, accommodate, and get the job done. I have plenty of worthless

certificates.

Top Of Page
The Competitors: btb.com & Cell USA

The Venture Fair judges will face an impressive lineup

of entries, including a good assortment from Princeton. Nearly one

fifth of the some 60 companies who have entered the fair are from

the Princeton area, and half of those are in the new media field.

Overall in New Jersey, new media companies are responsible for 65,000

jobs and $4.4 billion in gross revenue last year, says the PricewaterhouseCoopers

survey. These Internet-related companies were responsible for nearly

half of all the venture capital received by New Jersey companies,

$347 million. The Princeton and central New Jersey players in the

lineup:

Btb.com Inc., 2650 Route 130 & Dey Road, Constitution

Center, Cranbury 08512. Larry Trink, principal. 609-409-1075; fax,

609-409-1079. Home page: http://www.btb.com.

In addition to his ad agency, Creative Direct, Larry Trink has partnered

with Jeff Simon in a business-to-business website. "It is an aggregator

for buyers and sellers in the business to business catalog industry,

a b-to-b functional hub," says Trink. Unlike most b-to-b websites,

Trink says, this one caters not to the start-ups and home-based market

— or to the big companies, but to the medium sized businesses,

with from $2 million to $4 million in annual sales.

The business model: fee-based membership on the website and a network

wide search engine offering free searches. Query on what you need,

price range, delivery time, and it delivers quick answers — especially

when compared to paging through catalogs. Trink has signed up 40 affiliates

from varying businesses and offers priority listings (at a price)

and selective display (to protect competitiveness.)

Trink anticipates signing up 500 customers in the first year and achieving

revenue of $1.5 million. The company has been self funded until now

but needs an initial stage investment of $800,000. Most of that, $500,000,

would be used to complete the intelligent search engine and develop

a "register once, shop anywhere" scalable registration process.

"Our goal is to merge or buy out another company," says Trink.

He believes his position in the middle market would be attractive

to a company at either end.

Cell USA Inc., 707 Alexander Road, Building 2,

Suite 208, Princeton 08540. Michael Hinds, CEO. 609-419-4401; fax,

609-452-0909. Home page: http://www.cellinc.com.

The firm develops virtual instrumentation products — plug and

play peripherals — for use with PCs. Based in France, the three-year-old

private company has a patent on a radiation detection device and is

working on such virtual instruments as a combination digital sampling

oscilloscope and logic analyzer and a waveform generator (U.S. 1 March

17, 1999).

Electronics manufacturers sell similar instruments that must be attached

to a dedicated PC, says Hinds, who is a former vice president of marketing

and sales for Cytogen. He notes that his module can be connected to

any computer, including a laptop, so a field engineer can test an

instrument in the field with a laptop, perform all kinds of analytical

work, do reporting, and network the data through the PC in the office.

Top Of Page
Geeps.com & Knite Inc.

Geeps.com, 4 Cedar Brook Drive, Cranbury 08512.

Andy Goren, CEO. 609-452-0700; fax, 609-655-5232. Home page: http://www.geeps.com.

Geeps sounds like a strange name for an Information Age start-up company

— until you realize that Geeps stands for GPS, the Global Positioning

System. Andy Goren, another Logic Works alumnus whose previous ventures

have included a company that would secure laptop computers, hopes

to exploit the GPS capability by combining it with the Internet and

wireless technologies.

Goren hopes to soon have a working demo of the following scenario:

A Geeps user is walking down the street, clicks on his Palm Pilot,

is told exactly where he is, and gets a list of stores and restaurants

in the area that are offering specials and discounts. Call it a location-based

wireless Internet shopping portal. The firm is affiliated with Visionet

Systems, the software consulting firm headed by Arshad Masood.

Knite Inc., 1 Deer Park Drive, Suite 1-H, Princeton

Corporate Plaza, Monmouth Junction 08852. Patrick McGinnis, CEO &

president. 732-329-0505; fax, 732-329-8334. Home page: http://www.knite.com.

This manufacturer of ignition systems that replaces spark plugs and

spark ignition systems is known for a "bolt of lightning plug,"

based on research done at Princeton University by Szymon Suckewer

and Enoch Durbin and was originally developed for the fusion program.

The patent for this design, Kinetic Spark Ignition, has been assigned

by Princeton University to Knite. It is aimed at engine manufacturers

under pressure from environmental government regulations on emissions,

and this market is estimated to grow to $27 billion in 10 years.

