Interesting energy survey findings

Thought I would pass on a pointer to an interesting energy survey conducted by researchers from Columbia University, Ohio State University and Carnegie Mellon University, and published in this week’s Proceedings of the National Academy of Sciences. A few fascinating findings:

• Americans largely overestimate the energy savings from obvious energy saving actions (e.g. turning off lights) and underestimate the savings from the actions that actually consume more energy (e.g. central air conditioning)
• People who engage in more energy-saving actions are actually more inaccurate when it comes to estimating their energy savings
• Some obvious choices, such as using glass bottles as opposed to using new Aluminum cans for sodas, may actually consume more energy

You will find the GigaOm article describing this survey here.

A fantastic interview with Bill Gross, founder of IdeaLab, Overture

Just came across an awesome interview of Bill Gross taken by Mark Suster. Check it out:

In the interview, Bill discusses a few highly relevant lessons that would make sense to every entrepreneur out there. Here are a few highlights taken directly from Mark Suster’s posting on the interview. 

• Bill believes that most of the best business ideas come from people solving personal problems that they have in their every day lives. Almost every business he’s ever launched has been this.
• “You need to make sure your product is 10x better than that of your competitors. First, you’re probably exaggerating how much better it is. But also when you’re developing so is your competitor. So if you shoot for 10x better you might hit 3x better and that’s super important to win.”
• Too many entrepreneurs focus on dilution. Bill thinks that most companies your success is usually binary. So the most important thing is to surround yourself with people who can help you succeed. Make sure they’re as passionate about your space as you are (and have strong knowledge of your area). But over-optimizing for dilution is a bad attribute relative to focusing on creating a big & winning company.
• Test monetization early. You can fool yourself into believing that there is inherent value in your product but you only really know when somebody has to get out a credit card and part with hard-earned money.

Caltech + Stanford Startup Raises $75M in IPO

Fluidigm is a microfluidics company based upon technology licensed from Stanford University and Caltech.  Luke Timmerman from Xconomy does a great job of tracking the history of Fluidigm and the company’s long road to IPO.

The Invention

Fluidigm co-founder Stephen Quake invented a microscopic valve while he was teaching at Caltech in 1998. Much the way a transistor controls the flow of electrons in a computer chip, Fluidigm’s microfluidic valve performs the same function for the life sciences industry in a microfluidic chip made of rubber. Quake and Gajus Worthington founded Fluidigm in 1999. Worthington is the company’s president and chief executive officer, while Quake is head of Fluidigm’s Scientific Advisory Board, co-chair of the bioengineering department at Stanford University, and an investigator of the Howard Hughes Medical Institute.

In the late 1990s, most microfluidic experts came from the semiconductor industry and preferred substrates like silicon, glass or plastic, but not Fluidigm. Quake’s invention created the chip out of fusing multiple layers of rubber. That substrate is unique within the bio-chip industry and is illustrative of how Fluidigm has pioneered its path to creating a variety of PCR-based solutions.

A Decade of Successive Inventions

Today, Fluidigm’s technology enables the rapid, efficient, highly parallel, and reproducible analysis of tens-to-hundreds of genetic markers, across hundreds-or-thousands of DNA samples, in hours instead of days or weeks.  Fluidigm’s technology supports genomics-based applications such as single-cell gene expression, high sample throughput SNP genotyping and ground-breaking capabilities such as digital PCR and automated target enrichment for next-generation sequencing.

Xconomy - Feb 11, 2011

“You know what they say about how if you don’t at first succeed, try, try again.

South San Francisco-based Fluidigm said today it has completed its initial public offering, which comes more than two years after it had the misfortune to attempt an IPO at the height of the worst financial crisissince the Great Depression. This time, Fluidigm pulled in about $75 million, by selling about 5.6 million shares to investors at $13.50 a share. The price was on the low end of its forecasted range of $13.50 to $15.50 a share. The company is now ready to start trading on the Nasdaq exchange under the ticker symbol FLDM.

