Welcome to gener8tor

Twin Cities Startup Week, which was held for the third time early last month, has evolved into a one-week showcase of the creators, innovators, hackers, investors and others who are driving the Twin Cities startup scene. There were events from early in the morning to late at night, and all hours in between.  There were intimate gatherings of people focusing on specific topics (healthcare, AI, IoT, etc.), and other larger general purpose events, including the Minnesota Cup’s final awards event, a Beta.MN showcase event, Techstars Demo Day and MinneDemo. As in years past, there was plenty of enthusiasm and energy on display by the Twin Cities startup community.

One new event on the Twin Cities Startup Week calendar was gener8tor’s premiere night launch event. Held on October 10th at the Minneapolis Event Center, it was the coming out party for the 5 cohort companies that participated in gener8tor’s accelerator program beginning this past summer. For those of you who don’t know, gener8tor is an accelerator program that was started in Milwaukee and Madison, Wisconsin in 2012. The program graduates one cohort group from each of their Wisconsin locations annually (Madison in the spring and Milwaukee in the fall).  gener8tor launched its Minneapolis program this past year and has been a welcome addition to the Twin Cities startup community.

Random October Musings

I wanted to share a few quick thoughts as I look out the window and wonder whether I should do anything about all the leaves in my yard.  There are a depressing number of leaves on the ground, and yet still hundreds of brilliant yellow, green, orange and red leaves in the trees.  It seems silly to spend all that time cleaning up these fallen leaves, when there are just going to be more on the ground tomorrow.  Fall is a great time of year to be a Minnesotan, but I could do without all the accompanying yardwork.

Oh yeah, the thoughts….Here they are:

• Here’s an interesting post by Rand Fishkin, co-founder of Moz, a Seattle-based search engine optimization (SEO) company.  Moz recently went through a round of lay-offs as part of refocusing on its core business and disengaging from ancillary pursuits.  I found the post interesting, in part, because the author is very honest and transparent about the failed business strategy that led to the pivot and resulting terminations.  We spend a lot of time discussing and celebrating success stories, but spend very little time acknowledging and learning from failures.  A lot can be learned from our own mistakes, and the mistakes of others.  I found his openness on this issue refreshing.

In Defense of Procrastination

I have a confession to make:  I can be a terrible procrastinator.

I don’t procrastinate with some things, like client projects, but I put many things in my life off until the last possible minute (or begin them, put them on hold, restart, etc.) – things such as starting landscaping projects, cleaning my office, doing my taxes, even writing this blog post.

I had a note on my calendar over a week ago that I was supposed to be drafting this blog post. As usual though, I kept finding convenient excuses to do something other than this blog post – I took the kids to the pool, exercised, cleaned the kitchen, folded the laundry, got caught up on some long overdue weeding . . .

Twin Cities Startup Week

That noticeable chill you’ve felt in the air recently signals that summertime is sadly and quickly coming to a close.  It will soon be time for the State Fair, Labor Day, kids returning to school, football, and of course, Twin Cities Startup Week.  For those who don’t know, Twin Cities Startup Week (running from Tuesday September 8th through Sunday, September 13th) is a series of informative, fun and networking based events focused on the Twin Cities startup community.

Events include Beta.MN, which is a showcase of local startups identified by the Beta.MN team. There are no formal pitches at Beta.MN, just startups exhibiting their products and services, kind of like the exhibitors at the State Fair.  At the end of the evening, the audience votes on their favorite startup, and the winner receives the famed “Golden Ipod.”  This event is being held from 5:00 to 8:00 pm on Tuesday night of Startup Week (the 8th) at Target Commons on Nicollet Mall.

The MN Cup final awards reception is being held on Wednesday night (the 9th) at the McNamara Alumni Center on the University of Minnesota campus.  We’ve posted about MN Cup many times on this blog (including, most recently, here), so not much else needs to be said.  However, if you haven’t attended the final awards reception before, it’s a great event for Minnesota entrepreneurs and supporters of the entrepreneurial community.  The event is well-attended and is a good opportunity to meet and network with leaders of the entrepreneurial community and learn about some exciting new companies.

MinneDemo, which is a demonstration showcase for seven companies, is on Thursday night (the 10th).  Each of the seven companies will have seven minutes to show their work.  These are real demos, not powerpoint presentations.

The week’s events culminate in Startup Weekend, which begins Friday night (the 11th) and continues through Sunday afternoon (the 13th).  On Friday night, any participant can pitch their idea for a startup.  Teams then organically form around the ideas they find most interesting.  The teams then spend the rest of the weekend creating a business plan and developing a product.  On Sunday evening, the teams give demos and pitches to a live audience.  Real companies have come out of Startup Weekend, including hidrate and QONQR.

There are several other events throughout the week, which can be seen on the schedule listed here.  I’ll give a quick pitch for my colleagues Doug Ramler and Kate Nilan, who will be hosting the first in a series of quarterly presentations on legal issues for tech companies.  This event will be from 8:00 to 9:30 Friday morning (the 11th) at our office in downtown Minneapolis.  At this event, Doug and Kate will be discussing how to launch a new tech venture, terms of use/privacy policies, and the top five tech law developments you should be aware of.  There will be lots of good information, checklists and sample documents, and an opportunity to connect with others in the tech community. 

It will be a great week for the entrepreneurial community in Minnesota.  I hope to see you at some of these events.

