For the past two years IW has been helping to conceptualize and shape the AEE, and in that time, a lot has changed. “Green” and “clean”—two of the most widely used adjectives describing energy interests in the U.S.—have begun to lose their luster in some minds due to the decrease in natural gas prices and increase in skepticism in certain energy sectors, triggered by unfortunate events such as Fukushima and Solyndra.

Fortunately “Advanced Energy” nods neither to environmentalists nor…um…non-environmentalists. Rather, the term is about any energy that is inexpensive, readily available, and perhaps innovative, that will benefit the American economy and environment. Best of all, “Advanced Energy” is a term both conservatives and liberals can agree upon—an invaluable asset when trying to shape energy policy at the national level.

Our Region’s Unique Position in Advanced Energy

Another item on AEE’s agenda is helping to foster energy cluster development in all 50 states. Which is where this all comes home to Southwestern Pennsylvania.

On the national level, our region is in a unique position in regard to advanced energy: We play a vital role in most of the energy industry sectors and are among the leading regions—both in terms of industry base and advanced research—in each sector. Case in point:

• We are ground zero for the Marcellus Shale natural gas boom;
• We are soon to be home to a multi-billion-dollar cracker facility that will support both the energy and chemicals industries and create thousands of jobs;
• We essentially created the nuclear power industry and are still home to the industry’s largest player;
• Our research institutions are doing some of the most advanced work globally in the photovoltaic (solar) market;
• We are home to the only government-owned/government-operated U.S. Department of Energy research lab;
• We had the nation’s first oil well and the first gas station;
• Our region is synonymous with coal;
• Our green-building and energy-efficiency projects are among the most nationally prominent; and
• We have many wind energy installations and many more manufacturers that develop components or systems for the wind sector.

No other region in the U.S. has such a wealth and breadth of assets in the advanced energy economy.

Take pride, and more importantly, take advantage of our unique situation! Create an energy-related company. Make an energy-sector investment in our region. Trumpet our successes. Advocate for greater business support of our energy industry. Implement energy-efficiency measures in your home or office.

IW’s Commitment to Advanced Energy in Southwestern PA

At IW, we are doing our part to take advantage of the situation. More than two years ago, we teamed with the Allegheny Conference on Community Development and launched the Energy Alliance to bring together the region’s energy leaders to share a regional vision and common interests. And for the past three years, we have invested heavily in early stage companies in the energy industry in Southwestern PA. Not only have we provided funding to two dozen energy-related companies and strategic business support to nearly 100 companies in that time, but we also created the first-ever spinout company in the more than 100-year history of the National Energy Technology Lab.

Our activity in this space is considerable and we look forward to continuing it in the years to come.

Southwestern PA’s Fundraising Climate

In examining data supplied by Thomson One, we can be cautiously optimistic. Over the last few years growth in total investment dollars has been trending upward, with 2011 coming in at $140M, slightly lower than 2010 at $166M, but both well above 2009 levels ($98M). As a percentage of the trailing 10 year average, 2010 was the best year in the last 5 years (83%) with 2011 just a couple percentage points behind at 81%. In particular, VC investment dollars on a per-capita basis has always been a relative strong point historically rivaling areas such as New York City, Minneapolis and Philadelphia.

Innovation Works (IW) focuses on funding technology and life science companies with a sustainable advantage through IP and trade secrets. Nearly 3 of 4 venture deals within the SWPA region are with an IW portfolio company. Converse to the somewhat staid level of overall venture investment into the region, the last two years have each shown to be record levels of VC investment in the IW portfolio, with each year coming in at three to five times the prior 10 year average of venture investment in our portfolio.

I think this is a reflection not only the growing maturity of our portfolio, but also our increasing ability to connect our portfolio companies with the right investors. As of late, there has been debate in our community surrounding the importance of local venture capital. Clearly our companies are able to secure financing from non-local sources as in the last 10 years the vast majority of the VC funding provided to our portfolio comes from external sources, increasingly so in the last two years with levels over 90%.

Any negative regional impacts of these high levels of external VCs may have not yet manifested themselves to a significant extent, however it appears that the farther along a company is in its growth path, the more likely it is to stay here. While, at IW, we have seen very few companies moving to be closer to external capital sources, there is still concern that unless we see more local sources of capital, it could be difficult for companies to access adequate growth financing.

The Series A Challenge

Currently a funding gap appears to be in the $1-2M financing, or classic Series A. For companies with less than $1M in trailing 12 months revenue—the bar that is often set by the typical early-stage VC—the financing path has been strenuous. By the time companies reach a growth stage, there appears to be a much higher level of success in attracting outside capital, which is what has given rise to the significant venture investments we have witnessed in the last two years.

