TechAlert - February 2008
Welcome to the February 2008 edition of TechAlert, the bi-monthly newsletter of the Illinois Technology Development Alliance. Our issues feature articles of great interest to entrepreneurs; to investors interested in leading-edge, high-technology opportunities, and to established companies looking for innovative solutions to pressing business needs.
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ARTICLES
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The ITDA Announces Due Diligence Outsourcing Program for Early Stage Investor Groups
Well-vetted deal flow and a repeatable, rigorous process of due diligence can contribute directly to early stage investors’ efficiency, but as anyone who has ever evaluated a company knows, due diligence done correctly is very technical, tough, and time-consuming.
The ITDA now offers angel groups and early stage venture capital organizations an efficient and affordable way to outsource due diligence. All work is completed by the ITDA staff.
“As a regular part of our own client due diligence, the ITDA staff has evaluated hundreds of companies,” says John Noel, ITDA President. “To review and serve the number of clients in the focused manner that we do, we had to figure out a documented, repeatable, and efficient process that yields high quality results. We have commercialized that process as a service to accredited investors, angel groups, and early stage venture capital funds on a fee for service basis.”
The ITDA due diligence methodology is based on investor criteria.
Engagements begin with a thorough understanding of the investor’s evaluation criteria. A detailed review of the prospective investment’s business opportunity is performed to make sure that the company meets the investor’s criteria. If any deficiencies are identified, this information will be provided to the investors immediately to avoid wasted time and money.
For companies that appear viable, the evaluation proceeds with an assessment of the technology and intellectual property, leveraging the ITDA’s extensive relationships with the research and scientific community at universities and national laboratories as appropriate.
“Our report also includes analysis of the financial statements and the underlying assumptions, capital requirements, and use of funds,” Noel says. “We have access to venture databases to help us make an independent assessment of the valuation.”
Through site visits and interviews with founders, employees, business partners, and potential customers, the ITDA will evaluate the strength and flexibility of the management team; the size and nature of the market; the realism of the go-to-market strategy, and the size and nature of the competition.
The ITDA delivers a written and oral investment report in a month.
The ITDA consultants complete and report the company analysis within 30 business days of the date they receive the signed project agreement, the business plan, and related materials. Written and oral reports include an overall risk assessment and detailed information on the following aspects:
- Business revenue model
- Business risks/uncertainties
- Capital requirements
- Company summary
- Competition
- Customers and markets
- Evaluation of the technology
- Financials
- Go-to-market strategy
- Intellectual property
- Management team
- Offering
- Regulatory issues
- Sources and uses of funds
The analysis does not include background checks or financial audits. All information is treated strictly confidential and becomes the property of the client. References can be provided upon request.
Project fees are determined by the scope of the project. The ITDA can provide quotations on an hourly or on a per-project basis based on project and client requirements.
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Four ITDA Client Companies Receive NASA Phase 1 SBIR Awards
Four of the six Illinois companies that received 2007 National Aeronautics and Space Administration (NASA) Small Business Innovation Research (SBIR) Program Phase 1 grant awards are clients of the ITDA.
Prove It, LLC of Orland Park was a first-time recipient of a NASA Phase 1 award. EPIR Technologies, Inc. in Bolingbrook, Epsilon Lambda Electronics Corporation of West Chicago, and MicroLink Devices in Niles previously received Phase 1 and Phase 2 awards for different projects.
SBIR, a highly federal competitive program, is now in its twenty-fifth year.
SBIR encourages small business to explore their technological potential and provides the incentive to profit from its commercialization. All federal agencies with an extramural research and development budget are funded to participate.
More than $2 billion dollars in SBIR funding derives from 11 federal agencies to thousands of businesses annually, making SBIR awards the largest source of early stage R&D funding for small businesses.
Through the Illinois Technology Transfer Center (ITTC) and the NASA Illinois Commercialization Center (NICC) the ITDA helps regional companies match their technologies with identified NASA and Department of Defense (DoD) SBIR solicitation opportunities.
“We provide companies with the appropriate format, and critique our clients’ proposals before they submit them to NASA or the DoD. This allows them to put their best foot forward and improve their probability for success,” says Jack Curley, ITDA Director of Client Services. “We also conduct annual training sessions that feature managers, and program directors from DoD and NASA. These events provide education and networking.”
Phase 1 SBIRs, which range from about $75,000 to $100,000 are fairly specific (a rifle shot opportunity) and limited in scope. “Phase 1 is normally a feasibility study,” Curley explains. “The deliverable is typically a report rather than a prototype or product.”
While the commercial potential at Phase I doesn’t have to be a full scale, the grant request must present a practical approach toward commercialization. “There may be a unsuccessful outcome for the project, but even if the results are negative,” Curley says, “the company has eliminated a blind alley and the government paid for the research.”
