03.14.05 NOTES: Ohio Venture Association welcomes Draper Triangle

Submitted by Norm Roulet on Sun, 03/20/2005 - 23:01.

The 03.14.05
Ohio Venture
entrepreneurship networking lunch at the Union
Club assembled a remarkable mix of entrepreneurs, venture funders and
entrepreneurship champions to build relationships and gain perspectives on the
state of opportunity and momentum of collaboration increasingly defining the
Northeast Ohio business community. That theme was well expressed by the
presence and focus of keynote presenter Mike Stubler, Managing Director of seed
and early stage venture capital firm Draper Triangle Ventures,
which just established an office in downtown Cleveland at 737 Bolivar Road -
also home of Jump Start. The topic of Mike's talk was “Why NEO is attractive to
Early Stage Investors�. Everyone in the club was engaged.

The luncheon
was preceded by some open, friendly networking among attendees, who were
diverse and in all imaginable stages of entrepreneurship. The OVA organizers
were friendly as well, making everyone there feel at home and part of their
warm community - this is a collegial and inclusive group, making their monthly
networking lunches comforting as well as informative and productive. After a
light lunch, the OVA marketing director asked each attendee to briefly stand up
and introduce themselves - and in conclusion she suggested we each take away
with us the list of all attendees and their contact information and reach out
to at least three people we met, and build-up out network outside this forum.

And this group is one worth networking with, including
representatives from Ohio TechAngel Fund (Columbus),
Cascade Capital, University of Akron Technology Transfer, Baldwin-Wallace
College Business Plan Clinic, Tooling University, Beachwood Development Center,
Cohen and Company, Spieth, Bell, Jones Day, McDonald Hopkins, Five Start
Technologies, Stanton Advanced Ceramics, Key Bank, Battelle Emergent
Technologies, Jump Start, Weatherhead, Early Stage Partners and CAMP and many
other exciting organizations and enterprises of many type.

introductions by all attendees, leaders of three early stage enterprises made
5-minute presentations on their initiatives and objectives –

Technology, Inc.
– Sensors for enhanced diesel engine performance – numerous
grants – “saving fuel – reducing emissions�. Formed to commercialize patented
technology. We’ll see $3 fuel this year – cost of emission controls to meet
standards is high – ComSense does it cheaper. Better drivability

Installed in
every cylinder – tunes engine on every engine rotation – reduce fuel costs by
5% and emissions by 50% - there are currently no sensors on Diesel engines –
this sensor is low cost and handles high heat. Market potential is $2.2 billion
by 2011 – all new (no current market). First customers will be those that
service large ships. Also talking to Delphi – Exit strategy is sell out to
large company in industry. They rave raised and are looking to close on over $1
million this year – break even around 2006 – looking for investor commitments
for 2006 of around $4 million – will get ITC and return.

Rick Pollock
from Knowledge Information Technology, Inc. – serial entrepreneur who started
latest venture in response to experience moving to Cleveland from Cincinnati
1.5 years ago – moved here to be closer to wife’s family – latest venture is based
on his approach to maintain relations between young kids and grandparents –
VoIP, collaborative drawing – moved it to 3D and following interests in video
game industry – complex large business sector – key is modern video game is
Hollywood movie production – driving force behind is faster CPUs and computer
hardware. He considers seniors are now active online – 58% online and 46%
broadband – can be new gamers. In recognition of kids moving to video games
younger, a new area of industry has emerged for Video Game Toys. On line play
is exploding - $9.8 billion – 40% of households are broadband – see his presentation here.

Cleveland – the movement is underway and the industry is exploding. New media.
Overview of game industry – connect with him to learn what he is doing. Savvy
investors should learn more.

Suplicki – BIF Water – 100 year old company that makes water better - with a new
product to address EPA guidelines for water treatment – helps utilities deal
with aging water storage and distribution systems – estimated 400K water
storage facilities in US – brand new tech driven by guidelines to help –
Permovial Fluid Technology – obtained 1st NSF national sanitations
certification. No better name in water industry – did management by-out three
years ago – wants to use existing channels and technology to expand new product
offering – raise $500K – revenues to $2 million in 2007.

Now on to
the main presentation of the day. Charles Burkett of Jump Start introduces Mike
Stubler, Draper Triangle – just opened office on Bolivar Road – Mike was COO of
IndustryNet, which was an early eCom play sold for $15 million – subject of his talk is “Why NEO
is attractive to Early Stage Investors�

Draper Triangle Ventures is Seed and Early
Stage venture capital firm – first fund was $53 million and focused on Western
Penn – 2nd fund is $65-75 million to close this Summer and expand
focus to Ohio. Typically first institutional investors in companies – are
selective and geographical – seed and early stage is fun and generates the
highest historical returns – focus advanced tech – 30-40% medical technology –
no Biopharma and lengthy clinical trials

Challenge of
regional seed early stage funds – typically small with limited capabilities –
limited deal flow – hard to recruit talent – limited internal expertise on
sectors so must be opportunist – often viewed as second tier investors.
Leverage Draper Fisher network and dozen+ related funds to have global scope
and relations – geographical and now some sector focus – clean technology. DFJ
network gives access to 70-75 investment professionals around the country…
local presence with international reach – unparalleled resources –
relationships – capital (over $3 billion available) – deal flow

Design Funnel – 4000 early drawings to 200 detailed design work to 10 toys

30,000 plans
to 750 meetings to 150 serious discussions to 30-40 deals – focus on driving
deal flow – be willing to lose – nimble exploration (max value in options) –
big upside (100X – billions)

innovations – disruptive innovation at edge – diverse sources of innovation…
lots of nanotech, with none in Silicon Valley.

Change – perpetual future shock – Kurzweil’s conclusion – look at how things
have changed in last 100 years in America – history of technology is one of
disruption and exponential change – next 10 years will offer the greatest early
stage investment opportunities in history of mankind. Why NEO – great
universities foster new technology – great organizations to foster innovation,
like Jump Start and BioEnterprise, which institutionalizes process – will take
5 years to impact but will work – State government “gets it� with Third
Frontier – NEO mindset is changing – foundation support for early stage development
– sense of excitement – low cost of living and business operation – support
infrastructure in place (lawyers, accountants, etc.) For all these reasons,
others will come – VCs have herd mentality

What are we
seeing – strong deal flow (quantity and quality) Quality co-investment partners
(Early Stage and Jump Start) – first Fund 2 deal was in NEO – Ayalogic in Akron,
with Jump Start, which is doing a great job working with them – two other
term sheets signed – their first three deals will be in NEOhio. "We are happy to
be here".

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