Sunday, May 15, 2011
Innovation Works gathering offers startup companies chance to seek venture capital investments
It took about four hours for 15 companies to ask for $23.2 million.
They might just get it, too.
After all, last year a group of companies with similar provenances (assistance from Innovation Works) raised $193 million in funding. That money, which is known as follow-on funding, came from venture capital firms, angel investors, corporations, the federal government, commercial lenders and state and economic development agencies.
And while their businesses ranged from software to manufacturing -- from fitting a shoe to retrofitting an industrial oven -- the common link was Innovation Works, a Ben Franklin Technology Partner funded by the Pennsylvania Department of Community and Economic Development. It is a hybrid of early stage investor and company incubator, providing money and expertise to companies that often consist of nothing but a couple of people and an idea.
Innovation Works last week tried its own innovation.
In the past it has held annual meetings and separate gatherings at which companies would ask investors for money. On Wednesday, the nonprofit held a daylong event at which businesses presented their best arguments on why they are good places for venture capital investments as part of Innovation Works annual meeting. Insiders were referring to it as Innovationpalooza.
On the low end of the scale, South Side-based Wawadoo, which is a website that provides event information and sells tickets to events, asked for $120,000 to support its quest to gain 1 million users.
At the other end of the spectrum, ALung, another South Side company that has created a system to assist breathing the same way dialysis assists kidney function, is looking for $15 million, or more than two-thirds of the total money sought during the day.
In the 11 years that Innovation Works has been providing seed money and early capital investments to local startups, those ventures have gone on to draw about $1 billion in additional investments. Companies that have worked with Innovation Works in the last five years now employ 4,684 people.
A study of Innovation Works companies done last year for the 10th anniversary showed that while about a third of startups in the United States fail before their second anniversary, more than 75 percent of the companies Innovation Works helped in its first decade were still in business.
A study of the Ben Franklin Technology Partners in 2009 found that every dollar of state funds put into the new companies yielded $3.50 in taxes.
"At Innovation Works, I believe we succeed when our partners succeed," CEO Rich Lunak said.
He said studies had shown that the majority of job growth in the United States comes from small companies launched fewer than five years ago, so by creating opportunities for entrepreneurs and reasons for people to move to Pittsburgh to start their businesses, "We create a more vibrant community in our region."
Regions that continue to thrive, Mr. Lunak said, will be those that encourage entrepreneurs to take risks.
There are some major ventures starting in Pittsburgh.
Knopp Biosciences on the South Side is working on a drug to slow the progression of Amyotrophic Lateral Sclerosis (ALS), or Lou Gehrig's disease.
Mr. Lunak said that if the drug works, "It will be the largest therapeutic breakthrough in Pittsburgh history since Jonas Salk invented the polio vaccine."
Knopp received $40 million in funding since its initial funds from Innovation Works to conduct its Phase 1 and Phase 2 trials and has signed a license agreement worth $345 million for further development, regulatory approval and commercialization.
Innovation Works has been working with all levels of companies for the last decade, and in the last few years it opened AlphaLab, an incubator that provides office space and business support to entrepreneurs who are just starting out.
AlphaLab's 20-week program provides assistance and $25,000 to the companies to get themselves going, but like graduates at a university job placement office, the entrepreneurs come back again and again for guidance from the people they met through the process.
Some of them have done well.
The Resumator is a company started by Don Charlton to help companies process resumes without having to print them all out to review them. Since leaving AlphaLab in 2009, the company has moved to its own offices on the North Shore. This year it received a $700,000 in private investment money, and it has nearly 400 subscribers.
NoWait, a company that manages restaurant seating by text message through iPads, has five employees, has received $235,000 in investments and recently won $75,000 in a competition for start-ups. It is used by 13 restaurants in four states.
The current group of AlphaLab companies that presented their businesses to potential investors Wednesday were looking for a combined $1.62 million in capital to keep the companies going and allow them to develop their technology. Most already have customers.
Delirium is in the later test stages of its product Reverb, which allows users to synchronize their contact information between their smartphones and email acccounts.
Companies further along in their development phases were also seeking venture capital.
Westmoreland Advanced Materials in Monessen has developed a material to line refractories that manufacture aluminum. The new material is recyclable and doesn't react with aluminum -- the refractory's inside does not have to be jack-hammered out to be cleaned.
Ken McGowan, the president of the company, said one of his customers had said the product saved $400,000 a year in the maintenance budget.
Mr. McGowan was seeking to raise $900,000 from investors.
When the presentations were over at the Innovationpalooza, the schmoozing began, as consultants, investors, inventors and programmers all started exchanging names and business cards, which were still readily available even in the age of the smartphone.
The money to the startup companies is coming from funds made up of institutional investors and funds comprising wealthy individuals.
Article courtesy of Pittsburgh Post-Gazette