ITDA client SBIR awards:
EPIR Technologies, Bolingbrook, IL
EPIR Technologies (www.epir.com) makes infrared semi-conductor wafers that have the potential to meet a variety of NASA, DoD, and commercial applications including infrared telescopes, solar panels, security systems, and night vision goggles.
The company uses a unique alloy to grow crystals that improve light sensitivity producing a more precise temperature reading. This can provide a much clearer infrared picture and detect objects that are too faint to be otherwise detected.
Recently EPIR and Sunovia Technologies, a renewable energy and energy conservation company based in Sarasota, FL, signed a joint venture to develop solar technologies. The venture has entered into a SBIR Phase 2 agreement with the US Air Force for utilizing the technologies within their space programs.
Epsilon Lambda Electronics Corporation, West Chicago, IL
Epsilon Lambda Electronics (www.epsilonlambda.com) produces millimeter and microwave communications systems.
NASA wants to provide surface communications networks for human and robotic missions to explore the moon and Mars via highly reliable, low-cost hardware that transmits bi-directional voice, video, and data. The Phase 1 SBIR will assess the feasibility of integrating communications and networking technologies to develop a disruption tolerant wireless network operating at 60 GHz and utilizing emerging, commercial off-the-shelf technology to minimize cost.
MicroLink Devices, Inc. Niles, IL
MicroLink Devices, Inc. (www.mldevices.com) manufactures semi-conductor wafers used in high-speed, microwave communications devices. The company’s technology also has solar applications.
Over the last six years MicroLink has been a prime federal contractor on a number of transistor, laser, and solar cell development programs. MicroLink Devices has also supported other companies in the performance of their research and development programs. Many innovations developed at MicroLink have been incorporated into commercial products.
Prove It, LLC, Orland Park, IL
Prove It, LLC (www.proveitpdq.com), an early stage company in Orland Park, IL, develops food packaging technologies which apply coatings to plastics for added functionality.
These coatings are capable of doing different things. As an example, the company is working on adding a detection system to food packaging wrap that will sense an incursion of substances that could make the food rapidly spoil; for example moisture or oxygen.
“NASA obviously doesn’t want food to spoil on a long mission,” Curley says. “They are also looking at weight considerations so they want to know if there something else they can do with the packaging after the food is opened, rather than throwing the wrapping away.”
Prove It received a Phase 1 SBIR to study the feasibility of using their technologies in space to improve food quality. They will also analyze the possibility of integrating electrically active materials in the packaging so it can capture light.
NASA and other federal agencies offer multiple funding opportunities.
The SBIR program is only one of the federal funding programs available to companies with innovative technologies. The Small Business Technology Transfer (STTR) program is similar to the SBIR program except that it requires a company to partner with a university. “The ITDA networks to team potential STTR companies with universities to create partnerships,” Curley says.
Broad Agency Announcements (BAA) offer another source of federal funding. A BAA is an expression of general interest in a technology area. “These are more negotiable than SBIRs,” Curley says. “As an example, in the announcement the agency may list eight different broad-spectrum technology needs that interest them. A company can single out one of those topics with their specific proposal.”
Unlike SBIRs, BAAs are not off set for small businesses. “It’s more daunting for very small companies to go after these on their own,” Curley says. “We try to facilitate companies collaborating with another firm so that together they might make a more viable application.”
NASA opens SBIR solicitations once per year; while DoD has opportunities three times. The open period lasts approximately two months.
The following web sites offer more information about these programs:
www.sba.gov/aboutsba/sbaprograms/sbir/index.html
If you have any questions regarding these or other federal award programs, please contact the ITDA at info@itda.biz.
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Entrepreneur Briefcase Lite: Nine Tips for Finding and Hiring the Best People
Every entrepreneur knows that the lack of qualified and highly motivated people can cause even the most high-potential start-up to fail. So how can an entrepreneur find and build the right team?
In the ITDA’s January Entrepreneur Briefcase recruiting industry expert Christy Carter, founding principal of iScout, Inc. in Chicago (www.iscoutnow.com), teaches entrepreneurs how the pros recruit. Successful recruiting begins when the founder and management team focus on the hiring process with the same kind of intensity and attention to detail that the company would apply to developing cutting edge intellectual property or building best-in-class customer service.
Recruiting is a resource-intensive effort. Whether a company staffs the job with employees or invests in the services of an outside firm, Carter advises company leaders to treat recruiting as a business system. Posting jobs on Monster.com and hoping for the best is not the way to fill positions that are critical to the company’s success—especially since in a start-up company every position is critical.
Hiring a knowledgeable person to focus on recruiting 100 percent of the time—a person who is on the leading edge and has experience building teams for emerging companies—is the first of Carter’s nine tips.