Fluidigm has traveled a long and risky road to its IPO day. Founded in 1999, it has piled up a deficit of more than $196 million since it was started by Stanford University biologist Steve Quake and CEO Gajus Worthington to create a high-powered, microfluidic instrument for researchers. It has sold about 200 of its machines, which sell for $200,000 each. As I wrote in a story in December, the Fluidigm machines can be used to do things like detect rare cancer stem cells that are hard to find, and which are thought to enable cancer to rebound following chemotherapy. Stem cell researchers use the Fluidigm machines to identify signatures of induced pluripotent stem cells—ordinary adult cells that scientists reprogram into a stem-cell like state.

Fluidigm hasn’t turned profitable yet, although its revenues have been climbing enough that it expects to start running in the black by mid-2011, Worthington has said.

Deutsche Bank Securities and Piper Jaffray led the offering, which was co-managed by Cowen and Co. and Leerink Swann.

Analyzing the Aerospace and Defense sector thru a VC lens

We recently had an opportunity to explore venture funding and exits via M&A in the Aerospace and Defense (A&D) industry. Given that this is not a sector that traditional venture investors routinely invest in, we thought sharing a few of our findings might be worthwhile to others.

First of all, the number of VC-funded companies in the A&D space was more than we had anticipated. However, the VC-funded companies were mostly in the IT space, particularly in internet security, intelligence solutions, etc., which was not really much of a surprise. VCs tend to gravitate towards areas they are familiar - IT for most VCs. Not to mention that IT companies are often much more capital-efficient and enjoy much higher margins than hardware component manufacturers - criteria that make those investments more palatable to present at the partners’ meeting on Mondays.

In general, companies in the defense industry have a significantly different approach to product development, marketing and sales when compared to businesses selling to the commercial sector. Product and business development are targeted to meet the requirements of a specific defense program (or call for proposal) as opposed to building a generic product (or a suite of products) to address a large market need. As a result, the products and the solutions developed to addresses those requirements tend to be highly customized and in most cases, not generic enough to be sold to a mass market. So, a typical defense sector company, even a small one, often ends up with a large and varied portfolio of products, each developed for a specific defense program, and each targeting a small / niche market opportunity. This is in sharp contrast to companies in commercial sectors.

Revenues for companies in the defense sector tend to be lumpy. In addition, year to year revenues could go significantly up or down, without any fault of the company, because defense programs can be downgraded or eliminated altogether based on politics, funding, etc. Also, visibility into revenue pipeline tends to be limited as the startups, who typically sell to large defense contractors, depend on those large companies to win bids for defense programs. So, predicting revenues for a startup becomes trickier than for companies in other sectors.

On the M&A side, the A&D sector is quite healthy because of the presence of several large defense contractors, who compete against one another to win defense programs, and as a result are always on the lookout for the latest technologies. Here are a few highlights on the M&A in the A&D sector:

• Of the large A&D companies, Lockheed Martin has been the most acquisitive over the last five years (2005-2010) while L-3 has been the least.
• A large number of exits in the A&D sector are either “mega deals” (>$1B) or small deals with <$10M purchase prices. There is a notable lack of exits in the mid market ($100-750M).
• The number of venture funded companies with successful exits is fairly modest in the A&D sector with Insitu (funded by Battery, acquired by Boeing for $400M) being the most notable exit in the last 5 years.
• Venture-funded companies with successful exits have been mostly in IT-related sectors such as network security, intelligence services, and IT services. This is likely because companies in those sectors appeal to venture investors and thereby, attract more venture funding.
• Recent data indicate that large A&D companies are sitting on plenty of cash which will likely lead to more M&A exits in the space.
• As per PWC’s Mission Control report on M&A in A&D, the median value / sale ratio for A&D deals over $50M was 2.2 in 2009 but has fallen to 1.7-1.8 for deals over $50M.

