Using Advanced Materials in Booming Emerging Market Sectors

Gerard Weimann
CEO, Five Star Technologies

What do you get when you combine references to the Soviet Navy, film clips from the movie Caddyshack and explanations of advanced materials used in Apple's popular iPhone? Answer: one of the more memorable OVA presentations in years.

During a lively presentation about his company, Five Star Technologies President and CEO Gerard Weimann, an engineer and a graduate of the Harvard Business School, outlined how the ten-year-old company is finally beginning to get commercial traction.

Five Star produces patented, branded inks and pastes used in advanced electronic devices such as liquid crystal displays, touch screens, circuit boards and solar panels. It also produces a special ink which enables Apple's iPhone to operate better. It's particularly well-positioned to address the demand for increasingly miniaturized devices and other nanotechnology applications. The company maintains a clean-room manufacturing facility near Hopkins International Airport.

To leverage its technology in the booming biofuels sector, Five Star has also spun off a separate company, Arisdyne Systems. In this vertical market, it licenses the use of its equipment to biodiesel refineries and ethanol plants. "If we can increase the efficiency of processing ethanol just 5-10%, that translates into hundreds of millions of dollars in opportunities for us," he noted.

The company's roots spring from an improbable immigrant's journey. A man named Oleg Koczyuk was once a Ph.D. physicist in the Ukraine, studying the process of cavitation—or the behavior of bubbles in liquids—for the purpose of reducing tell-tale signatures from submarine propellers. After the fall of the Soviet Union, he emigrated to Cleveland with little money and no ability to speak English. He met a pair of brothers in the hoist business who backed him in building a lab and developing his technology, though the two sides at first needed interpreters to put the deal together.

"Everyone knows the story of Hewlett and Packard starting in a garage, but here you have a guy without money, who didn't speak English, and still made it happen," Weimann said. "Hopefully, we can take it the rest of the way."

More information:

• www.fivestartech.com

Webcasts produced by Mike Gesing, The Impact Group.

Venture Capital Summit III

February 22, 2008
Topic: "Our Economy"

Private Equity In the U.S. May Be Suffering Some Ills, But Improved Deal Flow is Raising Hopes in Northeast Ohio

The private equity market may be undergoing some serious macroeconomic challenges at the moment, but in Northeast Ohio, the sector has probably never been healthier. Angel networks have grown stronger, more sophisticated and better connected to each other, and VC groups from outside the region have increasingly opened offices here, attracted by the growing deal flow in recent years. Naturally, a recession-if it comes—won't help any. But neither will it necessarily be a disaster for venture-backed deals.

Those were some of the main threads arising from OVA's third annual Venture Capital Summit, held February 22nd at Corporate College East. With 180 people on hand, it was by far the best-attended yet of the three summits.

The Federal Reserve's Mark Sniderman summarized the Fed's consensus economic projections through 2010, released just a couple days before the summit. "The view was that real GDP growth this year would fall into a range of between 1.3 and 2%, and that range is considerably lower than the committee provided in October, only a quarter ago," he said. "A number of factors led to the downward revisions in this projection, including a much sharper housing market correction than had been anticipated, tighter credit conditions, and higher oil price."

But he went on to point out that the Fed sees a less-gloomy outlook beyond this year. "A number of factors should support economic growth beyond 2008, such as a gradual turnaround in the housing markets and lower interest rates. If these factors play out, real GDP growth is expected to accelerate somewhat in 2009 and 2010, eventually reaching a growth range of 2.5 to 3%."

Ray Leach, CEO of JumpStart, who moderated the angel investor panel, noted that as VC funds have grown larger in recent years, and consequently the dollar amounts they put to work in any one deal have grown as well, a funding gap has developed for start-ups and early stage companies looking for investments in a range between about $500,000 and $3 million. It's here that angel investors can find their sweet spot, he said. Neil Wyant, managing director of Everett Capital, a fund established by the family that founded Akron-based GOJO Industries, returned to the region after about 20 years living and working elsewhere. "I've been pleasantly surprised with the deal flow here," he said.

The well-known angel investor and serial entrepreneur Dan T. Moore offered some hard-won insights, delivered in his signature manner, laced with humor. "I think what drives angel investment is somewhere between a psychiatric situation and meds, because you don't own (the companies)," and thus often lack leverage to really drive the company's success. But that's never stopped him from investing in start-ups. Moore has been involved in about 20 start-ups, many unsuccessful. "Angel investments are fun, they're invigorating. It's like getting a good workout," he said.

Veteran investor Clay Rankin, the central figure behind the new North Coast Angel Fund, noted that angel investors "used to have the reputation of being rather dumb money, but that's beginning to change," with the formation of national, state and regional networks of angel funds, which are helping to bring more sophistication to the sector. But the most important factor in the investment equation, he added, remains "the jockey"-the entrepreneur investors choose to support. "And that's one of our challenges in this region-we don't have as many serial entrepreneurs as on the coasts."

