Supply, Demand, and the Market for Money: Rays of Hope

By Bryan Watson

Capital for early-stage companies around the world has become much more scarce than it was a few years ago. To any entrepreneur looking for investment, this is absolutely no surprise and there are plenty of articles that speak of this. When investments from venture capital firms into companies in Q3 of 2009 in provinces like Ontario drop 87% to $24 million it is hard to miss the fact that the market for money for a start-up, or for growth-oriented companies, has become extremely difficult.

There is a growing ray of hope in Ontario, however. Angels. During 2009, the Angel community continued to invest. There were many investments completed by Angel groups in Ontario (e.g.: Well.ca) and even new Angel groups formed to meet the demand such as the Maple Leaf Angels – West Chapter formed in partnership with the RIC Centre.

Given that Angels represent one of the last sources of capital for start-ups and growth-oriented companies (with notable exceptions in the VC world that co-invest with Angels) another source for hope is the fact that the Office of the Leader of the Opposition (Federal) recently added the Innovation and Productivity Tax Credit (IPTC) to their platform.

The IPTC is a credit that companies would apply for. Once a company has been approved as being eligible and allocated a specific tax credit allotment, individual investors could invest up to that amount in the eligible company. Upon making their investments, investors would apply for a suggested 30% refundable tax credit. (More information can be found here.)

A tax credit of this form has shown to stimulate significant Angel investment into companies in many jurisdictions such as BC, Manitoba, the UK, and others. Similar programs have also been adopted by many other countries, including, most recently, Singapore.

So, though we do not have this Tax Credit yet in Ontario, should the Federal Government adopt it Ontario-based companies can look forward to a significantly increased supply of Angel capital looking for strong opportunities in which to invest.

To learn more about and show your support for the IPTC, please click here.

Throughout his career, both in Canada and the UK, Bryan J. Watson has been a champion of entrepreneurship as a vector for the commercialization of advanced technologies. Upon his return to Canada in 2004, Bryan established his venture development consulting practice to help emerging-growth companies overcome the barriers to success they face in the Canadian commercialization ecosystem.  Visit Bryan’s blog and the National Angel Capital Organization.

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Creative leadership key to entrepreneurial success

The most important factor in the success of a business with proven concept is the strength of the leadership team.  Good leadership is a critical item on the checklist for potential funders including banks, government programs, angels and venture capitalists.

But what is a good leader and how do you improve to become a better one?  This was the subject of the RIC Centre’s Growing Your Business Session on Creative Leadership, Feb 17^th.

“We must develop and nurture the leaders who will create the right products and services for tomorrow’s marketplace,” says Larry Chester, Process Design Consultants. “We are a wealthy country, but our population is aging and this is happening as our economy globalizes and we must compete in world-wide markets.”  Larry is a partner at Process Design Consultants Inc., and offers support to business for strategic and operational decision-making, change management and project management.

Leaders set the tone and direction of a company. “A good leader must be able to communicate a common purpose, shared passion and collective power,” says Max Carbone, Team Works.  Max is an entrepreneurial strategic planning advisor, private investor, director and visionary. He helps leaders build plans, teams and drive business results.

“A leader must be able to dream, and plan where the company needs to go next.  The challenge with start-ups is that leaders are often the dreamers and the doers.  It’s a difficult balance but not impossible.”

Paul Wickberg, CEO of EnviroTower Inc. shared his challenges and successes from more than 20 years of business leadership and senior management.    Key tips from Paul are:

• Be a “doer” in what you do best and set the standard in that discipline
• Find one or two “Stars”
• Plan conservatively, create winning scenarios
• Transparency is always the best practice
• Teach and practice relationship building – it’s a dying art
• “Customer Focus First”
  • Share company goals openly with everyone
  • Communicate how your team’s goals contribute
  • Insist on process in every project or discipline
  • Your reports’ goals should be supported by their staffs’ goals
  • Every employee earns incentive from the same metrics

“Success in business is not complex; it’s about getting the basics of purpose aligned with clear vision of outcomes.  Relationship building is a dying art, but relationships with our customer and employees are critical to business success.  Everything we do is about customer and your employees need to share that vision,” said Wickburg.  EnviroTower provides a patented water treatment system for clean cooling.

Watch on RIC TV.

See all three.

The next Growing Your Business session is scheduled for Wednesday, March 10^th on Intellectual Property.  For more information visit the RIC website at www.riccentre.com

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Can you handle the truth?

