Friday, September 18, 2009

The Seed Investment Landscape - Interpreting a Picasso

It's like Picasso painting landscapes. All the pieces are out there but the picture is confusing. Making sense of it is very much up to individual interpretation. So where should an entrepreneur look for finding seed investment? The answer may lie in understanding what investors are looking for.

The NASVF conference this week presented a wide array of options and opinions on seed and early stage funding. Representatives of federal, regional, state, and both public and private sector economic development and investment organizations participated on panels. Most felt that their approaches would be successful, but the only things they truly agreed upon was that such investment was both necessary to our future economic growth and harder to get in this economy.

One of the more interesting panels was on "Hot Markets and Sizzling Sectors". Each of the three panelists said something I felt profound.

Tom Pickens (Astrotech Corp) said that he firmly believed that it takes a team of at least four people to make an entrepreneurial company succeed. It stems from a Psychology Today article he read years ago. Take any four people and let them take an IQ test pooling their answers, and they'd rate at the genius level. Think about that a while.

Richard Helfrich (Alameda Advisors) said that scientific discipline collaboration is the key. We need to combine chemistry, physics, biology, mathematics, and engineering disciplines to evolve new ideas for applications. This may mean that our academic departments may actually have to talk to one another! Fits with the "team of four" premise too.

Bill Reichert (Garage Technology Ventures) cautioned against pre-determining likelihood of success based on the type of technology. His premise: The most important technologies are the ones we can't categorize yet! Cast a broad net and keep your mind open to novelty. And don't be constrained by your biases.

And then, reinforcing all of this was a conversation I had recently with Laurence Briggs, CEO of the InvestIN Forum, a Dallas area private investor network, which has joined with other Angel groups around the country and internationally in a syndicated manner. This effectively forms a "Band of Angels" over 420 strong, looking to make deals.

And make deals they do. At about the rate of one a month currently. They'll put in up to $7 million for the right deal. Angel investing isn't what it used to be!

I asked Laurence what they look for. He said that no particular technology is preferred. What they look for is a proved-out concept for a product or solution addressing a significant market with scalability, and a good coachable team appropriate for their stage of development. Proved-out product. Significant market. Scalability. Appropriate team. Coachable. (Hmmm.... sure sounds just like what the NASVF panel said was important.)

A featured speaker at the NASVF conference was Rick Wade, the Senior Advisor and Deputy Chief of Staff at the US Department of Commerce. He made the point of saying that the DOC was reinventing itself, and, that short of actually being renamed, wanted to become known as the "Department of Innovation".

I couldn't resist. When the session was opened to questions from the floor, I asked him what the Commerce Department would do to support SBIR if the provision in the current House bill (HR2965) that would put NIST in charge of formulating SBIR policy becomes law. He replied that he had recently participated in a discussion in the White House on that very subject, and "the Department of Commerce would do everything it could to see that SBIR is appropriately supported". (I'm in Missouri as I write this, so I'll just say "Oh yeah? Show me!") In a private conversation later that morning, he asked me to provide him with some briefing materials, and I promised to do so.

So, let's sit back and gaze at this Picasso-like picture. SBIR companies should listen to this guidance, and think beyond the grant to the business that they'd like to evolve. Create a masterpiece by paying attention to what works in today's economy.



Last I reviewed my botany, a seed was quite often anything but proved-out. Potential, yes; even defined, rapid growth potential. But as a seed, it wants most of all the moisture to sprout: the proof of its viability.

As we all know, a sprouted seed might yet fail (and quite often does), especially a new hybrid or untested variety. Once we are assured of its viability though it still requires proper nurturing and the appropriate environment to mature.

Finally, the proper delivery of nutrition and watering is the best insurance for a mature plant to produce and deliver its flowers and fruits.

How beautiful that SBIR Phase I, Phase II, Phase III correspond to this picture. The question is: will this image of SBIR be there tomorrow like a properly sealed Daguerrotype, or fade and disappear like a film and paper photograph.

And if the SBIR we know and love does pass into legend, what truly seed investment will remain, to sprout the seeds of innovation, even before they are proved-out?

Carl Nelson said...

Dear Research Entrepreneur: We had about 150 years of technology innovation in the USA before SBIR came along and we will still have the world's best innovation climate whether SBIR continues or not. One reason SBIR won't be much missed by early stage innovation is that it doesn't add much of such seed support anyway. Most of the money goes to incremental improvements in ideas already established. The people with the big SBIR money still want a brand new idea that's been thoroughly tested, with the emphasis on the "tested". And almost all evaluators and approvers of ideas submitted are government people with little useful knowledge of how to turn innovation into business and economic success.