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The Flipside: Friends and Family Financing, Great Move or Impending Disaster?

The Flipside, Another Way to Look at an Issue

Many entrepreneurs look to family and friends as the source of their initial financing. After all, the amount of money they need is not substantial in the greater scheme of things, they already know who you are, family members want to show they support your efforts, and you don’t have to get into sticky issues like Valuation, Use of Funds, and Exit Strategy. So, sounds pretty good eh?

NOT SO FAST, you may think of it as the easiest way to get funding, but the downsides are something you should consider a lot. There is an interesting article in the Small Business Section of the Wall Street Journal today that describes the downside of using friends and family members. If you take money from friends, you have to consider the possibility that your friendship will end or be severely affected. Or how about dreading those all too often family social events where you will run into Uncle Andy who either looks at you in a way that makes you feel like a complete failure or spends the entire evening espousing his way to better run your business.

What the article did not discuss is the idea of Smart Money versus Just Money. Rarely, do family have the backgrounds to provide the mentorship that early stage companies need. Consider first time entrepreneurs, they start with an idea they have passion for and a desire to make it happen. However, they lack experience in developing a startup, understanding of the various organizational structures so they can choose the one that fits them best, identifying and selecting the right team members, access to additional levels of funding that may be require, or the Rolodex of other people they can call to help as needed. In other words, all the areas they need to successfully execute on their plan!

If you are starting out, my suggestion for one of the first things an entrepreneur should do is to find a great mentor who is willing to work with you. A mentor is someone with considerable skills, knowledge and experience to help you through a myriad of issues including being able to identify who else you should talk with.

Anybody else have an opinion?

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The Flipside: Keeping Your Idea/Technology Secret When Starting Out

The Flipside, Another Way to Look at an Issue

I run into lots of entrepreneurs who go out of their way to keep their idea or technology secret. They search me out, want to get my opinion or advice, and start out by asking for an NDA. I am not special, they act the same way with anyone they talk with. In their minds, the idea is the most important thing and they have to do whatever they can to protect it! Now I am not naive and do understand that there are secrets that are the cornerstone to a business, but every idea is not as critical the formula for Coca Cola.

So, here is the flipside to think about, there are tons of great ideas, but very few turn into successful businesses. The successes don’t always have the best idea or most innovative technology. So what do I think is the difference? The successful ones figure out how to “execute” on the idea; how to turn a great idea into a great business. To do that, you need lots of help starting with building a great team.

If you ask most investors what is more important a great idea or a great team, I don’t know one that picks the idea. It sounds cliché, but we tend to bet on Jockey’s not Horses. We see lots of great technologies, but few teams that show the wherewithall to build the business and execute on the plan they have developed.

Focus on the  skills, knowledge, and experiences you believe you need to build a successful business and then go about identifying the best talent to execute your plan and build your business. In order to get the best people, you have to show them your vision, which includes your technology. If you build the best team and business plan, all anyone can do is steal your idea, but they still have to figure out how to execute on it. At the same time, you will be off but you be off getting your products into the market and build your business.

Something to think about. Any other thoughts on this?

Wireless Health: Development Pitfalls

As any entrepreneur knows, getting started with a new company is fraught problems that can turn a great idea into a big mistake. There are just so many decisions that, if the wrong one is made, can kill or cripple the company. Worse though are the startups that haven’t encountered the big “Oh Crap” as yet and there’s a glimmer of hope that entrepreneur latches onto.  These startups are under the impression that they are really close to big sales/financing/strategic partnership.  Encountering your first big speed bump can be a slow and painful experience.

Many companies entering the wireless medical device space get stuck in this last category. However, their being stuck and not able to move forward may be less about something they did or did not do and more about the pitfalls along the path of taking a medical device to market.

For example, wireless devices startups may get snared in government processes that were put in place to insure that medical products are safe before allowing them into the market (by our friends the Food & Drug Administration, FDA). Once they are found to be safe, then another government organization gets involved to decide how much Medicare and Medicaid will pay for the product (Center for Medicare and Medicaid, a.k.a., CMS).

Now if you include working with the Patent and Trademark organization on intellectual property applications and issues, that’s a total of three government organizations involved in the product realization process. And, as we know, government organizations are not the fastest groups to deal with. Not only is this two-pronged FDA-CMS process time consuming, it is very costly, and every entrepreneur in this space has to make sure that he/she has planned on having sufficient financing and investors who understand what’s required to get through the FDA and CMS.