Serendipitously, or perhaps not, one of the strongest areas of growth in our region has been in the angel investment side. In IW’s portfolio, in recent years the average angel investment round is topping $2M dollars. In fact, the angel investment scene is showing a bar-bell of sorts with a few companies garnering extremely large angel rounds, and significant numbers of companies achieving orders of magnitude smaller levels of investment. At the very least, the angel community certainly seems willing and able to take up a large amount of the slack created by the aforementioned Series A financing gap.

Looking Forward

Through our investment activity as well as our active participation in helping our companies achieve their investment goals, it has been heartening to see the considerable levels of follow-on financing activity in the portfolio. The “continuum” of capital in our region is still in formation and subject to ebbs and flows, but the opportunities to secure financing are there. After all, nature abhors a void. We look forward to helping all of our entrepreneurs in growing their companies and achieving a prosperous 2012.

Hands on With the World’s First Power Folding Stroller from 4Moms [VIDEO]
Source: Mashable

Circadiance has big plans for 2012
Source: Pittsburgh Business Times

Cohera Medical heads into U.S. trials for its surgical adhesive, TissuGlu
Source: Pittsburgh Business Times

DeepLocal is featured in CommArt’s “Fresh” section
Source: Communication Arts

IB2C raises $4.3M series A; prepares fertility product launch
Source: Pittsburgh Business Times

Digital signage company Industry Weapon has secret weapon: 24/7 service
Source: Pittsburgh Tribune-Review

NoWait is named a finalist in the SXSW Interactive Awards
Source: SXSW

Shoefitr Helps Shoppers Find Right Fit Online [VIDEO]
Source: WTAE Channel 4 News

ShowClix ‘Pays’ Ticket Buyers To Promote Events
Source: Forbes

Voci Technologies using cash infusion to expand its customer base
Source: Pittsburgh Business Times

Westmoreland Advanced Materials wants to help aluminum makers be more efficient
Source: Pittsburgh Business Times

Keep up with our companies by connecting with us on Twitter or Facebook.

Emphasize Volunteerism: Give back to the community. Volunteerism is a simple way to reach out to the community and attract like-minded individuals. Would you like those people on your team?

Bend But Don’t Break: Don’t wait for Mr. or Ms. Perfect to show up. A little extra training of a solid candidate will give you a superstar quicker than waiting for one to magically appear.

Why Did they Hire Me?: Would you have hired you when you were fresh out of school? Someone did. Give hardy seedlings a chance, even if they don’t have a lot of experience. Place more emphasis on personality fit, spark, passion, attitude, adaptability and energy….not just pedigree.

“You don’t say?”: Always do reference checks.

Required Reading: Buy your employees a “book of the month” from the brightest and best business authors of yesterday and today. Create a Library of Achievements. Discuss their winning strategies!

Play Musical Chairs: Everyone changes chairs for a day. Walk a mile in another person’s shoes. Shadow a teammate. This kind of openness builds great teams.

Stay Sharp: What Got You Here, Won’t Keep You Here: “The key to becoming successful is to work harder on yourself than on your job.” – Jim Rohn

As a reminder, IW is in the process of reviewing the proposals from portfolio companies for summer interns. Deadline is January 29, 2012. Don’t get shut out! There are a limited number of openings (7-8) and it is a highly competitive process.

Carnegie Mellon’s Open Field Entrepreneurs Fund (OFEF) is a new, groundbreaking model for providing early-stage business financing to CMU alumni who are driving innovation. The OFEF is open to all CMU graduates from the past five years who have the desire to become entrepreneurs.

OFEF enables recent CMU graduates to follow their entrepreneurial dreams. We give them a viable alternative to following the standard path to building a career. We empower them to create their own ultimate job and career, and we nurture their unique, trailblazing ideas with financial support and expert advice.

Selected companies will receive $50,000 from the OFEF and must raise an additional $50,000 matching investment to be eligible. In addition to financial support, OFEF recipients also gain access to other potential funding sources, receive personalized mentoring and are invited to attend an annual OFEF business conference hosted by Jonathan Kaplan (TPR’90), OFEF creator, former CEO of Pure Digital (Flip video) and five-time entrepreneur.

In the last 15 years alone, CMU’s faculty and students have helped create 300 companies and 9,000 jobs. Alumni have created many more. Groundbreaking companies, such as Lycos, Akamai, Pure Digital, Datek Online, FORE Systems, Spinnaker Networks, Carnegie Learning, Aspect Development, ModCloth and Dynamics have changed our lives. OFEF aims to help seed the next generation of innovative companies. By investing in our recent graduates, we create a virtuous cycle that connects resources at CMU, our alumni and experienced entrepreneurs to further enhance the value of the CMU alumni network.

The application deadline for the inaugural OFEF class is January 31, 2012. To apply, visit cmu.edu/open-field/

I’m going to ask every entrepreneur to adopt the following resolution:

I am going to eliminate the words “interest” and “assume” from my vocabulary.