By Stephen Rhodes

Do you talk to your customers, I mean really talk to them?

Most of us in business would say we talk to our clients. We may even conduct online or in-store surveys. Bigger companies might employ a telemarketing firm to get customer feedback.

Most of it is lip service, because we never really get to know our customers’ needs with online surveys.

You want the truth right? Warts and all.

Create a deeper dialogue with your customers if you really want to know what they think. Don’t shoot the messenger and don’t make excuses. And be prepared to answer the bell when they are critical.

Be a good listener. Hear what they are saying, not what it is you think they are saying. That’s why salespeople aren’t always great at gathering this kind of market intelligence, because they are too busy trying to get the sale.

And take action. There is nothing worse than creating great dialogue and then ignoring the outcome. It’s like asking for someone’s opinion and dismissing it because it doesn’t match your own. Start with their needs first, not your own, and re-engineer your company, products, service to match what your customers want.

Don’t get defensive.  Figuring out what customers really want is easy if you are prepared to listen. The truth may hurt, at first, but it likely means your survival.

Can you handle the truth?

Stephen Rhodes is President of The Marketing PAD, a full-service strategic communications and marketing company. Read Blogpad or visit  The Marketing Pad online.

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Personalized Medicine: The limits of Genomic Analysis

Re-posted from the Cross-Border Biotech Blog

By Jeremy Grushcow

A great report on GenomeWeb by Andrea Anderson reviews two JAMA papers that failed to show a clinically useful role for SNP genetic testing in predicting heart disease risk.  Instead,

“traditional risk information based on factors such as family history and plasma biomarker levels were better for predicting heart disease.”

Anderson ties these results back to a January paper in the British Medical Journal that found that

“non-genetic factors were more useful for predicting type 2 diabetes than a set of 20 SNPs.”

The GenomeWeb article quotes the lead author of one JAMA paper as finding the results “surprising and a little disappointing;” but I am inclined to think some context is missing, since only the most die-hard genetic determinist should be either surprised or disappointed.

Two factors suggest that these conditions, and many others, will resist accurate prediction based on genomic sequence analysis:

1. They are genetically complex. The prospective studies looked at data sets with between 12 and 101 SNPs.  Simple calculations suggest that the number of genetic permutations is itself staggering, never mind the physiological complexity of multigenic interactions.
2. There are massive environmental components. Diet and exercise, among many other factors, will have a tremendous impact on clinical outcomes.  These habits are learned, not inherited, and are even “contagious” within social groupings.

My bottom line: In an age when genomic sequences are becoming increasingly accessible, it should be reassuring to know that even your medical future is not written in stone.  We always suspected as much. Now we have the genetic data to prove it.

Jeremy Grushcow  is a Foreign Legal Consultant practising corporate law at Ogilvy Renault LLP. He has a Ph.D. in Molecular Genetics and Cell Biology. His practice focuses on life science and technology companies.

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Does your product appeal to the masses?

By Jeff Bowman

Millions of products line the shelves of North America, some household names, and some big brands but it’s the no-names that really appeal to me.

Usually, these products are cheap knock –offs, designed to look like a popular brand but often falling short on performance and quality. There have brightly coloured packaging with labels that literally shout at you.

Often they are NEW, innovative, can’t live without type products, that promise to make our complicated lives much easier. The real driver is often price. These products fascinate me. Remember the K-tel Record Selector, The Pocket Fisherman or the Patty Stacker? Who thinks of these things and how do they get to market?

Last year I discovered the show Pitchmen on Discovery Channel – a show that details how products make it to television, starring the late Billy (Oxyclean) Mays and Anthony (Dollars 4 Gold) Sullivan. It is a fantastic process, and details just as many “no-go” products as successful ones.

The interesting thing, and something that can be applied to many businesses, is the criteria each product must meet to be considered.

I want to focus on one aspect, and that is, does the product have mass market appeal? In this age of specialists, verticals and niche targets, it is refreshing to think about how your product or service actually measures up against the Pitchmen’s standards. Does your product or service reach the widest possible market through a variety of demographics? Does it appeal to different of ages, income and education levels and both sexes? This may seem really simple but often we create our own obstacles. Just think, by making a product for a single gender you have effectively cut your market in half, unless you find a way to make it appealing to the other gender as a great gift or accessory. It comes down to the creative thinking process and your ability to spin the uses of the product or service in order to generate high levels of interest.

Do you have an effective pitch for your product or service, if you aren’t creative, there are lots of marketing people out there to help you out. Check out these great products. What is your favorite product?