Read more about how professional recruiters find, identify, and attract the best candidates. All the things that will lead your company to success are done by people—developing products, delivering services, attracting investors, and delighting customers. Make sure that your company has the right people in place to do it well.
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QuesTek’s High-Strength, Corrosion-Resistant Steel Receives Aerospace Material Specification
SAE International, the organization which provides standards development to the aerospace, automotive, and commercial/heavy duty vehicle communities, has approved an Aerospace Material Specification for Ferrium S53, a new alloy designed by QuesTek Innovations, LLC of Evanston, IL (www.questek.com).
“This is a major milestone for our material,” says Brian Tufts, manager of business development at QuesTek Innovations. ”This is a procurement specification, which means that any engineer or designer can now specify AMS 5922 on their drawings. When a procurement organization requests steel per AMS 5922 our distributors will supply Ferrium S53.”
That is because Ferrium S53 is the only alloy available today that meets this advanced specification, which covers material chemistry, processing, heat-treatment, and minimum property requirements.
QuesTek designed Ferrium S53 to be a drop-in replacement for 300M steel, which is commonly used in military and commercial aviation for landing gear. S53 meets the ultimate tensile strength of 300M and has the added benefit of corrosion resistance, eliminating the need for toxic cadmium coatings and extending the life of landing gear components.
“The approval is definitely broadening the scope of the visibility we already had,” Tufts says. “If you are a design engineer, you are dialed into the SAE community. When the committee sends out new AMS announcements, the design engineers at companies like Lockheed and Boeing hear about it. We are already receiving inquiries, and our licensees are ready to provide material for acceptance tests.”
Now that QuesTek has approval of the procurement spec, the next step is to establish design minimums and publish those in the MMPDS handbook. Once MMPDS minimums publish, Ferrium S53 would own all specifications required to put the steel on a part and then get that part up in the air.
“That will happen in the near future with the Air Force,” says Tufts. “The military is pushing the performance envelope, and then over time, the drivers of improved reliability, service, and safety that the DoD is seeking translate very well to the commercial environment.”
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The Center for Effective Writing Leads Two 45 Minutes With…Sessions
Six entrepreneurial companies participated in the ITDA’s recent 45 Minutes With…series in February. The topic for the one-on-one consulting sessions was “Effective Grant Writing” conducted by Millie Rey (merey@uchicago.edu) and Michael Eastwood (mweastwo@uchicago.edu) of the Center for Effective Writing in Chicago, IL.
“All six companies came to the session because they were looking for grant writing help,” Rey says. “What became apparent quickly was that there was interest in other writing tasks because they all add up to the same thing. In every business you always have to sell. To do that, you have to help people understand what your product can do for them.”
Rey says that many clients come to the Center for Effective Writing to receive help with a specific task and then realize that what they need is assistance with more than one particular grant application. “We often help with multiple writing tasks,” she says, “so that our clients learn to express a clear and consistent message that is tuned to the ear of their multiple audiences.”
The businesses represented at the 45 Minutes With…event ranged from a firm that provides an online tool so that parents can make better choices about toys for their children to a company with ideas about restarting Illinois’ coal industry; from a company with an advanced medical therapy to DQI USA, LLC, a Chicago firm that provides a tool that assesses building design and helps lay- people evaluate, quantify, and communicate how well or poorly a building is designed or built.
Although the companies were at different stages of development and in widely divergent industries, each entrepreneur was looking for help in clearly stating what their company does. They also wanted advice on how to conceptualize and then express problems in ways that would attract readers to their solutions.
“Another thing that the entrepreneurs weren’t aware of and we helped them understand,” says Eastwood, “is how some of what they were saying to draw clients in was actually warning people off. People often don’t know HOW they are being misunderstood; they just know that communication has failed. We worked on ways for the entrepreneurs to be understood differently.”
Entrepreneurs learn to express solutions in different ways to different audiences.
Goran Lukic, co-founder of DQI USA (www.dqionline.com), is targeting various government entities with significant real estate holdings such as schools, libraries, and hospitals. Effective grant writing is critical to his company’s strategy.
“When a city builds new schools, as the city of Chicago is about to do,” Lukic says, “they have ways to measure whether or not the project is coming in on time and on budget. They can say what they do and don’t like, but they don’t have any standardized way to assess and quantify whether or not the building is well-designed or to evaluate objectively an architect’s design. We solve that problem for them.”
Lukic says that the City of New York has adopted the DQI (design quality indicator) tool to guide them through design and development.
“Mayor Bloomberg wanted a measure of time and budget and a way to be sure they are building good buildings,” Lukic says. “One of the reasons I chose to attend the ITDA session was to get advice about developing a message that would resonate with city officials here in Chicago, a city so rich in architectural heritage.”