Minnesota Cup’s 11th Annual Competition Is Now Underway

For those of you who didn’t hear, the Minnesota Cup (cool new logo and all) recently kicked off its Applications are now being accepted. Frequent entreVIEW readers know that the Entrepreneurial Services Group at Gray Plant Mooty has been a supporter and sponsor of the Minnesota Cup since its early days.  
2015 competition.  

If you don’t already know, the Minnesota Cup is a statewide business plan competition that offers a great opportunity for entrepreneurs to further develop and refine their business plan, gain access to investors, executives, entrepreneurs (and even entrepreneurial lawyers), and others involved in Minnesota’s entrepreneurial community.  To gain access to this great opportunity, you need to submit an application through their website, which you can access  here.  The application period closes on May 8, 2015.

We have also posted many times about the Minnesota Cup and its value to Minnesota’s entrepreneurial community, including here, here, here and here, so I won’t belabor the point any further.  However, if you’re at all curious about the competition or want additional support for your aspiring business or idea, I highly recommend that you consider participating this year.

I’m looking forward to another great season of Minnesota Cup events and learning about all the exciting entrepreneurial activity of this year’s participants.  

Update on Minnesota Angel Tax Credit for 2015

As you are emerging from your Thanksgiving comas and getting ready for the busy holiday season, now is a good time for a reminder that the Minnesota Department of Employment and Economic Development (DEED) is already accepting certification applications for the 2015 Angel Tax Credit. If you follow this blog, you probably are already aware of the popularity of the Minnesota Angel Tax Credit and some of its limitations. If you aren’t a frequent reader or are new to the entrepreneurial scene in Minnesota, below are some highlights of the 2015 Angel Tax Credit program.

• For 2015, the Minnesota legislature allocated $15 million of tax credits for eligible investments. Until Oct. 1, $7.5 million of that $15 million is reserved for businesses owned by women or minorities, or for businesses located outside of the seven county metro area. Beginning on Oct. 1, any portion of that $7.5 million that has not been allocated will be made available for all other eligible investments.

• Before Oct. 1, only $7.5 million will be available for qualified investments made in companies that are either located in the seven county metro area or are not woman- or minority-owned. For reference, all of the $15 million that was made available in 2014 was fully allocated by early May (with most of those allocations going to businesses in the metro area). It seems likely that the $7.5 million made available for metro area companies will go well before the beginning of May. Indeed, DEED is expecting the $7.5 million of credits to be allocated by Feb. 1.

• New for this year, “insiders” (defined to include officers, principals, 20% owners, and their family members) are not eligible to receive an angel tax credit.

If you are planning to use the Minnesota Angel Tax Credit for an investment in 2015, you should plan on becoming qualified now. Many companies are submitting applications now, and some have even delayed financings that would have been completed by now, but are being put on hold until a tax credit allocation has been received for 2015.

As a reminder, the process requires that the company be certified as a qualified business and that the investor also be certified as a qualified angel. Both of these steps require filings with DEED.  Once the company and investor are both certified, they must jointly submit a credit allocation application. Once you have received word from DEED that a tax credit has been approved for the investment, the investment can be made. The investment must be made within 60 days of receiving approval. Within 15 days of completing the investment, the company needs to file a proof of investment form together with evidence of the investment.

All of the requirements for becoming a qualified business or angel investor are listed on DEED’s website, together with links to all of the forms.

So, unless your business is located outside of the seven county metro area or is woman- or minority-owned, in addition to shopping and merriment, you should also set aside time during the holiday season for Angel Tax Credit preparations. Otherwise, you may have to wait until October.

10th Year of Minnesota Cup Another Success

This past Wednesday, I had the privilege of attending the final awards event for the Minnesota Cup. The awards event concluded the 10th year of the Minnesota Cup, which is a statewide competition for early stage businesses in Minnesota. Gray Plant Mooty has been a sponsor of the Minnesota Cup for most of those 10 years, as we’ve found it to be an excellent supporter of Minnesota’s entrepreneurs and start-up community.

At the event, which I thought was the best yet, they provided some interesting statistics. During the 10 years of the event:

• Over 9,000 businesses have participated.
• Greater than $1,000,000 in prize money has been awarded.
• Division winners have raised in excess of $160 million in private capital!

This year’s event, like the last few years, was hosted at the McNamara Alumni Center on the University of Minnesota campus. The room was filled with past participants and winners, entrepreneurs, students, business and political leaders, and others interested in Minnesota’s entrepreneurial community. Even our state’s two US senators sent video congratulations to the winners and participants.

Each of the seven division winners and runners-up gave one minute “elevator” pitches of their businesses.  The pitches were great, and displayed a variety of interesting business ideas. Among the elevator pitches by the division winners, the audience liked the presentation from Jonny Pops the best, and voted for them to win an extra $1,000.  Jonny Pops, which makes all natural smoothie-sicles on a stick, was also handing out samples of their product at the event. I thought they were quite good and will plan to buy a box soon for my kids to try.

At the end of the evening, the judges selected 75 Fahrenheit (75F) as the grand prize winner of this year’s Minnesota Cup. In addition to receiving $50,000 for being the grand prize winner, 75F also won $30,000 as the clean tech/water division winner, and received a $25,000 grant from the Southern Minnesota Initiative Foundation – total prize money of $105,000! 75F has developed an interesting technology that allows users to regulate building temperatures in an environmentally friendly way by using wireless zone controllers to monitor airflow temperatures in building zones.  

The other division winners were equally as impressive as 75F. I imagine the judges had a very difficult decision in picking a winner.  

