Saturday, October 17, 2009

Imagine that !

Have you heard what our President discovered?  Health insurance companies are not playing nice and are defending their turf against the proposed legislation that would hurt their profits.  Imagine that!  And we thought they were idiots born under a pumpkin.  Really incredible.

Well,consider this: Those companies are run by some of the smartest minds to come through our educational system, who worked hard to be selected to study for an MBA where they could be trained that making a profit for their shareholders is their only responsibility (I know, I am one of them) and the more they do so the better they get paid, the more Wall Street will increase the value of their stock options and your retirement fund and mine will eagerly buy their stock because they are so good at making profits regardless of how may children, adults and retirees may be denied benefits for whatever reason.  For our retirement we really do not want to know, we just want the profits.  That's how the market is supposed to work to strive for efficiency and profitability for the benefit of society in general and our 401K in particular.  That's why it will not change and should not change.

The problem is that in some area, we would like people to matter more than profits and economic efficiency, particularly when we are the people involved. That's where "government" has a different mission: people come first and no one makes a profit on people's misfortune (diseases) and tries to make all people well so they can all be productive.  For sure many smart MBAs chose this professional perspective and end up running Medicare and like programs.  It is not a case of smart and dumb (and the government's MBAs want a nice compensation too) the difference is in the perspective and the priorities. That is why every single country outside the US has implemented a government run basic healthcare safety net for all citizens at a price the nation can afford offering a level of service that society is willing to afford.

Note the key words  PRICE,  LEVEL OF SERVICE, COUNTRY CAN AFFORD.  Let's look at what that means
PRICE - what portion of total expenditures the nation can devote to healthcare.  In the US we pride ourselves of the great medical care we get compared to other countries, but that is a delusion derived by comparing the minimum that other countries (often less wealthy) guarantee to all citizens with the best that a well-insured minority of a wealthier country can afford.  The better score we give ourselves may make us feel good, but from a public policy analysis standpoint it is just a delusion.

COUNTRY CAN AFFORD -  What % of GNP (or of tax collections) should we spend for healthcare for ALL citizens?  Medicare does something similar within the limits of its budget and limited to the population they serve.   The program has been generally successful (ask an retiree)  and it shows that in general the government can do this job as competently as anyone.  This type of calculation is the realm of government and it is already done for roads and bridges, interstate highways, national defense, space exploration, scientific research grants, etc.  No one has more experience than government at dealing this with process and in the context of the electoral process (i.e. depending who drives the ship, the tax collections and the services, will vary and we affect that by how we vote).

LEVEL OF SERVICE - Given the above budget limits what procedures and "amenities" (single occupancy hospital room, TVs and telephones, etc.) should be provided to ALL at no cost?  This will be clearly lower than the lucky well-insured minority is used to, but immensely better than the little or nothing some live with.  For the lucky, well-to-do, well-insured minority there is of course the option of supplemental insurance to cover the better quality of life healthcare options they now enjoy.

Providing a high-end cost-be-damned services-unlimited system is a pipe dream no country can afford whether via a public or private insurance system.  Using that as the target is the ruse used by insurers to create confusion and stall change.  The objective should be to provide a minimum to all which is reasonable in the context of our our moral code and of  our GNP.  Above that "minimum" everyone should be on their own at their own expense as it is for everything else in life.

Should we be surprised that private insurers resist the loss of their nice franchise to make money on our collective backs?  Of course not.  If we want to provide some level of basic service to all and at the least cost the public insurance option is the only way, just as we do for roads and police and fire protection.  Those that want and can afford more can certainly do so (as thy do with toll roads and private security services).

The question we must answer as  a nation is:  Do we want businesses to make a profit on the minimum care required to fix the misery (disease) that can and probably will affect us all?  The rest of the world has answered NO for profits on health and misery as well as NO for road and police.  So far the US has said YES to profits on misery and healthcare and NO for roads and police.  Perhaps it is time to find a better answer than some implausibly convoluted variation on the theme of employer provided insurance (an irrational legacy of WWII wage controls - see prior post).

The fact that the inurers complain and do not play nice at the prospect of losing their fat franchise should be no surprise.  Let them offer supplemental insurance, there will be still a lot of fat in that franchise and let the US shed the legacy of WWII and offer all citizens a modern and rational healthcare plan.