I am sure that this is one important reason why many investors avoid life sciences deals including medical device space altogether. After all, an entrepreneur can start an consumer Internet company for a few thousand dollars, a couple of great programmers, a good understanding of the demographics of the prospective customers and someone who understands the elements of SEO and Conversion. Consumer Internet startups can begin generating money in a matter of months. Contrast this to medical devices requiring large initial cash outlays over an extended period of time; in many cases years.

I find it interesting that, when there is talk about fixing the issues in the FDA, e.g., around the long timeframe for a wireless medical device company to get its products through the FDA’s 510 (k) process, there are always many comments about making sure that the primary goal of safety isn’t overlooked. I’m clearly not a proponent of having the pendulum swing all the over and weaken the process so that unsafe products get to market faster, but who can argue that the US economy and consumers both can benefit from an overhaul to the 35-year old 510 (k) process?

On a positive note, in January of this year, the FDA announced a plan consisting of 25 proposals targeted at overhauling the approval program and is targeting to implement some changes in 2011. Their list includes streamlining the review process for lower-risk devices, clarifying when companies should submit clinical data for a 510 (k) application and creating a new council of senior FDA experts (“Center Science Council”).

As for the insurance reimbursement process shepherded by CMS, a number of major stumbling blocks are under review. For example, the current process allows reimbursement for a medical device or associated devices only if the patient is at a medical facility when using the device. Now, given the nature of wireless medical devices, this just doesn’t make sense. Why should we mandate that an elderly or ill patient, having a wireless device that collects information and sends it along to a health care professional, leave their home and travel to some medical facility to use a product that works perfectly well in their home?  Especially for a device that’s merely sending data—readings of blood pressure, etc. along to the physician. This is one that we all hope is resolved soon.

I assume that it will take some time for both the FDA and CMS to make changes and integrate the improvements into their overall processes. In the meantime, what can we do to facilitate getting wireless medical devices to market faster and have them reimbursable?

Here are my suggestions:

•    What can entrepreneurs learn about the language they should use on an application for a specific device that would both position it correctly with the FDA reviewer and ensure that it is not incorrectly categorized into a class that all but ensures a lengthy approval?
•    A medical device will have both a “patent” which needs to be innovative and not intuitively obvious while the goal of a 510 (k) application is to describe the device as very much like something that has already been approved. What is the best strategy for an entrepreneur to follow given the diametrically opposed requirements of these two required organizations? There are knowledgeable people who know these organizations and have dealt with them and can provoke great suggestions to entrepreneurs.
•    So how do we get the knowledge where it is needed? This is, in fact, one of the goals of a startup acceleration program and one that we will be attempting to resolve as we move forward with an accelerator in our region.

As we put our program together, I am constantly looking for ideas and contacts that can help with this. Any suggestions or recommendations are always welcomed.

Seed Acceleration Program for Wireless Medical/Personal Health Devices

Over the last five years I have blogged and ranted about a number of topics, but never focused on a specific topic for an extended period of time. Well, over the last year, I have gotten interested in a specific area and thought it was time to focus on the subject so that I can get my thoughts down and, hopefully, get input from others. There area is Wireless Medical and Personal Health devices.

There are a number of things got me interested in this space. The first was an email from a friend back in early 2010 with a link to a YouTube video from TEDMED09 conference that was held in San Diego in October 2010. The presenter, Dr. Eric Topol, was showing off some devices that were a combination of an iPhone, some apps and some additional hardware connectors that turned the iPhone into devices that provided information about a persons health that is usually only available in a medical facility using equipment that costs hundreds of thousands of dollars.

For example, Eric has a blue, wing shaped object that he attaches to his chest and can send EKG info to a cellphone and can then be forwarded to a physician or other medical professional. Another device, attached to a phone can produce sonograms, while another can track sleep patterns. This 17 minute video just knocked me over. These types of devices can improve personal health by providing patients and doctors valuable information at reduced costs. The patient no longer has to travel to a medical facility, where tests of done using equipment that costs tens, if not hundreds of thousands of dollars.

Additionally, these are not future products, that are hidden in the depths of R&D facilities, but already exist. More importantly, these are just the beginning. A year later, this industry is still in its infancy but quickly picking up steam. And for me, what is nice is that the focal point for this industry is San Diego!

So this got me excited. Throughout my career I seemed to gravitate towards cutting edge products and services that were possibly the next new new thing.