For any aspiring entrepreneurs who were not able to participate this year, I suggest that you give strong consideration to participating in next year’s competition. Just by submitting an application, you are forced to think through some issues in your business plan that you might not otherwise consider. If you are chosen to be a semi-finalist in the competition, you will have access to mentors, advisors, investors, and others in the entrepreneurial community who can help you further refine your business strategy.  Even if you don’t win any of the prize money, the Minnesota Cup provides a great opportunity to make valuable connections for your business that you might not otherwise have. 

Congratulations to all of this year’s participants, and especially to the winners.  We’ll be looking forward to next year’s competition.

Survey of Minnesota’s Manufacturers Paints a Positive Picture

Last week, I attended an event for the release of Enterprise Minnesota’s 6th annual State of Manufacturing® survey. Enterprise Minnesota is a consulting organization that helps medium to smaller sized Minnesota manufacturers grow and develop their businesses. Among its efforts to help foster and sustain manufacturing in Minnesota, Enterprise Minnesota has commissioned this survey to assess the views of Minnesota’s manufacturers regarding the condition of their industry.   

The survey was conducted by pollster Rob Autry of Public Opinion Strategies, who interviewed 400 manufacturing executives representing a cross-section of Minnesota’s manufacturers – big and small, in-state and out-state, and in different industries. 14 separate focus group sessions were also held to supplement the findings from the survey.

The report itself is available using this link through Enterprise Minnesota’s website. The report contains the full results of the survey, transcripts from the various focus group sessions, analysis from Mr. Autry and others, as well as some issue articles by leading industry experts. A quick plug for the included great article about protecting know-how and other confidential information by my colleagues Jennifer Debrow and Dean LeDoux (see pages 39-45 of the report).  

Among the things that I found interesting about the report are the following:

• A whopping 84% of manufacturing executives are confident about the future prospects of their own companies. 

• Those surveyed are not quite as confident about the economy as a whole—54% believe the economy will be flat for 2014—only 7% are concerned about the economy contracting this year. Anecdotally, I had the sense that business executives generally are more confident about business in general, but these numbers are even more bullish than I expected. 

• Unless you’ve been living under a rock, you wouldn’t be surprised to learn that the greatest concern for manufacturing executives is the cost of health care for their employees. 59% of manufactures cite this as their biggest concern. Interestingly enough, this percentage is actually down from the prior year’s survey (when 67% of those surveyed cited health care costs as their chief concern). I don’t know whether this decrease reflects an improving situation for health care costs, or just some sort of peculiarity with the survey sampling. 

In the panel discussion that followed the presentation of the survey results, there was significant discussion and concern about the ability to find and retain qualified workers. Almost all of the manufacturers on the panel cited this as a critical issue going forward, and the concern was particularly heightened for manufacturers in rural parts of the state. Most agreed that better public-private partnerships among companies, technical and state colleges and local development and government agencies can help to identify the training and skills development needs for manufacturers, and foster the creation of needed resources and curriculum.

While there were several other concerns cited in the report, I thought on the whole the outlook for Minnesota’s manufacturers (at least as reflected in this report) was very positive. The event was also a good opportunity to stay apprised of the trends occurring in the manufacturing industry and the issues and concerns facing our manufacturing company clients. Enterprise Minnesota is also hosting several other release events in greater Minnesota through June 13th (the schedule is here). If you have the interest, one of these events would be worth your time.

Minnesota Cup Begins 10th Season

As a friendly notice to all of our aspiring entrepreneur readers, the Minnesota Cup recently kicked off its tenth season. If you don’t know, the Minnesota Cup is a statewide business plan competition for entrepreneurs and small business owners. Gray Plant Mooty has been a long-time sponsor of the Minnesota Cup (and the high tech division). We have posted about the competition many times over the past few years, including here, here and here.  

The Minnesota Cup added a new division to its format this year (food/beverage/agriculture) to go along with the other six division categories from last year – energy/clean tech/water, general, high tech, life science/health IT, social and student. Each division will produce one winner, who then will compete for the overall grand prize awarded on September 10th (hopefully after a nice warm summer to reward us all for the Polar Vortexes we endured this winter). Each division finalist and runner-up will be awarded cash prizes, and the grand prize winner will receive $50,000 in seed money. You can visit the Minnesota Cup's website for additional details and information about the competition.

In addition to the prize money awarded to winners of the competition, there are many good reasons for entering the Minnesota Cup. 

• Participants will have access to several programs throughout the year regarding various areas of business development (marketing, raising capital, accounting, legal, etc.).  

• There are many good opportunities in the program to network with other entrepreneurs and those who serve the entrepreneurial community (investors, advisors, lawyers, accountants, etc.).  

• Semi-finalists are also assigned mentors who can help with the development of their business plan. Just participating in the Minnesota Cup will create great impetus for you to refine your business plan and move to the next phase of development.

The fact that finalists from the last 5 years have raised nearly $75 million in financing is one measure of the impact that the Minnesota Cup has had on its participants. 

Best of luck to this year’s participants, especially those who are regular readers of entreVIEW!

Random Thoughts on the Heels of Another Cold and Snowy Winter Day…

Is it just me, or has the financing activity for early stage companies picked up recently? I don’t have any empirical data to support that observation, just some anecdotal evidence. We are working on several financing transactions right now, including a later round preferred offering (where the largest investor is reinvesting and committing significant new capital), two series A financings, two convertible debt financings, and several other private financings, all of which (fingers crossed) will probably close in the next few weeks. 