Participating companies were enthusiastic about the 45 Minute format and the opportunity to receive Rey’s and Eastwood’s expertise.
“There is no question that it was a good use of my time,” Lukic says. “In a start-up you can never miss an opportunity to have a qualified outsider take a look at what you are saying. My partner and I have been so close to this for so long that we needed a fresh perception of our readers. Mike and Millie were able to help me understand that the words I was using to sell our solution were pushing some people’s buttons instead. They helped me structure a conversation to better explain to a client how we satisfy what they want.”
Rey and Eastwood, who hold advanced degrees and are instructors at the University of Chicago, have keen listening skills, grasp technical information quickly, and know how to write and instruct people how to write.
“When people work with us, they don’t have to have everything figured out,” Rey says. “The answers are there, but they don’t come out in a vacuum. We offer a structured approach of hearing, rephrasing, and identifying the structures that entrepreneurs need to include in their text.”
Eastwood adds, “This happens in the framework of a friendly conversation that has a point to it. We know what the text is going to need. We are listening for it as the entrepreneurs tell their stories, and then we let them know how to make their texts work.”
The next 45 Minutes With…session is scheduled April 11 at the ITDA’s Chicago location. The topic will be “Expanding into International Business” led by Fabrice Bonvoisin, noted expert in conducting business in multiple countries. To schedule an appointment please, contact Katherine Liu at 312.373.7184 or email liu@itda.biz.
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Three Chicago Start-ups Participate in January Monday Morning Meeting
Jade Biomed, Inc., Secure Data Imaging, LLC, and Tula Foods, presented to a standing-room-only crowd at the January Monday Morning Meeting in Evanston, IL.
The ITDA and the Technology Innovation Center (TIC), a business incubator allied with Northwestern University and the business community and dedicated to support the growth of very early stage technology-based businesses co-hosted the event. Two of the presenting companies were clients of the ITDA and the third was recommended by TIC.
“One of the things that I really enjoyed about the day was we had a very high level of attendance and participation,” says LeAnne Tourtellotte, ITDA director of venture development. “People in the audience represented various points of view on the issues and were able to bring their own experience into the question and answer period by asking insightful questions of the entrepreneurs.”
Companies offer pain relief, electronic lock box, and whey protein.
Jade Biomed is commercializing a therapy to treat pain. The company’s flagship product is a device that performs a form of non-invasive, needle-free acupuncture. The product creates efficiencies for trained acupuncturists, and it opens doors for people untrained in acupuncture to reap the energy-balancing benefits of acupuncture. Prototypes are available for testing and clinical trials.
Secure Data Imaging offers E-LOC Box, an online safety deposit box where clients can upload and electronically store important documents like birth certificates, marriage licenses, property deeds, or insurance policies so that they are available 24/7 and safe from even extreme disasters, such as Hurricane Katrina or the California mud slides, that can befall vaults and safe deposit box rooms. The company serves personal and business clients. There is no software to install and no long-term commitment is required.
Tula Foods is developing a whey product that when mixed with yogurt provides whey protein without changing the texture or taste of the yogurt. Whey protein is desirable because it helps develop lean muscle which can contribute to a higher metabolism rate and greater overall health. Other whey products are gritty and alter the taste of yogurt; Tula Foods’ goal is to incorporate whey protein while keeping the yogurt creamy and tasting good.
Monday Morning Meeting provides coaching, contacts, and connections.
“The presenters were able to do significant networking,” says Tourtellotte. “People that they wanted to meet—service providers, business partners, and investors—were at the meeting and took a direct interest in the companies. Before and after the session, the ITDA received emails from audience members asking about the companies.”
This is exactly the kind of connection that the ITDA wants the MMM series to create. Criteria for participating in the MMM is flexible. The event is most appropriate for technology companies with some dedicated management and a fairly complete business plan, that are ready to consider external investment.
“The business plan may not be final or pristine and the management team doesn’t have to be complete, and while the company needs to be thinking about attracting investors, it doesn’t mean they have to be ready for a road show,” says Tourtellotte. “That’s where the ITDA and the MMM can be really effective. We prepare companies for that investor presentation.”
Although there are investors in the audience and some MMM participants who have connected at the events with people who did invest in their companies, that is not the primary focus.
“The Monday Morning Meeting is an opportunity for coachable entrepreneurs to practice their investor presentation in a friendly, moderated forum and to have an open conversation about their presentation and their company with a diverse audience that provides constructive feedback on how to improve their communication with investors,” says Tourtellotte.
The next Monday Morning Meeting is scheduled April 14 at Northern Illinois University at the Naperville Campus of Diehl Road.
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© 2006, Illinois Technology Development Alliance.
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