Jeff Bowman is a Sales and Marketing Specialist with The Marketing Pad Inc.. Follow Jeff’s blog at Blogpad or visit www.themarketingpad.com.

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Social Media’s dark secret

By James Burchill

I’m often asked what makes SM (Social Media) a success. People ask if technology makes the solution: it does, and it doesn’t. If technical skill were responsible for social success, why do geeks often have the worst social-life in school? It’s true they built the web, but the rest of the world made it social.

Successful SM sites engage visitors as active participants in the web experience. Remember, “the best tool is often not the most advanced or cleverest but the tool that’s understood and used daily.”

Successful SM sites are like engines: they need a spark to get them started — and continuous content to keep running. But is that all a successful social media site needs: people, content and some cool technology?

NO. The most important factor is much older and simpler, buried deep within the shadowy past of our primitive nature. Social Media’s success is contained within something called a meme, or if you prefer a more dramatic image, a “mind virus.”

Richard Dawkins introduced the concept of the “meme” and “memetics” in his book ‘The Selfish Gene’ referring to the imitative process whereby humans transmit ideas, values, beliefs, and practices to each other. The memes that catch on are conditioned by repetition and continued by subsequent generations.

Examples of memes are tunes, ideas, catch-phrases, clothes fashions, ways of making pots or of building arches. Just as genes propagate themselves in the gene pool, so memes propagate themselves in the meme pool by a process similar to how an infection spreads – ergo a mind virus.

The most successful social sites leverage our oldest, most ancient memes as well as our newest, and this allows us to embrace these darker, base natures in a socially acceptable, and even productive fashion. Consider how many social sites pander to aspects of our nature — that as children we were discouraged from participating in: gossiping, time-wasting, forming cliques and more.

I’m not saying all social sites succeed because we want to express our darker nature, but the sites that gained the most traction and momentum have done so by allowing us free rein over our basic human nature.

Something to consider isn’t it?

JAMES BURCHILL shows individuals and companies how to profit from the innovative use of Internet technologies, strategic content and social media marketing. James’ innovative and creative solutions are the select choice for those seeking an advantage, and Jim’s valuable money-making, marketing, technology and business advice is published regularly on his website. You can find out more at James’ website and you can subscribe to his J-List and get over 40 articles, reports and advice on Internet Marketing today.

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“Buying In” to the numbers

By David Pasieka

As an Angel Investor looking at an early stage opportunities I often have to roll up my sleeves and go into a Due Diligence exercise. Through this process, I warm up to the idea, I successfully poke at the technology and its patents, and I learn more about the leadership team and its ability to walk on water. If I remain excited about the concept and its market potential, I now turn to the financial section of the plan and wonder if I can Buy In to the numbers – “do they hang together in a believable sequence”?

There are essentially three sets of numbers that matter: Income Statement (Profit & Loss), Cash Flow (Operations, Investing, Financing) and the Balance Sheet (Assets, Liabilities, Equity). These three statements are interdependent and will require a financial professional to prepare and provide In Depth analysis. As an Investor, I know that the CEO can’t be the expert on everything but I do expect them to be “Financially Literate” and be able to impress me with the highlights. Let’s examine a couple of things that any CEO should be able to relate to on one of the key statements.

The Income Statement or Profit and Loss (P&L), summarizes the events that have occurred or are projected to occur in a given period (Month, Quarter, Year). The difference between Revenues and Expenses equates to the Net Profit of the organization.