I haven’t noticed any particular trends with this activity. From an industry standpoint, the companies raising money are fairly diverse (clean tech, medical device, nanotechnology, health care IT, health and wellness, financial services and others). The investors in these deals are also fairly diverse, including a large public company, venture capitalists, angel groups, individual angel investors and friends and family. The Minnesota angel tax credit is being used in connection with some of these offerings, although not for all of them. That could be playing a key part in this recent uptick in activity, as investors and companies try to close deals while the angel tax credit is still available.

Speaking of the angel tax credit, as of last week only $5.4 million in credits remain for 2014.  If you’ll recall, the legislature allocated $12.2 million for tax credits this year, but as of February 14th, $6.8 million had already been allocated to qualified investments. At that rate, all tax credits will be fully allocated by the end of March. Some of the early allocations are likely attributable to investments that otherwise would have been completed at the end of last year and were postponed to take advantage of this year’s available credits (last year’s credits expired in early May). Obviously, if you are hoping to take advantage of the angel tax credit this year, you should plan to have your investment completed in the next few weeks.

Nice obituary in Sunday's StarTribune about the life of legendary entrepreneur Horst Rechelbacher, founder of Aveda and Intelligent Nutrients. I find rags-to-riches stories such as his inspirational. His life should provide good lessons to all aspiring entrepreneurs.  

The Star Tribune also ran a nice story about the Abdo family in Monday’s paper. The Abdos have had several successful businesses and are well known in the local entrepreneurial community. As a professional who sometimes struggles to balance work and family life, it’s warming to read a story about a family that is doing it right.  

Finally, if you’re like me and just a little tired of this winter, there is some good news on the horizon. The Twins pitchers and catchers are reporting today (in presumably a snowless Fort Myers), with the rest of the team scheduled to start spring training at the end of the week.  Baseball and warm weather will be here before we know it!

Observations on Good Board Practices

Happy New Year to all of our entreVIEW readers. Here’s hoping that 2014 will be your best and most prosperous year yet!

This is one of my favorite times of the year (if you don’t factor in our current weather). After all, ‘tis the season for lots of wonderful get togethers with family, friends and co-workers. ‘Tis also the season, apparently, for Board meetings. Over the last few weeks, I have attended several Board meetings and have a few more approaching in the next few weeks. After reflecting on all of these meetings, and preparing for the ones to come in the near future, I thought I would share a few simple observations of Boards that operate well.

I recommend regular meetings of the Board, if at all possible. Boards don’t need to meet monthly, but they should try to meet quarterly. The discipline of preparing for Board meetings, even though it can take time, is time usually well spent for management and Board members alike. For management, it allows them to reflect on key accomplishments during the period since the last Board meeting and, more importantly, forces them to focus on what they would like to accomplish during the period before the next meeting and beyond.  This permits management to be thoughtful and realistic about what has been accomplished, where they are, and where they are going. Regular Board meetings also help the Board fulfill their fiduciary obligations by getting regular updates from management.

It is a good idea to schedule regular Board meetings on the same day and at the same time each month or quarter. If you try to coordinate a date and time that will work for everyone’s calendars for each separate meeting, you will have to wait a long time and spend hours and hours scheduling and rescheduling. Everybody’s calendars are too packed to try and coordinate a day and time that works for everyone. A better approach, I think, is to set your meeting dates and times well in advance and on the same day and time. For example, if you have regular quarterly meetings, have them all on the same day of the quarter (e.g., at 10:00 am on the last Tuesday of the quarter). It is inevitable that there will be conflicts on one or more of those future dates but, by setting the meetings in advance, you allow people the opportunity to try and plan the rest of their schedule around the regular Board meetings.

Finally, try to have at least one meeting a year in person. It is easier to do, of course, when all Board members are located near each other. But even, and perhaps especially so, for Boards that have members scattered across the country (or world), regular in-person meetings (yearly, bi-annually, quarterly, whatever) are a good use of company time and resources. In-person meetings are good for Board chemistry and allow Board members to become more engaged and committed to the company’s success. One Board I work with has regularly scheduled monthly meetings. The first two meetings of each quarter are held by teleconference, and the last meeting of each quarter is held in person. The Board has members in a few different states, but they all make an effort to attend the quarterly meetings in person, which I think has allowed them to become more involved with the company.

Some of these suggestions probably seem obvious to well-functioning Boards. However, if your Board is not currently having regular meetings, at regularly scheduled times, with at least one in-person meeting, you may want to consider changing that practice to relieve some administrative hassle, as well as to permit your Board to become more engaged and involved in your company’s success. Consider it a New Year’s resolution for a more successful Board in 2014!

CoCo Named Part of the Google for Entrepreneurs Tech Hub Network

Local coworking space CoCo recently received some really good news.  CoCo was named one of seven locations in the Google for Entrepreneurs Tech Hub Network.  This is great news for the Twin Cities and the tech entrepreneurs located here. As part of the tech hub network, CoCo and its members will receive funding from Google, discounts on Google products, and the ability to work with Google mentors. CoCo will also be able to participate in quarterly conference calls with the other tech hub networks to share their experiences and insights.

For those of you who don’t know, CoCo (which stands for coworking and collaborative space) has been operating two coworking spaces in Minneapolis and St. Paul, with a new location opening soon in Uptown. The CoCo location in downtown Minneapolis is on the old trading floor of the Minneapolis Grain Exchange (very cool ambience).  CoCo has “members” who purchase time to work out of one of CoCo’s locations. Some companies or people have permanent space at a CoCo location, while others have memberships that permit them to use a location on a less permanent basis.   

In its announcement, Google said that it wanted to support a changing trend it has noticed in entrepreneurship over the last several years. That trend involves entrepreneurs working alongside other entrepreneurs in accelerators and coworking spaces, rather than holing up in a garage alone or with a few other people. 

