Walter Breidenstein， CEO of Gas Technologies:
Brief Profile of Entrepreneur / Venture.
In my experience, the entrepreneur and innovator needs to have broad vision, courage, high tolerance for risk and managing risk, the ability to cover the downside so that when they reach the middle of the valley of death in their venture they don't break down and walk away, and the patience to deal with money sources who don't care about your sleepless labors without Wall Street bailout returns. The entrepreneur and innovator must always be at the top of his game when abounding in the hills or when abased in the valley. There is no excuse for not delivering constant excellence, passion and true grit for the entrepreneur. He must learn to travel the world on a shoe string budget just as easy as he can with a bulging bank account. He must feel comfortable in 5 star resorts, and learn to sacrifice what is like to barter a couple nights hotel lodging to meet a budget if needed.
Is this type of entrepreneur and innovator still existing in our society? Read the books of the great industrialists and business leaders over the past 300 years and you will find this 1% out there in the historical record. However, I see these 1% true entrepreneurs and innovators being replaced by the modern entrepreneur who is funded with millions of VC dollars out of University, and how things have indeed changed. The real scrapper and street fighter entrepreneur has been replaced by the VC backed manager/employee and yet they have redefined the definition of entrepreneur and innovator.
How difficult is it to manage $2-5 million cash to build a company? Well, in 1999 during my first trip to Silicon Valley I saw what "entrepreneurs" called their burn rate of $2-5 million per month, and if you did not have that sort of burn rate you were not a true entrepreneur or innovator. Some spent more of other people's money, some spent less...but that was the litmus test and if you did not have a solid burn rate you were not "VC material".
Well, the times have changed again. Now, the litmus test is total money invested. How much money have you spent to-date as an entrepreneur to innovate and build value? If you want to be a truly disruptive (old term) technology you should have spent at least $10 million, and if you can pick up a licensed technology from a global giant to continue innovation, it would be great if they spent $100+ million. I recently saw a total $165 million total raise go into a technology which really has no chance to ever make money as an innovation, but the money follows the money to keep everyone "floating" before another crash.
Why would you recommend me or my service? Value and old fashion entrepreneurial work ethic comes to mind. Straightforwardness which can be hard for an entrepreneur as there is a very fine balance between appeasing those who manage other people's money and oneself who manages their own at constant risk. I would seek out the entrepreneur who is not necessarily handed several million out of college or leaves a fortune 500, but the 1% who have had to examine thousands of technologies and selected the 2-3 that will change the world in a specific sector.
How is your product a breakthrough or disruptively innovative?With a total investment of ~$1.5 million dollars, I have managed to move the technology into competition (or collaboration) with multiple global energy companies.
There is sufficient evidence to demonstrate that our technology is worth tens of millions, if not hundreds of millions, due to our global patent coverage over our competitors. Who are the competitors? Which companies below would be potential buyers or licensors of our truly disruptive innovation?
Below is a list of companies where we have, or had, discussions on our technology and that are either competitors or potential collaborators.
Total Petrochemical: Total has nearly 97,000 employees' worldwide and posted sales of €179.9 billion in 2008.
Shell GameChanger: In September and October of 2009, Shell Energy Company posted on the front page of their website a challenge, "The world's rising global energy demand means we're going to need every type of energy… and can't afford to leave this valuable resource behind. At Shell, we're looking for new ideas on ways to access and transport stranded gas and get it from where it is to where it's needed. If you have the bright idea we're looking for, Shell GameChanger could help turn it into reality with financial investment and the technical support you need to take your proposal to proof-of-concept stage. After that, Shell could continue to work with you to take your idea further, or help you find partners for the next stage of development." Shell has 102,000 employees in more than 100 countries and territories, has revenues of $458.4 billion in 2008, and investment in research and development: over $1.2 billion (more than any other oil major).
BP International: BP has been one of the most active investors into R&D on methane conversion worldwide, and recently announced their new GTL process technology commercialization in Alaska. BP is one of the world's largest oil and gas companies with 92,000 employees, $361 billion in sales ending 2008, and is a leading player in the global biofuels market. Since 2006, BP has announced investments of more than $1.5 billion in biofuels research, development and operations.
ExxonMobil Chemical: Exxon is world's largest traded international oil and gas company with $477.4 billion in sales and 79,900 employees.
DOE/University of Virginia: On May 5, 2009 the University of Virginia, California Institute of Technology, Princeton University, the University of California-Berkeley, the University of Maryland, Iowa State University, the University of North Carolina, North Texas University, Yale University and Scripps Research Institute-Florida received an $11 million grant for methane-to-methanol research.
Dow Chemical: Dow published their "Dow Methane Challenge" in March 2007. Dow has 43,000 employees and sales of $49 billion in 2008.
Velocys, Inc.: The company was created in 2001 to develop chemicals and biofuels using a microchannel technology. They are a subsidiary of Battelle Memorial Institute, have 78 patents and have received more than $100 million in investments from Dow Chemical, Toyo Engineering, MODEC and Total Petrochemical for research into methane conversion.
CompactGTL: In October, 2009 the company CompactGTL announced it is on track to supply Petrobras with a $45m, 20 barrels a day (b/d) pilot unit for processing associated gas into synthetic crude (syncrude) by the start of 2010 and that the Brazilian national oil company is likely to adopt the Fischer-Tropsch (FT) technology permanently. It is estimated they have invested more than $100 million in the development of the technology using microscale reactors to convert methane-to-syncrude.