Monday, October 5, 2009

Two ways to invest in "green"

In the last few weeks I attended several presentations from companies presenting their business plans and experiences as “green businesses”. Two stood out in my mind at the extremes of what’s out there for angel investors to seek.  Since in some cases I signed NDAs I’ll keep all companies confidential but it may not be difficult to deduct their names with a little research and detective work.

Company1Purpose of the presentation: Present a business plan for investment by accredited investors to raise several million dollars
Idea behind the business (as stated in the presentation): Take advantage of the huge amount of government money promoting technological migration to a “greener” world.
Competitive advantage:  Far out patent pending technologies invented by undiscovered brilliant inventors with no industry track record of delivering working products or systems – the power of the outsider to think out of the box.
Business model: promote the patents through associates, consultants and green enthusiasts, license the patents to major industry players to make and market and collect royalties
Secret sauce: patent pending untested technology that must be kept secret from the big competing interests in the industry, therefore little can be disclosed.
Use of funds: Promotional expenses, R&D to prototype and demonstrate the technology, salaries to management and marketing team, filing more patents, pay licensing fees to the inventors (50% of funds raised) for untested technologies.
Take away:  Too good to be true?  Perhaps so judging from the response of several attendees. The technologies presented promise a) cars running on various fuels (including H2) continuously converted on demand from water, b) energy from waste water to feed the utility grid, c) solar plant daytime energy storage for redistribution at night and/or to distant locations at higher prices.  One alone would be a holly grail, but diversification calls for all three and the markets are ripe for it.  Buyers beware.

Company2Purpose of the presentation: Educate entrepreneurs on a “green business” perspective derived from ten years of R&D and product marketing.
Idea: “green” has taken an unfortunate connotation of either fashionably exploitable business angle or expensive luxury that costs businesses a lot.  Both are wrong.
Products:  Water-based, human and environment safe chemical cleaning products for industrial processes, aviation, gun cleaning, and more to come.
Use of funds: N/A – Company2 need none, they are offered more they want to take, the business is profitable and fast growing
Take away:  Company2 has demonstrated, over ten years, that environmental and human safety offer a) profitable markets for the producers and b) can be demonstrated to reduce TCO for the customer that switches from noxious chemicals (the only ones available in the past) to the more worker and environment safe products available today. C) There are great opportunities for entrepreneurs, and their angels, that want to pursue a similar business strategy.
The key to Company2's market penetration was and is to effectively communicate and demonstrate the value proposition to prospective customers who are frequently under great pressure and incentives from legacy suppliers to continue past practices.  It takes time, commitment and tenacity.  The pay off takes time.

So why does this matter?  Because in the current euphoria to go green with our investments and to benefit from the ongoing global technological transition, it is easy to seek an end-run with some magic sauce.  It may be possible but unlikely.  More probably the returns we seek will come from: innovation that creates incremental improvements, education, rigorous analysis of alternatives and serious commitment to a mission.  Technological transitions have never been an overnight affair (see railroads, automotives, semiconductors, internet, telecoms, etc) and angel investors will need now as ever due diligence and patience. More importantly, we should seek credible business models, not promoters' wild promises of world changing magic.

Sunday, September 27, 2009


Music is big part of this story - Listen while you read
Have you ever felt haunted by a promise you made?  This is my story. It has been with me since March of 2008 when I vacationed in Costa Rica.  The travel log of that trip will wait for another day although I brought back photo memories of that magnificent country that you can see here (suspend the music player if it is playing by pressing the space bar) - you’ll have to dream up your own explanations for the photos, but the feel for that enchanting  country will come through nonetheless – stay in touch and the travel log will come).

This posting is really about being haunted by a promise. This is, in a small way, my first step toward buying my freedom from that promise.  Time will tell if it works.  I may have to travel back to Costa Rica to try harder than this, and that would not be bad at all.  So, here it goes:

The trip

In 2008 Darlene, my wife, and I wanted a trip to a warm place with a direct flight from Phoenix AZ.  We’ve seen much of Mexico, another lovely country of wonderful people, so we were looking for another destination.  My boss Rich, an accomplished world traveler and bon-vivant, told me that he had invested in Costa Rica to develop property near Dominical.  He sang the glories of the country and we decided we had to see this jewel often called “Switzerland of Latin America” for its orderly government, peaceful people, high productivity and dependable banking. As a former international banker I was most curious to see it.
We traveled there in March 2008 just before the rainy season would come.  In one week we drove all over the North and West of the country and saw a volcano up lose (Arenal), high altitude cloud forests, sea level tropical forests, and more monkeys, sloths and butterflies than we had hoped. The Costarican people proved to be all they were promised to be: friendly, helpful, well educated and with a joi de vivre hard to find at home in our hurried culture.  Check the photolog  (suspend the music player if it is playing) and go see for yourself.