Gray Plant Mooty’s entrepreneurial services group recognized this trend and became a CoCo supporter last year. In fact, several of the authors of this blog regularly spend time at and work from CoCo. As one of those regular attendees, I can attest that it has an unmistakable and palpable creative energy. With so many eager entrepreneurs in one space, you can always find an interesting conversation with someone you’ve never met before.  Ideally, you’ll make a connection with someone that will allow you to advance your business or concept. And if not, at least the coffee is pretty good.  

Having CoCo named as a Google for Entrepreneurs Tech Hub Network is a big boost for our tech community and is validation of the great work that the CoCo team has done in creating a vibrant and inspiring environment for local entrepreneurs. 

Women Leaders Achieve Childhood Dreams

The Minneapolis / St. Paul Business Journal recently published its annual Women in Business award list, highlighting 51 women business leaders in the Twin Cities.  I like reading this edition each year, and others like it, because I like to learn about successful people and how they got to where they are.  The publication includes a short bio on each of the women honorees, followed by a sampling of their answers to a set of survey questions, one of which was: “When you were a kid, what did you want to be when you grew up?”  

There were a lot of interesting responses to that question, but one of the things that struck me was the number of women who are doing today exactly what they wanted to be doing when they grew up.  For example, Sarah Caruso, President and CEO of the Greater Twin Cities United Way, wanted to be a leader and business person.  Dr. Lisa Tseng, CEO of hi HealthInnovations, wanted to be a doctor and CEO.  Jackie Schneider, Vice President of sales and customer service at Proto Labs, wanted to be a sales person.  Lisa Peck, owner and principal designer of LiLu Interiors wanted to be an interior designer who ran her own business.

There are several others who are doing exactly what they wanted to be doing when they were kids, or something similar to it.  Of course, there are others who are doing quite well even though they haven’t lived out their childhood dreams (at least not yet).  Included in that group are those who wanted to be a large animal veterinarian, an FBI Agent, a Rockette, Annette Funicello, an Olympic equestrian and President of the United States.

I found all of this quite impressive, especially since I can’t really remember what it is that I wanted to be when I grew up (or, for that matter, what I want to be when I grow up).  If I had a childhood dream, it probably was being second baseman for the Minnesota Twins or quarterback for the Minnesota Vikings (dreams that I assure you died out long before I got out of middle school).

Knowing that my career today has very little to do with any childhood aspirations, I wondered why so many of these women were able to live out dreams they had as kids.  Without knowing any of them, it’s hard to speculate, but I can probably assume that they are all exceptionally bright, goal-oriented, determined and driven.  It would certainly be hard to accomplish all that they have without those characteristics.  Beyond that though, they all must also possess a certain degree of passion for what they do.  I can’t imagine that one can pursue a lifelong goal without having a lot of passion for that goal.  

That reminded me of the role that passion plays for successful entrepreneurs.  Entrepreneurs who are passionate about their businesses are far more engaging and persuasive than those who are not.  It takes a lot more than passion to succeed as an entrepreneur, including a good business concept, strong team, perseverance, luck, etc., but without passion for your business, I think it’s very challenging for an entrepreneur to succeed.

For example, I recently sat through a practice investor pitch with an aspiring entrepreneur, who had many of the things you look for in an investable company.  He had an interesting business concept, a demonstrated need for his product, some initial sales and a good team of advisors.  However, his presentation lacked the passion and enthusiasm necessary to get his audience excited about his product and the business opportunity.  If you can’t passionately describe what differentiates your business from your competitors, and show that you’ll do whatever it takes to make your business succeed, it is very difficult to persuade potential customers and investors to take a risk on you.

I also don’t think you can manufacture passion or enthusiasm for your business.  Either you have it or you don’t.  To me, it’s obvious when someone is genuinely passionate about their business, and also when someone is faking it.  Real passion is what motivates you to get out of bed every day and pursue your goals, regardless of the obstacles.  

For some people, passion also helps them to grow up to be exactly what they wanted to be when they were kids.

P.S.  If you like the content of entreVIEW (my posts or those of my fellow authors), please consider nominating us to the ABA annual list of top 100 Blawgs.

MN Angel Tax Credits Run Out for 2013

In recent posts, my colleagues, here and here, and I have provided updates on the status of the Minnesota Angel Tax Credit.  As of early-May, according to the Minnesota Department of Economic Development’s (DEED) website, all $12.7 million of the tax credits available for issuance in 2013 had been exhausted.

There was some hope that the Minnesota legislature would allocate additional credits for 2013 in this session’s tax bill.  Indeed, there was at least one proposal to increase the tax credits available for issuance this year.  However, the tax bill that the legislature approved at the end of the session on May 20th, and which the governor signed, did not include an increase for tax credits this year.

The legislature did approve an allocation of $12 million for calendar year 2014.  Given the pace at which tax credits have been allocated the past two years, I think we can assume that the $12 million of tax credits available for 2014 will be exhausted by the time the snow melts next spring in Minnesota. (Jeff Nelson, the angel tax credit program’s coordinator, speculates that they will run out of credits by April.)  So, if you are planning to raise capital next year, and hope your investors will be able to take advantage of the tax credit, you will need to get in line early.  DEED will begin accepting applications for the 2014 angel tax credit in November this year.

Minnesota Angel Tax Credit Update

If you saw my last blog post, you know that I’m a fan of the Minneapolis/St. Paul Business Journal.  I recently saw another article in that paper that I thought would be interesting to readers of this blog.