I was in telecommunications when computers and telecom converged. It was an interesting time and lots of changes occurred. New industries evolved and some, including very large ones, went by the wayside. The world is radically different in the way we communicate than it was in the 80’s and 90’s. Entire industries were turned upside down with very big players disinter-mediated.

While some players went away, others sprang to the top and benefitted from the this new industry like Cisco, Skype, Vonage and other VoIP solutions. Lets of different devices including voice communications through our personal/home computers. Lots of startups, lots of new entrepreneurs, lots of job creation, lots of wealth creation.

So, I am thinking that medical devices and wireless/cellular are colliding markets on track to converge and create the same kind of impact on our lifestyles, economy and there will be big winners along with big losers along the way.

With this in mind, I decided to write a series of posts on the industry, what is happening, some obstacles, and some ideas about how we can facilitate the development of new companies and help them get over the valley of death.

To accomplish this and attempt to get as much information and feedback as I can, I will be publishing these posts on the three sites I have: www.resonnect.com, www.socalbuzz.com and www.startupcoast.com. If you have opinions, comments, ideas you would like to share about this space, please comment. I still have a lot to learn.

Pitch It! Youth Entrepreneurship Program (YEP)

Have a Great Business Idea?

The Business & Entrepreneurship Center at MiraCosta College (in Southern California) is hosting an elevator pitch contest, where college students, or anyone 27 or under, can try to convince a panel of ”Angel Investors” that they have the best business idea, all in less than 3 minutes.
  8 finalists will be chosen.
Registration Deadline is Midnight, April 22nd, 2011.
Pitch It! Youth Entrepreneurship Program (YEP)

Click here to learn more:  
http://www.yepcalifornia.com/pitch-it.html

Grand Prize is an Apple iPad2


Want to Watch? Come by and join our audience for free, plus you can vote for your favorite elevator pitch live.

Top 3 Reasons to Apply to Pitch It!

1. You’ll gain great practice in pitching to potential investors.

2. You’ll experience firsthand “Shark Tank” meets American Idol.

3. (Possibly the most fun reason) You might win an Apple iPad2

So click over to this link here and fill out your application.

WOW! Tech Jobs Available

On Wednesday evening, I attended Startups Uncensored #20, a monthly networking event sponsored by Docstoc, in Santa Monica. The panel consisted of Jason Nazar (CEO, Docstoc.com), Josh Meyers CEO of People Media a subsidiary of Match.com, Jeff Tinsley CEO and Founder of MyLife, Robert Angarita Co-Founder of Cramster and Mark Kapczynski VP of Corp Dev at Experian.

During their introductions where they described their companies, at least four of the five stated that they had job openings, with one having 17 openings. I am not sure if Mark from Experian mentioned openings. These are tech jobs: programmers, product managers. So it sounds like the tech job landscape is alive and well at least in LA/Santa Monica especially if you are in any of the mentioned needed categories.

Tech Stars and Do More Faster

For any of you who are not familiar with TechStars or the book that two of the founders published, I recommend that you investigate them. TechStars is a seed accelerator program that started in Boulder Colorado back in 2006 and founded by Brad Feld and David Cohen.

Brad is a Venture Capitalist and Managing Director of the Foundry, a Boulder based venture firm. He is also the author of Feld Thoughts, a popular blog where Brad covers many issues around investing are entrepreneurship. David was a Boulder based entrepreneur and Angel Investor who approached Brad with the concept that evolved into TechStars.

I did an earlier post about Do More Faster, so I won’t re-state what I covered there. I did however take one of my recommendations seriously and bought copies of the book for entrepreneurs and founders that I mentor as a holiday gift. I thought the book had a lot of great information and would benefit my clients. However, I wanted to see if they thought the same way I did.

The book is a compendium of articles written by Brad, David, TechStars participants and mentors around seven themes. Everyone read the book even those who are more consumer product focused. They all thought there was valuable content and enjoyed hearing how others dealt with problems they are currently experiencing.

Interestingly, two of them signed to participate in future programs and one of them is currently talking with the Director of the Boston TechStars about being part of the next program, which begins in a few weeks. They only select 10 companies from the 800+ applicant, so getting this far in the process is huge.

So, if you are an early stage entrepreneur, you should definitely start looking at the Startup America Program, the things coming out of the Small Business Administration in relation to Startup America, TechStars.org, and get a copy of the Do More Faster book.


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