• Revenue – To me this deserves the most attention of our CEO as it reflects the effectiveness of the Go to Market Strategy. Are the products being sold as “one time” occurrence with an annual maintenance stream? Are they sold “as a service” with a monthly annuity payment? A new model that is also taking hold is the Freemium service. This is where the company provides its basic package for free and charges for any upgrades or feature enhancements. Freemium models lower the barriers for customers to sign up but have longer term conversion or upgrade issues. Many early stage companies will need to try a “couple of different” revenue models to hone in on what the market will truly support. The rules associated with Recognizing Revenue on the income statements are also important. Generally speaking, the revenue needs to be matched with the associated expenses in the period that it occurs. The Securities Exchange Commission (SEC) has indicated that majority of financial restatements are for Revenue Recognition treatment. Another key component of the revenue line is the Sales Pipeline, which captures a 12 month view of how the customers are anticipated to purchase and install the companys’ products. A good Pipeline names each customer prospect, their anticipated purchases and timing, revenue recognition assumptions and has a very disciplined probability weighing scheme.
• Expenses – In early stage companies the cash is usually very constrained and founders are working for sweat equity rather than salary so some of the historically numbers and ratios may not be representative of the financial picture moving forward. Staffing plans with associated salary and bonus levels, Administration spending, R&D programs, Cost of Goods Sold and the effect of productivity increases all need to be articulated with a solid set of assumptions. There must be sufficient detail to understand the key levers of the cost structure.
• The Plan, Year to Date Actuals and a Forecast – The Financial Plan should be built on a yearly basis and “locked in” for reporting purposes. Assumptions associated with all aspects of the plan should be documented with key variances flagged for any significant change. At the end of each monthly reporting period, the actuals should be compared to plan of record and a revised Forecast should be made for the future period. A great habit to get into would be to have a “Rolling 6″ quarter view of the situation.
• Scenario Planning – A series of What If scenarios should be created that outline a probable, worst case and home run set of plans. A simple summary sheet that outlines the assumption changes for each scenario would be a useful tool for any reader of the material. A potential investor will utilize these scenarios to understand the key risks to the plan.
• Ratio Analysis – A number of Ratios can used to analyze revenues and expenses in both a Horizontal (% change over time) or a Vertical orientation (% of the total). Beyond the simple % calculations there are a number of other ratios that analyse the Profitability, Resource Utilization, Liquidity and Stability of the company. These ratios utilize inputs from all three of the Financial Statements. Anticipate that others will “do the math” on your numbers – be appropriately prepared to discuss both your Ratios and those of your competitors.
• Net Income – Net Income is what remains after you have deducted all the expenses including Interest and Taxes from your Net Sales. The profitability of the company can be manipulated by moving the revenue or expenses into different periods from one another. Generally Accepted Accounting Principles (GAAP) mandate the matching of these items into the period in which they occur.

It is recognized that many of our early stage CEO’s may not be financial professionals. It is however expected that they will be Financially Literate and be able to understand the key assumptions and guiding principles that form the basis of their financial model.

A CEO who is able to demonstrate a clear financial understanding of their business will have better Buy In from potential Investors. It’s not acceptable to suggest that you aren’t the “Numbers Guy” so you don’t know!

David Pasieka is the Entrepreneur-in-Residence at the RIC Centre. Learn more here.  Visit Our Contributors page for more information about David. Read his blog at www.cedarvue.blogspot.com

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Your SRED claim on steroids

By Fred Hausmann

What’s the biggest mistake that you as a business owner or manager can make when it comes to your annual SRED (Scientific Research and Experimental Development) tax credit claim?

That’s easy to answer: Failing to file the claim!

Each year, the federal government distributes a whopping $4 billion through SRED to Canadian companies to encourage domestic research and development.

By the way, in case you’re unaware of SRED, it is one of Canada’s most lucrative and accessible funding programs for business. No matter what size your company is and regardless of the sector you operate in, you could be eligible to file for a substantial tax refund.

So if failing to submit a claim could be your biggest mistake, what’s the next major slip-up you want to avoid?

The answer to this question is not nearly as obvious, but it, too, could have significant financial implications for your organization. I’m talking about what your company does with the detailed business and financial information that is generated as a by-product of the SRED technical review process.

During the investigation process, focus is brought to bear on new discoveries your company has made and competencies it has developed over the preceding year as a result of its R&D activities. These competencies often represent opportunities to be first-in-market with products or services and could lead to new customers, expanded sales and growth.

The key issue here surrounds the word “could.” How often, in fact, do businesses follow up and exploit these opportunities?

In our experience after more than 15 years of specializing in R&D tax credit claims, the answer is “not nearly often enough.” Within small to mid-sized companies in particular, the owners and senior executives are already stretched to the breaking point. Moreover, there are the many challenges and hurdles that accompany launching a new product or service, expanding into a new territory or going after a different type of customer.

In essence, the problem is one of business resources. Small and mid-sized companies have no shortage of actionable, competitive ideas. What they tend to lack are the supporting business competencies in everything from sales and marketing to legal and human resources.

As a solution, companies should align themselves with a proven business development specialist. You should be able to count on your business development partner to provide a surround of trusted, top-of-class business service providers from which you can pick and choose.

With these required resources close at hand, you will be in a position of strength as you set out to transform your R&D discoveries into revenue-generating success stories.

For more insight into unlocking the potential of your SRED claim, learn how FRED Group has structured its business development partner program.