The article is actually a summary of the 2012 Annual Report for the Minnesota Angel Tax Credit Program prepared by the Minnesota Department of Economic Development (DEED).  Here is a link to the actual report.

I found a few things in the report interesting.  First, it notes that 117 different companies received more than $46.1 million of investments, resulting in $11.4 million of angel tax credits being issued.  In 2011, there were fewer companies receiving qualifying investments (113), but the amount of capital raised through qualifying investment was larger ($63.1 million) and more angel tax credits were issued ($15.8 million).  Of course, in 2011 DEED had more tax credits available to issue than it did in 2012.  So, the decline in the number of tax credits issued in 2012 is not a sign that the Angel Tax Credit Program is waning in interest.  Rather it’s a reflection of the lower number of tax credits available in 2012.  Indeed, the fact that more companies received qualifying investments in 2012 than 2011 suggests that the Angel Tax Credit Program is gaining in popularity and has better recognition among Minnesota’s entrepreneurial community.  

As further evidence of the increasing popularity of the Angel Tax Credit Program, DEED’s website indicates that, as of April 17, 2013, $7.5 million of this year’s $12.7 million of tax credits available for allocation have already been issued, and only $5.2 remain available for issuance.  So, if you were planning to utilize the Angel Tax Credit as part of your capital raising strategy for 2013, you had better begin that process now.

Another interesting thing is the concentration of investments by sector.  Software received the largest amount of eligible investments, at $14.34 million, followed by medical device ($11.67 million) and biotechnology ($5.98 million).  The number of clean technology companies receiving qualifying investments in 2012 (7) was down from 2011 (11), and the amount of qualifying investments made in clean technology companies in 2012 ($2.1 million) was substantially down from the amount made in 2011 $(13.0 million).  

Those of us who work with clean technology companies know that capital raising activity in that space has become more challenging, and these numbers, unfortunately, provide further evidence of that difficulty.  Hopefully those numbers will turn around for the clean technology space in 2013.

Thoughts on Raising Capital

I was recently going through some old articles and cleaning out my office (it still needs a lot of love), when I found this article in a hard print copy of the Minneapolis/St. Paul Business Journal. I read almost nothing anymore that I can’t access online, but I don’t mind reading the Minneapolis/St. Paul Business Journal in hard copy form. It’s small enough that it’s easy to read on the bus (my preferred mode of commuting), and I usually get through it very quickly (there’s something very satisfying about finishing the paper, recycling it, and then crossing it off of my “to do” list).

Apart from the paper in which it was published, I like this article because it highlights that there is more than one way to raise capital and fund operating costs for startups. As a lawyer for entrepreneurs, I get asked frequently about how to raise capital. The short answer is that it’s hard, and it depends on your circumstances and what you need. Articles like this reinforce that raising capital isn’t always easy, but there are many ways to do it. For example, bootstrapping won’t work for every business, as some businesses are just too capital intensive to fund through founder resources and working capital. But, for the right business, bootstrapping is an ideal way to build value to the enterprise without diluting the founder’s (or founders’) ownership, especially if it doesn’t come at the risk of stifling growth.

I thought a couple of interesting things from this article were worth noting. Luke Shimp, the owner of Red Cow, who obtained SBA funding to help launch his restaurant business, describes the importance of having a business plan. Having a good business plan is certainly important for businesses that intend to obtain debt financing from a sophisticated financial institution. I also think the process of developing a business plan is important for entrepreneurs, whether or not you are seeking debt capital. It forces you to think through issues, such as go-to-market strategy, operating capital requirements, customer acquisition timing and costs, management skills, and other critical business factors in a way that you aren’t required to do if you aren’t trying to articulate them on a piece (or several pieces) of paper. 

But, as my colleague and fellow entreVIEW author, Dan Tenenbaum, noted in a prior post, investors (as opposed to lenders) don’t really want to review a full blown business plan anymore. Investors expect that you’ll know the answers to the questions that might otherwise be described in your business plan, but they are not interested in reading through a lengthy plan. For companies looking to raise equity capital, I find that they have much more success using a short pitch deck to help identify potential investors. While the business plan is a useful tool for developing your actual business, it may not be quite as useful for attracting investor capital as it once was.

The story about Interrad, which raised money from several angel investors, offers an insight into a possible problem with raising money from too many investors. If you need to raise capital, and small investors are the only sources that are interested in your opportunity, then that’s who you will likely partner with. It would be silly to set some artificial number of investors that you won’t exceed. If you need the money, then you take it wherever you can get it. 

But having lots of small investors can be a distraction and divert the CEO’s time. While the Interrad CEO doesn’t seem to complain about the quarterly communications he has with his shareholder base, it undoubtedly takes time to prepare those communications (and answer phone calls) that could be used adding other value to the company. The more investors you have, the more people you need to answer to. If your investors don’t have a lot of resources, the investment they made in your business could be very important to them. As noted in this prior post (also by Mr. Tenenbaum), having proactive and frequent shareholder communications, as the Interrad CEO does, is a good way to maintain positive relationships with your investors. Of course, successfully growing your business is an even better way to maintain positive relationships with your investors.

The Code 42 piece highlights the importance of running a lean operation. It also highlights the importance of identifying the right partners to take on as investors. The right investors bring more value than just the checks they write. They also bring connections and industry expertise that can be invaluable to helping your business grow. They should be vested in the success of your business, as they ultimately stand to benefit from that success.