Barry Rosenbaum, founding member of an angel network affiliated with the University of Akron, the Arch Angels, argued that colleges and universities in the region play a crucial role in developing the next generation of entrepreneurs. "And it's not the job of the business school-it's got to be cross-disciplinary," he maintained. He explained that his group has amassed approximately 300 participants, about 30% of whom are accredited investors. But matching emerging companies with mentors and customers is often just as important, and sometimes more important, than helping them line up investors.

At the same time, noted Karen Spilizewski, who now splits her time between Bioenterprise and the new Cleveland office of St. Louis-based RiverVest Venture Partners, the pipeline of innovations and spin-offs from this region's large medical centers has now essentially caught up with those of Minneapolis, long considered the benchmark for regions hoping to spawn a critical mass of innovations and commercial spinoffs from its medical centers. Despite Minneapolis having enjoyed a head start of many years, she said, "you can see some of those same pipelines here, with the Cleveland Clinic and University Hospitals. But Cleveland is really on an accelerated pace, and now is pretty much on par with Minneapolis."

The day's final panel-in which VCs provided practical advice on how to pitch a deal to venture capitalists—received some of the most enthusiastic word-of-mouth from attendees. The consensus: if you want to get funded, don't bother cold-calling VCs or sending them unsolicited emails outlining your deal. Instead, first persuade one (or several) of their trusted allies that you have a worthwhile plan, and ask them to endorse you and your business plan. That's a far more likely route to success.

Here are a few other notable & quotable items that came out of the sessions:

• Virtually every company I've invested in, I've engaged professors from either Case or Akron U (to help with the technology)," said Dan Moore. "The problem is, we don't go to them enough."
• 35% of the companies JumpStart has invested in are minority-led enterprises.
• Reservoir Venture Partners' Tim Biro, agreeing that Northeast Ohio's lack of population density compared to coastal areas is often a plus in attracting talent: "I come from Philly, and you're right-rush hour here is rush minutes."
• Asked what the effect of a recession might be for their portfolios, Karen Spilizewski said it could delay exit strategies and make it moderately harder to raise funds. Chrysalis Venture's Chris Sklarin added it would force start-ups to better manage their burn rates.

Webcasts produced by Mike Gesing, The Impact Group.

Next Meeting:

April 11, 2008
Ben Shappley
President and CEO, SpineMatrix®

The Union Club
1211 Euclid Ave.
Cleveland, Ohio

The Quiet Recovery
Focused on the regional core competencies in bioscience

SpineMatrix, Inc. is a spinal imaging company that has developed the CERSR® spinal imaging system for evaluating low back physiology related to the origin of low back pain and injury.

CERSR aids the physician in more accurately diagnosing low back pain with the very real potential to significantly reduce total health care costs and significantly improve patient care.

CERSR is FDA cleared to monitor and display bioelectric signals produced by the paraspinal muscle system to aid in the diagnosis and prognosis of muscular, facet and disc disease and dysfunction associated with chronic low back problems.

SpineMatrix, has completed clinical efficacy studies at The Cleveland Clinic, the Texas Back Institute, The Ohio State University College of Medicine and others on facet and disc pathology.

Ben Shappley has more than 25 years of orthopaedic and neurosurgical implant experience with management and senior management responsibilities. He has significant global business development and acquisition experience. Ben has successfully raised private equity and institutional fund for orthopaedic/spinal concerns and is skilled with start-ups and the on-going operations. Mr. Shappley is a founding charter member of the Institute for Orthopaedic Enlightenment and currently holds seven orthopaedic implant patents.

See complete details and registration.

Medalign Helps with Healthcare Cost-Containment

Medalign Corporation is a healthcare informatics solutions provider which uses proprietary analytic software to document and account for shared savings in fee-for-service health care. Why invest? "The healthcare cost-containment market is absolutely exploding," said COO & Vice President of Sales and Marketing Bridget Turrittin.

Medalign is seeking a $1-million investment to build a beta version of the system.

For information, contact Bridget Turrittin at bturrittin@medalign.com, call 330-721-8855, or see www.medalign.com.

See complete PowerPoint presentation.

New Venture Fund to Serve Area

Flashline Partners is a new venture capital fund which will focus on seed and early-stage technology opportunities in the corridor between Detroit and Pittsburgh. The four-partner firm will be looking to invest in "an intrepid team and an unmet billion-dollar need," said partner Charles Stack, who sold his software company, Flashline, to BEA Systems. That will include micro-investments of $10,000-$50,000 in "agile startups." Flashline Partners is raising a $50-million fund.

For more information, contact Charles Stack at cms@flashlinepartners.com, call 216-220-4580, or see www.flashlinepartners.com.

See complete presentation (PDF).

The 5-Minute Forum is an opportunity for business owners to make a 5-minute presentation at our monthly luncheon meeting for raising capital, identifying customers, establishing distribution, or recruiting management. See details.