Fred Hausmann is the founder and senior managing director of Funding Research and Development Group Inc. (FRED), a business development and specialty tax service. FRED helps companies obtain the full amount of government funds and rebates, including SRED tax credits, they have coming to them. And then it helps them grow. Learn more about FRED’s services at fredgroup.ca.

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Should FDA Special Protocol Assessments be Public?

Re-posted from the Cross-Border Biotech Blog

By Jeremy Grushcow

A provocative post by Matthew Herper at Forbes’ The Science Business Blog this week argues that special protocol assessments (SPAs) should be public.  SPAs are the FDA’s way of pre-approving a clinical trial design, so that a company can conduct its trials secure in the knowledge that the FDA won’t later withhold approval based on a design flaw.

SPAs are currently ”confidential communications” not subject to public disclosure, but Herper argues for congressional action to put them into the public record:

“It might take an act of Congress to allow the FDA to make SPAs public, but that should happen. This would increase their value to biotechnology firms who are trying to raise money and prevent run-of-the-mill stock buyers from getting fleeced.”

The event that triggered Herper’s call for new legislation is yesterday’s revelation that Seattle-based Cell Therapeutics deviated from an agreed protocol in 2008.  Herper characterizes this mainly as the FDA’s failure for leaving SPA disclosures “entirely up to the company” and says the confidentiality protection “represents one way in which the regulator fails to  make sure investors have information they need.”

However, as much as I’m a fan of government transparency, the responsibility to investors lies with the company not with the FDA.  To the extent details of an SPA are material, they should be disclosed.  Ongoing developments with respect to clinical trials should likewise be assessed as part of a company’s disclosure controls and procedures and disclosed as necessary.

Did Cell Therapeutics fail in this duty?  Unclear.  As an article by Adam Feuerstein pointed out on Feb. 1, Cell Therapeutics did disclose that they halted enrollment in the trial early.  However, the company did continue to reference the SPA in subsequent press releases.

Would FDA publication of the SPA have helped?  Also unclear.  The FDA’s guidance on SPAs (pdf) says, clearly:

“Failure of a sponsor to follow a protocol that was agreed upon with the Agency will be interpreted as the sponsor’s understanding that the protocol assessment is no longer binding on the review division.”

So I’m not sure what would have been added by having the SPA available.

My bottom line: Companies that fail to disclose material developments or that misrepresent material facts will subject themselves to liability to their shareholders.  Herper’s hope is that disclosure by the FDA would “prevent run-of-the-mill stock buyers from getting fleeced,” but absent evidence that securities laws are failing to provide adequate incentives or remedies, I’m not convinced that forcing these confidential FDA communications open to public scrutiny would help investors or patients.

Jeremy Grushcow  is a Foreign Legal Consultant practising corporate law at Ogilvy Renault LLP. He has a Ph.D. in Molecular Genetics and Cell Biology. His practice focuses on life science and technology companies.

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The value of sales training

By Jeff Bowman

There has always been discussion about the value of sales training, the ROI on investing in people.

Although managers love to measure and see immediate results from their investments, it seldom works that way. Sales training is an investment in your company’s future.

Most businesses understand the value of developing long-term relationships with customers. The salesperson is often the face of the company, so it makes sense to develop highly trained and motivated individuals, who best represent your interests.

A good salesperson is a skilled relationship-builder and solution-provider, who cares about their clients as much as they care about their company. They need training on an ongoing basis and most appreciate the company investment because they understand that in the long run it  means more revenue for the company and themselves.

So, do you invest in training, or do you offer coaching? My first question is always “who is the coach”? It often falls on the sales manager, who may not be the most polished salesperson on staff. They may not know how to provide an environment where feedback is well received and leads to changes in sales behaviour. What do you think about when you hear that your boss is going to work right beside you all day?

Sales people get a bum rap sometimes. When things are slow sales people take the heat. Some companies actually believe the cost of training is too high, or sales people don’t work very hard anyways or that anyone could sell these products. Usually that opinion comes from someone who has never had a door slammed in their face, or never had to explain a delivery screw up or price increase.

Sales training should be ongoing, regular and re-inforced through ongoing coaching.

Imagine an investment that leads to new clients, higher- value sales, increased return purchases, referrals from your own customers and increased profitability for the company due to higher levels of customer satisfaction.

That’s what good sales training gets you!

Jeff Bowman is a Sales and Marketing Specialist with The Marketing Pad Inc.. Follow Jeff’s blog at Blogpad or visit www.themarketingpad.com.

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