All these stories highlight that there are many ways to raise capital and fund operating capital needs for early stage businesses. However you decide to fund your business, know that it takes hard work, patience and discipline (and a little luck) to get it done. If you are willing to put in the work, and can be patient and disciplined throughout the process, your chances of success will be significantly increased.

Lessons Learned from HealthXL Selection Day Event

Last week, I had the good fortune to participate as a mentor in the HealthXL startup boot camp selection day event.  HealthXL is a European-based accelerator program for startups in the health care space.  Startups at the event I attended in Minneapolis were competing for spots in the accelerator program in Dublin, Ireland.

As part of the selection process, each of the teams gave a four-minute pitch of their business plans.  They then had individual 30-minute meetings with each of the mentors.  At the end of this process, the mentors rated the teams based on concept, technology, potential market, team and other factors.  The top teams, based on those rankings, will be invited to Dublin for the three-month accelerator program.

The event was a great opportunity for the companies that participated, as they were able to present to several leading investors, entrepreneurs, business executives and other experts in the health care space.  Even for those companies that don’t get accepted into the accelerator program, that experience and exposure to industry leaders is valuable.   

The event must have also been quite grueling to the company participants.  The mentor meetings, which lasted for much of the day, not only involved positive feedback and helpful insights, but also challenging questions about business plans and go-to-market strategy.  A willingness to have your business dissected and critiqued at that level is one of the reasons I have such great respect for, and enjoy working with, entrepreneurs.  The best entrepreneurs are always challenging themselves and their teams to make their businesses better.

After having witnessed all the company pitches, and having sat through many mentoring sessions, I noted a few things that are important to remember when presenting to investors (or anyone else for that matter): 

1. It is important to be able to concisely describe what your business does, and why you do it.  While the initial pitches were only four minutes long, and not nearly long enough to explain all the facets of your business (market opportunity, executive team, competition, etc.), that should be enough time to explain, succinctly and in simple terms, the problem your business addresses and how it addresses that problem.  If you can’t do that in four minutes, you are not likely to be able to do it in 15 minutes, or 30 minutes, or an hour.  Most of the presenters did a good job of explaining their business and getting me hooked in that short four-minute period.  There were a few though, where after the presentation concluded, I had no idea what the business did.  Even with more time, I likely would have lost interest and started focusing on other things (such as what I was having for lunch or the errands my wife wanted me to run on the way home).  We all have limited attention spans, and if you can’t capture someone’s attention in a few short minutes, you’ve likely lost it forever.

2. Make sure you can explain your business to people who are not experts in your industry.  While most of the mentors at the event were health care experts, I am not.  I work with enough companies in the health care space that I am generally familiar with the issues facing the industry.  But I get lost in the technical jargon common to health care industry experts.  You, of course, need to be able to understand all of the technical aspects of your business and address questions and concerns raised by other experts, and discuss their concerns at the technical level they want.  Your presentations, though, should not assume that your audience has the same level of technical expertise you have.  Just because I don’t have that same level of expertise doesn’t mean that I wouldn’t be interested in investing in your company.

With those reminders, I will say that I was impressed by most of the teams at the HealthXL event, and think they are well poised for success.  A few months in HealthXL’s accelerator program will help them refine the finer points of their business plans and help them get ready to execute their strategy.  Thanks to HealthXL for creating this accelerator program, and best of luck to all the company participants.

Fiscal Cliff Doom and Gloom Averted (?)

Happy 2013 everyone!  I hope your New Year’s festivities were safe and enjoyable, and that you were able to spend a few moments thinking of something other than the imminent doom that might have been our fate after we headed over the “fiscal cliff.” I don’t know about you, but news coverage of the “fiscal cliff” negotiations, or lack of negotiations, and the ruin we were all about to experience, left me wishing that Santa had brought me a fallout shelter for Christmas.

No need for hysterics though, as apparently our government averted the total disaster that would have been the fiscal cliff crash by agreeing to a compromise earlier this week.  President Obama signed the compromise legislation into law—the American Taxpayer Relief Act of 2012—on January 2nd, which obviously was after midnight on December 31st.  I was under the mistaken impression that after midnight on the 31st we were headed off the cliff and there was no turning back.  I was wrong.  Our economy is more like  the coyote in the Looney Tunes cartoons, in that we were able to run off the cliff, but then stop and remain suspended in midair, turn around, and run back to safe land.

In the days ahead, there will be plenty written about how the Taxpayer Relief Act impacts Americans in general and, of interest to readers of this blog, small businesses and entrepreneurs in particular.  I haven’t had a chance to go through the legislation in any detail, but did notice one provision that might be of interest to entrepreneurs and owners of small businesses.  The Taxpayer Relief Act shortens the time period to five years during which the Built in Gains Tax, or BIG Tax, will be applicable for years 2012 and 2013.

As many of you probably already know, the BIG Tax applies to S corporations that were formerly C corporations.  At the time the former C Corporation elects S corporation status, the corporation must calculate the amount of unrecognized appreciation in its assets (measured by fair market value less tax basis).  The asset most likely to experience significant appreciation is good will.  If the S corporation subsequently sells its assets within a certain period of time after the S election is made, the BIG Tax will be applied against the previously unrecognized appreciation on the assets that existed prior to making the S election.

Prior to the Taxpayer Relief Act, the BIG Tax applied to a ten-year period, so that any asset sale made within 10 years after the conversion from a C corporation to an S corporation would potentially be subject to an additional BIG Tax.  The Taxpayer Relief Act changed that waiting period to 5 years for years 2012 and 2013.  So any asset sales consummated by S corporations during 2012 and 2013 should not be subject to BIG Tax so long as the corporation made its “S” election more than 5 years ago. 