While venture funding has been modest in the A&D modest, here are a few of the venture funded companies that had a successful exit in the last five years:

Company	Sector	Investors	Exit Outcome
Sierra Monolithics	RFICs and modules for wireless, wireline, and military applications	$27.2M from USVP, Storm, and IBM	2009: Acquired by Semtech Corp. (NASDAQ: SMTC) for $180M
Insitu	UAVs and tools for reconnaissance	$48M from Battery and a few others	2008: Acquired by Boeing reportedly for $400M; revenues were ~$150M at that time
nCipher	Internet security	$24M from 3i, Newbury Ventures	2008: IPO at $500M valuation; then acquired by Thales for >$100M
Oakley Networks	Monitor insider communications and Internet usage across the enterprise	$29M from Kleiner Perkins, Fidelity Growth Partners	2007: Raytheon acquired Oakley and another company for $211M in aggregate
Analex	IT solutions and services	Undisclosed amount from FirstMark Capital	2007: Acquired by QinetiQ for $173M
Savi	Active RFID supply chain solutions	$155M from Accel, MDV, Oracle, Walden, Mitsui	2006: Acquired by Lockheed Martin reportedly for $400M; revenues were $80M

Incubating Student-Run Startups > PennVention 2010

Last Friday, I had the pleasure of attending PennVention’s mini-mentoring session at the University of Pennsylvania.  PennVention is an annual business plan competition for undergraduate students held at the Weiss Tech House in the School of Engineering.  The competition has three phases: first, a mini mentoring program to offer students ideas on how to execute their business plans; second, submission of business plans and grading by judges to select the 10 best business plans; and third, a presentation day where finalists present their business ideas to a group of judges and compete for $60K worth of cash and prizes. 

PROGRAM OVERVIEW 

The Weiss Tech House is a student-run hub of technological innovation at the University of Pennsylvania that encourages and supports students in the creation, development and commercialization of innovative technologies. Class of ‘65 graduate George Weiss - whose $1.5 million gift made the house possible - and Professor William Hamilton, the director of the Penn’s renowned undergraduate Management and Technology (M&T) program, together generated the idea for the house.  While the generous gift certainly helped the incubator get off the ground, it is the students who really make the place hum and in the center of it all is Anne Stamer, the Weiss Tech House Director. 

In her capacity as Director, Anne wears multiple hats, including mentor, cheerleader, and even mother, in guiding the students’ activities and startups.  Most importantly, Anne is the glue that holds together the six student-run committees – community relations, marketing, PennVention, mentoring, marketing, IT - that form the core of the Weiss Tech House.  Those six committees function to ensure that students are actively involved in the program, there is consistent university and alumni support and interaction, and that the fledgling startups are receiving as much help as needed. 

There are two really cool programs at the Weiss Tech House that I want to point out.

First, PennVention is a student run invention competition that receives over 60+ applicants per year.  I met with 7 companies last week during PennVention’s mini-mentoring marathon and was thoroughly impressed with the quality of ideas and the students’ incredible enthusiasm.  The event was a round-robin format where students rotated around mentors every 15 minutes for 4 hours (there was a 30 minute snack break in the middle).  What I loved about the event was the diversity of students who were pitching their companies.  Within a 30 minute stretch, I listened to two engineering students pitch a device to ease bathroom accessibility for quadriplegic children, followed by two sorority girls with fashionista aspirations pitch me on their fashion themed website.  

The second program that I really like is the Innovation Fund.  The Innovation Fund is an in-house, mini-venture capital fund that provides cash without equity to student projects. If accepted, student teams receive $1,000 grants and access to the Tech House’s technical, legal, and business mentoring resources.  This is really a win-win for aspiring VCs, as students get to evaluate investment opportunities, and for aspiring entrepreneurs who get to pitch their business ideas.  Too cool!

IS IT REPLICABLE?

Absolutely.  While the Weiss Tech House has a considerable amount of financial backing, money alone is not what drives its success.  Student and alumni involvement in the program is the most critical factor in driving the program’s continued success, but getting students and alumni involved is no easy feat.

College students are bombarded with various forms of media that vie for their attention.  Despite the success of social media, I still believe the best way to reach a college student is through college newspapers.  When I was an undergraduate at Penn, there was not a single day in college that I failed to pick up the Daily Pennsylvanian.  If you want to drum up student enthusiasm for creating startup companies then there is no better place to advertise than the college newspaper.

The Weiss Tech House has a very systematic approach to getting alumni involved.  At its launch, the Tech House recruited several prominent alumni with significant venture capital and corporate connections.  Those alumni have then recruited additional members of their companies and friends to participate in PennVention and other Weiss Tech House events.  Getting great mentors then dovetails into keeping students involved, as students will continue to be attracted to the program if they receive exceptional mentorship and get to interact with industry leaders.