"In three rounds of financing we have raised $1.9 million and

we consider ourselves in a growth stage," says Patrick McGinnis,

CEO and president. "Our technology is pretty solid and we’re looking

for $5 million to pursue an aggressive marketing campaign, to continue

our patent activities, and to execute business agreements." Recently

he licensed the technology to the maker of Johnson and Evinrude outboard

motors and aims to achieve licensed product sales of more than $100

million to generate more than $15 million annually in licensing revenue

by 2005.

McGinnis (an electrical engineer from Temple, Class of 1984, with

an MBA from Penn State) had been vice president of operations at a

division of SBX Corporation, an automotive tools and services firm.

Art Suckewer, the son of Szymon, is founder, chairman, and chief technology

officer (U.S. 1, September 15, 1999). They hope to eventually sell

the company to one of the engine manufacturers. Other options for

liquidity would be to go public or participate in buying out and refocusing

an ignition systems manufacturer.

Top Of Page
Make Us An Offer

Make Us An Offer Inc. , 684 Whitehead Road, Lawrenceville

08648. Kathy Morell, president. 609-656-1240; fax, 609-656-1248. Home

page: http://www.makeusanoffer.com.

On-line haggling software (http://www.haggleware.com) allows

buyers and sellers to negotiate with one another over the Internet

using the centuries-old practice of haggling. It is deployed on a

network of E-commerce sites using an application service provider

(ASP) approach and can be used in the business-to-consumer and business-to-business

markets. It provides this haggling service to companies with existing

websites, offering a differentiating sales methodology while offering

intelligent pricing geared toward efficient product liquidation

The firm began as a consumer oriented business, enabling consumers

to haggle over prices set by distributors, especially those trying

to reduce excess inventory. But then the firm changed course, and

began to concentrate on its haggling software as a tool that could

be sold to a wide variety of Internet sites. This firm has been subject

of two cover stories in U.S. 1 Newspaper, (December 15, 1999, and

March 1, 2000). The first told about the company, the second about

problems with angel financing.

Top Of Page
Nex-i.com & Veritas Medical

Nex-i.com, 7 Wall Street, Princeton 08540. Ira

Baseman, president. 609-497-9400; fax, 609-497-9453. Home page:

http://www.nex-i.com.

"We have exploded. We are serving 11 states including the District

of Columbia, have grown to 25 full-time employees, are bringing new

clients on every day, and are expanding to the midwest and southeast,"

says Ira Basemen, president. The firm has concluded first round equity

funding, received a commitment for significant debt financing from

Cisco Systems, and is embarking on second round funding with venture

capitalists.

Nex-i-com is an integrated service provider offering prepackaged,

plug-in local area networks for small to medium-sized businesses,

which Basemen characterizes as "typically underserved, with tools

offered in a fragmented fashion or too costly." It also leases

services, provides help desk capability, and offers Internet access

through a T1 line that will become a framework for voice over IP and

software distribution (U.S. 1, August 18, 1999, and March 1, 2000).

In the second quarter Baseman plans to launch a new community site,

an outsourced network and data service to the small business market.

"We are leveraging the appetite for smart buildings to create

a community of connected small businesses," he says. "This

site will be the platform on which our small business clients will

create multiple communities — in the office, across the street,

and to the world at large, to create group projects, share files,

and conduct business."

Veritas Medical Technologies Inc., 136 Village

Boulevard, Suite 101, Princeton 08540. James Pachence, president.

609-466-8712; fax, 609-720-0703.

Veritas is the only Princeton-area biotech firm that has entered the

fair. It does R&D of pharmaceutical compounds for sustained drug release

(U.S. 1, January 14, 1998). "Over the past two years, despite

the fact that the venture community has not been warm to biotech,

we have survived with dribs and drabs of money," says James Pachence,

a 1974 Penn graduate who formerly worked at American Biomaterials

and Integra Life Sciences. "We’ve been successful at raising angel

financing and have a large corporate partners from Europe, two SBIR

grants and three phase I grants."

Now that Wall Street is taking a sunnier view of his industry, Pachence

is hopeful. He points to potential drugs for rheumatoid arthritis

and pulmonary hypertension, both in pre-clinical studies, and a couple

of drug delivery candidates for prostate, breast, or ovarian cancer.

His six-person firm has an office at Forrestal Village and incubator

space at UMDNJ.


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