There are other global companies researching "direct methane" conversion technologies, however, we believe we have an advantage due to our patent portfolio.
Our breakthrough is a chemical kinetic reactor system and process plant that is third-party validated to be 50% cheaper in CAPEX and up to 20% cheaper in OPEX over the competitors. This is disruptive in chemical engineering.
Given 20-20 hindsight, what would you do differently?Start my own technology fund and fund the R&D development. The risk tolerance of investors for technology funds or VC funds is more palatable than seeking their investment into an R&D technology company. For young entrepreneurs, I would recommend the following steps to build value before you seek investors outside of friends and family:
1) Fund $200,000 from day one of your start-up with founders. You don't need more if you are an entrepreneur working from a college dorm room or a home with a family.
2) Hire a good patent lawyer and engineer to file two or three patents on your technology...whatever it is that you are doing. File as PCT and not domestic cases. This will give you 18 months to file globally, including the USA, when you have more money before 18 months expires. Finally domestically and international PCT is a waste of money in your early days. The filing date is your key after you do your research on your competitors.
3) Build a database of the competitive IP and spend time with your lawyers to really understand and document your competitive advantages over patents.
4) Hire an engineer who is strong in excel and build your financials from the bottom-up. Focus all your attention to detailed CAPEX and OPEX of your invention/innovation with the most accurate numbers. Spend $20K of the $200K to hire a third-party well known firm to independently audit your CAPEX and OPEX.
5) Avoid paying yourself a salary if you can...or at least the bare minimum. Bill yourself a salary on the books...but realize VC's and other investors will give you no value for your salary and will fight up and down to pay it with their money. If you took away their salary for a week or two they would threaten to walk from their company, but when it comes to your salary it will be worthless to them and will only be used against you in any discussions. Work as cheap as possible, and bill a reasonable salary. Don't spend $200K on you and your other teams salaries and then go look for more investors. Live and more modestly and be fair.
6) Package everything into a professional business plan built on the IP, the third-party studies and the financials from the bottom-up.
7) Go for $1-2 million to build your prototypes, pilot or even commercial scale innovation. Don't give up control. You can avoid giving up control by doing a completed PPM and avoid the VC investors at this stage.
8) Don't worry about revenues yet...one of the smartest things I saw was the co-founder of Twitter respond to someone who asked him about how much revenues they made last year. He said something to the effect, "We have not made any revenues, and are evaluating several models to generate revenues for the future. Currently, our entire focus is to build shareholder value." Don't loose focus that as an entrepreneur you need to build value, not revenues in the early days. If you are disruptive...revenues will follow this value. Don't let the VC's and others beat you up about pre-revenue...just focus on value.
9) Keep your exit strategy simple. IPO, M&A or licensing royalties.
I know my list is not going to be overly kind to some investors, but it was asking advice for entrepreneurs.
What is your most memorable fund-raising experience? It is a compilation of experiences. In traveling and working in almost 40 countries, I have learned many different cultures and business ethics. Some entrepreneurs have very different funding expectations in different countries than we do here in America. If I were to choose two examples, I will show a contradiction in experiences.
In 1994 I was working in Russia on an oil & gas project, and was invited by a large production company for all expenses paid 2 weeks. Once arrived, I was taken from the airport to the hotel where I was informed my hotel was covered for 2 days, not 2 weeks. After I gave the hotel my credit card to resolve the controversy, I was taken to a large building for negotiations. This group had acquired a license from this regional government to raise funding, and within 60 minutes of the meeting it was disclosed that I was required to provide more than $5 million dollars of funding for this project and they would pay my 2 weeks expenses in Moscow. The key was I had to give them the money first, have it approved by their oil company director, and it would a partnership. At the time, it seemed just crazy...but in hindsight has I made that deal it would have been worth hundreds of millions today as I know the merger of that company and its acquisition value. What seemed crazy then makes sense in that environment at that time...but there was huge risks.
The second example is Silicon Valley. I spent a couple days there in 1999 with my lawyer from one of the largest firms in the USA. We met multiple VC's on a B&B marketplace deal we had put packaged. I walked out of two days of meetings and said...they guys are worse than the Russians! This whole thing is going to collapse as all these financial models are just baseless and unrealistic. The only revenues these tech companies show come from other VC backed deals so everyone is just swapping equity in one company for revenues into another partner company. These IPOs are really sexy, but the only winners will be the VCs who exit. It was not long that I started seeing the collapse and how the new models changed from 18 month exit strategy to 3-5 year exit strategy. Needless to say we never received any money, but in hindsight I'm glad we did not.
To my fellow entrepreneurs...hand in there and build value...the revenues will follow if you have a disruptive innovation. Don't give up, and don't think that every start-up has be funded by angels or seed fund VC companies. As we know, a couple years ago VCs would not touch pre-revenue companies unless you were in a sector of software or clean tech. No they are opening back up to fund pre-revenue deals, but there are other options...like what I outlined above. I hope it is helpful.
This has been written quickly and not edited...please forgive spelling mistakes or confusing sentence structure.
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- Best, Tan Yinglan
