More insights from presentations at last week’s “ei2012!”

By all accounts, last week’s “Entrepreneurial Imperative” conference was one of the most content rich events of its type ever held in the Knoxville-Oak Ridge region. We talked with a number of people who have been engaged in the region’s entrepreneurial space for the past decade, and they consistently praised Tech 20/20 for the quality of the program.

We captured the opening keynote speech in a post last week. On the eve of Thanksgiving, we wanted to summarize points made by the second keynote speaker and a panel of investors that we have not been able to share previously.

Second Keynote Speaker:

Eric Donsky, Managing Partner of Laguna Ventures, spoke at the second day lunch on the topic of what it takes to build a successful business. The serial entrepreneur from California consistently hit several common themes.

“It’s about the vision and people,” he said early and often. “Passion is the key ingredient in your success, particularly when you face hurdles that you have to overcome.”

Citing Apple as the master of evolution rather than revolution, Donsky said it took him 20 years to get his first start-up to a $1.5 cap.

“If you are not committed to a long time, stick to evolutionary,” he advised. “Revolutionary versus evolutionary comes with a different cost.” He cited time, money and manpower as the key differences.

Donsky said that 99 percent of start-ups fail for one or more of several reasons including:

  • Founders pick the wrong idea or science;
  • Management cannot execute;
  • The start-up has insufficient capital; or
  • The company has a weak talent pool.

“Work backward from an unmet need,” he advised aspiring entrepreneurs. “Your assumptions have to have credibility. Scrub them. If the numbers don’t work, walk away.”

Investment Panel:

The investment panel represented individuals on the continuum from angel funding to partnership agreements. They were:

  • Eric Dobson, Chief Financial Analyst and Director of the Knoxville Chapter of the Angel Capital Group;
  • Cameron Newton, President and Chief Executive Officer (CEO) of NEST-TN, one of the state’s TNInvestco;
  • Clint Gwin, President of Pathway Lending; and
  • Dick Nixdorf, President and CEO of Industrial Ceramic Solutions, LLC.

A consistent theme emerged during their session – “we invest in people.”

Dobson, who is also an entrepreneur, said that his group is seeing a lot of deal flow which he believes reflects a resurgence of start-ups. “The barrier to starting a technology company has never been lower,” he noted.

Angel Capital Group generally invests very early and looks for start-ups that have a unique approach, a solid management team, a beta product, a valuation between $1.5 and $3 million, and the possibility of a return on capital of 3.5x to 5x within five years.

“We’re a little later than Eric,” Newton said. They also look for a strong management team, which he characterized as a “CEO pushing hard and a Chief Financial Officer pulling back.” NEST-TN also looks for both a proof of concept and a proof of relevance as well as a large market.

“We play later than Eric or Cameron,” Gwin noted, adding “we’re debt.” He said that Pathway spends considerable time with its portfolio companies right at or just past their inflection point. A typical company is in Pathway’s portfolio for 12 to 48 months.

For Nixdorf, partnership funding has been a way of life. “You get involved with a customer needing your product” who funds the development and then has the marketing expertise to handle the sales. Nixdorf added that partnership funding’s value to a company like his is that “you don’t have to give-up equity, and you don’t have to guarantee your home.”

As they look to the future, the panelists had some interesting observations.

  • Newton advised that “crowdfunding could drive valuations higher with more money chasing deals.”
  • Dobson said that “money from the wrong investor can kill your company just as fast as no money at all.”
  • Gwin reminded the entrepreneurs that “having good accounting is critically important.”
  • Newton advised to “get as much bank lending as you can . . . it’s cheaper.”

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