That’s pretty simple, isn’t it? This one simple resolution will save you a lot of grief in the coming year, and may just lead you to some opportunities that you might otherwise miss.

Let’s start with “interest.”

I can’t tell you how many times in my career that I’ve heard an entrepreneur use this word and I’ve cringed in response.

 

“The customer is interested.”

 

“The trade show was a great success. There was a lot of interest. I’ve got 150 business cards.”

 

“The potential investor is interested in investing.”

 

“I’ve talked to the candidate for VP of [fill in the blank] and she is interested in the position.”

Do you know what I heard?

 

“I don’t have anyone who wants to buy the product [service, whatever].”

 

“My ego was stroked because people said all sorts of nice things about me and my product. Oh yeah, I don’t know anything about lead qualification and sales, so the 150 business cards will be entered into our CRM system, never to be touched again.”

 

“The potential investor has no intent of investing, but it’s easier to say they’re interested so that they don’t have the hassle of explaining why they won’t invest. Further, the investor believes that expressing interest is safe, because he doesn’t think you’ll ever get a real investor to lead a round.”

 

“The candidate wants to know what the compensation package is before she responds definitively. This is not the kind of executive I want in one of my portfolio companies.”

“Interest” does not pay bills. “Interest” does not advance the company’s commercial traction. The word, “interest,” must be struck from the entrepreneur’s vocabulary.

The word, “assume,” is even more dangerous.

“I assume that I can easily get ½ of 1% of this large market. The 800 lb. gorillas won’t even notice me as I build my multi-million dollar business.”

 

“I assume the check will arrive Thursday based upon what the customer told me.”

 

“I assume the vendor will cut me some slack and let me delay payment.”

 

“I assume …

“Assume” is more insidious than “interest” because assumptions are the basis for plans that are executed. If the assumptions are wrong, the plan is wrong, and the execution, even if done well, is accomplishing the wrong, and perhaps fatal, things.

Whenever you hear or say “assume,” stop right there and evaluate the assumption. Ask yourself, “What is the basis of this assumption? If this assumption were wrong (which it likely is), what would be the downside consequences? Is it critical to avoid such an outcome?”

I hope you have a healthy and prosperous New Year!

Source: Pittsburgh Business Times

Bossa Nova Robotics’ Mechatars offer new way of play

Source: Pittsburgh Tribune-Review

CivicScience discusses how they make the most of all the opinion data online in “Waste not, want not”

Source: Research Magazine

Seema Patel, Fusing robotics and games with Interbots

Source: New Venturist Blog

Just Between Friends Launches Mobile App and Private Messaging, Takes On Funding

Source: PR Web

Wombat Security targets the weakest link for cyber success, hiring

Source: Pop City Media

Learn more about what our companies have been up to in our news section

One of our ongoing initiatives at IW is working towards becoming a more social organization—not just an organization that is social. (This post from Harvard Business Review does a great job of explaining the differences.)

While we’re already using social media to spread the word about Pittsburgh’s entrepreneurial ecosystem, source jobs for our growing portfolio companies and collaborate regionally, we have yet to use the social web to tap into what the above article calls the “collective wisdom” of our internal Innovation Works experts.

But we’d like to change that. And we’d like to start with this blog.

From now on, you’ll frequently hear from one of our internal experts on the topic of their choice—emerging industry trends, advice on raising capital, commercialization strategies or personal stories and insights from when they were in your shoes—growing a business.

With these posts, we hope to provide greater access to the unique insights we’ve garnered from working with hundreds of startups and help create a “new source of competitive advantage, agility and future innovation” discussed in the above article.

Of course we’re hoping that you’ll join us in this conversation. Please leave us feedback–whether it’s on here, facebook, or twitter–and let us know what you think.

Yours truly,

Rich Lunak

Echoing the sentiments we expressed in last month’s newsletter, IW is proud to have played a role in the development and evolution of this event, and this year is proud that our staff and our companies will have the opportunity to participate in the Fair’s events.

On Wednesday, September 21, IW’s President & CEO Rich Lunak will serve as one of the panelists for the University Technology Showcase kickoff event, a brand new 3RVF feature that provides investors with an early look at some of the region’s most promising early-stage, university-based innovations with start-up potential.

On Thursday, September 22, nine of our portfolio companies will be present to 600+ venture capitalists, private investors, investment bankers, and leaders in business, finance and entrepreneurship. These companies include:

• Allpoint Systems
• ALung Technologies, Inc.
• Ib2C (Intimiate Bridge to Conception, Inc.)
• Medallion Analytics Software
• Metis Secure Solutions
  
• NeuroInterventions
• NoWait
• Voci Technologies
• Wombat Security Technologies

If you haven’t done so already, be sure to check out 3RVF’s 2011 agenda and register for the event!

Hope to see you all there!