The retroactive change for 2012 won’t help you with planning any of last year’s transactions (at least for those of you who don’t have a time machine), but the change for 2013 may be useful for S corporations planning to sell this year.  Knowing that the change would have been applied to 2012 could have been helpful for at least one transaction I worked on that didn’t close at the end of last year, although it may be helpful in facilitating a closing in 2013.

Cleantech Alive and Well in the Midwest

A few weeks ago, I attended the Innovation Expo & Awards event for the North Central region of the Cleantech Open. The awards event was the culmination of 3 days of networking, investor meetings and a trade expo for Midwest-based cleantech start-ups. The companies participating in the event had each completed several months of training through the Cleantech Open, a national accelerator for cleantech companies, which I have written about before.

The awards event featured short elevator-pitch style presentations from each of the 20 semi-finalist companies in the regional Cleantech Open competition. After the presentations, the crowd got to vote for their favorites, like American Idol, except without the mean-spirited judges. 

Before the awards event, the semi-finalist companies each gave investor presentations to a panel of judges, who selected the three finalists for the North Central region: HEVT, based in Chicago, Illinois, IrriGreen , based in Eden Prairie, Minnesota and SiNode, based in Chicago, Illinois; as well as the regional sustainability winner: Barasa, based in Wheaton, Illinois.

The three finalists and the regional sustainability winner were invited to present at the Cleantech Open’s Global Forum on November 8th and 9th in San Jose, California. At the Global Forum, HEVT was named the Grand Prize Winner and Cleantech Entrepreneur of the Year. This is the second consecutive year in which a company from the North Central region has been named the Grand Prize Winner and Cleantech Entrepreneur of the Year.

When most people think of cleantech, they think of wind, solar, hydro power, biofuels and other sources of power generation based on renewable resources. However, the cleantech sector is much broader and diverse than that. It includes power storage, resource conservation, efficient space design, repurposing of used components, and other similar technologies. 

• IrriGreen, for example, has developed a patented landscape irrigation system that significantly reduces water usage and installation cost;
• HEVT has developed a technology that optimizes performance and reduces the cost of electric motors.

The Cleantech Open provides a good showcase for talented cleantech entrepreneurs throughout the country, but especially in the Midwest. With back-to-back winners in the national competition, it shows that the cleantech sector is alive and well in the Midwest. There is no shortage of good “cleantech” ideas and technologies being developed—there are many good entrepreneurs and executives in the space trying to polish and commercialize these ideas and technologies. 

Even with all the interesting technologies being developed, many companies in this space continue to struggle to find capital. Without necessary capital, they won’t be able to achieve the scale necessary to succeed. Hopefully, events like the Cleantech Open will connect enough investors with these companies to help get them to the next level.

Baumgartner’s Amazing Feat

Is there anyone who hasn’t yet read or heard about the remarkable feat Felix Baumgartner accomplished last weekend?

On Sunday, he rode a capsule, attached to a hot air balloon, 128,100 feet (about 24 miles) up above Earth, then jumped from the capsule falling all the way back down to a desert in New Mexico. On his way down, he broke the speed of sound, travelling an estimated 833.9 miles per hour. His fall to Earth lasted a little over nine minutes, with half of that spent in free fall. He broke the records for highest free fall and highest manned balloon flight. He did not, however, break the record for longest free fall, which amazingly was set in 1960 by Colonel Joe Kittinger.

When I heard about this, my first thought was, why in the world would anyone do that? As someone who gets pretty uncomfortable riding chair lifts, I would find it almost paralyzing to travel that far up in the sky in a small enclosed capsule, let alone open the hatch and jump back toward Earth. I am awed, and a little perplexed, by people as fearless as Mr. Baumgartner. And while his feat struck me as cool, it seemed to be another one of those stunts like this that is interesting but has no other real redeeming value (other than getting your name in the Guinness Book of Records).

However, as I read more about Mr. Baumgartner’s feat, and what it took to accomplish it, I’ve gained more admiration for him. It wasn’t just one guy going up really high into space, and defying death by falling safely back to Earth. He had a large team, including Col. Kittinger, helping him prepare for this. If you look at the footage of the jump, his team on the ground appears to be in a NASA command center (although NASA was not involved). The planning for this feat took over five years, with countless hours preparing and studying for the ultimate event, including two significant test jumps in the past year.

Apart from being a cool daredevil stunt, this could also have lasting and important impacts on future space travel. Researchers believe that they gained valuable data about the effects of high speed travel on the human body, which will help in creating emergency escape plans for astronauts and other space travelers (companies like Virgin Galactic are developing plans and vehicles for space tourism). They also expect that this will help in developing new and better spacesuits.

There are lots of lessons to be learned from this. A couple though, stood out to me as particularly applicable to an entrepreneurial audience. The traits and characteristics that allowed Mr. Baumgartner to make this remarkable journey are similar to those that it takes to succeed in a number of other settings, including starting and running a business. He had the vision and foresight to set an almost impossible goal, and the courage to try to accomplish it, despite all the inherent risks. He surrounded himself with a skilled team, including a mentor (Mr. Kittinger) who had achieved a similar goal many years earlier, and who remained vested in Mr. Baumgartner’s success. He took the time necessary to prepare and plan for his adventure. He also was able to get the right partners to help sponsor and underwrite the cost for this undoubtedly expensive endeavor.

Mr. Baumgartner had vision, courage, preparation, planning, and funding, plus the support of a mentor and a strong team. Do you know any successful entrepreneur who hasn’t?