Screening Judge: Banker John Freyhof
Investment Banker: Warren Bagatelle
The Competitors: btb.com & Cell USA
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
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
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
Pepper Hamilton, will moderate the panel that includes John Ason
Warren Bagatelle
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),
& Rhodes, Freyhof, and Mel Baiada
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:
models from two-dimensional video.
toys as a $5.99 phletball (throw it as a frisbee and it opens into
a ball) and the yappity yap cat dog.
California, three-dimensional Internet gaming.
on-demand web-based publishing company (U.S. 1, May 6, 1998)
company (U.S. 1, December 12, 1999).
beach party.
print media.
"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:
!["*"]("/images/bullet.gif")
Track record
Growth objectives
Management’s personal financial objectives
Management’s philosophy
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:
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.
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.
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.
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
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
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
Baseman, president. 609-497-9400; fax, 609-497-9453. Home page:
"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."
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.
Corrections or additions?
This page is published by PrincetonInfo.com
— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
Facebook Comments