 A monkey on my back

In this wonderful country full of monkeys, I managed to put one on my back in a most unexpected way. The last stop of our Costa-Rican west coast exploration was the famous surfer village of Dominical, well known to all “real surfers” that dream of an “endless summer” lifestyle.  We are not surfers, so we were looking mostly for a laid back village where Rich had been developing property for sale to vacationing and “expat” gringos.  We were enchanted enough to even go talk to realtors about property, but in the end that was just daydreaming.

We stayed at the Hotel Domilocos, a grand hotel by surfers standards, but more of a motel-6 sort of place. It was just what we try to travel by: basic, clean, convenient, friendly, well priced accommodations you do not need to book days ahead, the kind that are mostly a lucky find.  That day we were lucky, the more so because in it, at the edge of the village, at the end of a dusty road, they were said to have a high end Italian restaurant.
The restaurant opened quite late, was an untested quantity, looked suspicious with high prices at the end of that dusty road and the front desk announced that the chef had just left to Italy on vacation. We decided to go for fish tacos at the local surfers’ hangout under the nearest palapa surrounded by broken surfboards.

Late in the evening on our way to our room we found the restaurant at Domilocos packed, lively and with great music.  We stopped for a nightcap and got a seat right in front of the single musician that sounded like a whole orchestra. Over a cognac and a banana flambĂ©’ in Grand Marnier we discovered that the restaurant was indeed top class despite the vacationing chef.

As we listened to the music I felt transfixed. The latin rhythm, the romantic songs and a musician that could switch from piano to keyboards to accordion to acoustic guitar and  guitarron were too much to leave.  We stayed until closing, whenever that was.

During a couple of intermissions I met the musician, bought a couple of his CDs for souvenirs and bought him a drink. Rafa Mora was his name (he is from Costa Rica, there is a musician in Spain by the same name).  I learned that he had tried to introduce his music into the US with the help of a friend in NYC, but the friend had gone bust, his CDs were gone and no contacts had come from the effort.  Rafa asked what I did for a living and I explained my work at Maricopa College Small Business Development Center.  Instinctively, and as I did with just about anyone in those days, I offered to help him develop his business by tracing his friend and see what could be done to reopen his web site.  I was willing to host his site along with several of my own ones if we could get it transferred without too much trouble.  At that news Rafa gratefully gave me a copy of all his other CDs that I had not already bought and wished me well in my endeavor.  The rest of that evening he pulled all the stops off performing for us as if I had been the most connected music industry mogul in LA.

Upon our return I made a few searches over the net, but never found his former friend. I had no time to develop a site for him, besides I did not have any local contact for him in Dominical since he never followed up to send me his email address. Life happened, I took up some demanding projects that took all my time and eventually I left the MCSBDC to chase a success chimera to the moon.  Over the months, I listened to Rafa’s music often as a crutch in tough times to make me smile again remembering that happy night in Dominical.  His captivating music has a joi de vivre that beats any antidepressant and on a romantic soul it works wonders.

All this musical bliss has not come free of charge, however.  Every time I hear Rafa sing and play a little monkey on my back gets agitated and whispers in my ears questioning if I did enough for those free CDs I got.  They had no cost to me and I could not sell them for more than I paid, but to Rafa they were a significant cost and investment in his future as a musician or so says the little monkey.  So, today I had to take a step, at least a little one, to quiet the little miserable bastard on my back:  1.  I wrote this posting, 2 I am streaming Rafa’s music for you to hear.  May be it will be my luck that some music industry connected reader my “discover” Rafa and lend a hand.  In time I’ll do more, starting with tracking down Rafa by email back in Dominical – I doubt my monkey will rest for long.

In the meantime you can enjoy Rafa’s magic.  Look him up if you are in Dominical, Costa Rica. The Hotel Domilocos will be a good place to start and  everyone in town should know Rafa Mora musician and singer extraordinair.  Happy travels.

Mucho gusto mi amigo Rafa – El mejor a Costa Rica

Songs and arragements copyright of Rafa Mora

Monday, August 31, 2009

The Simplest Medical Care Fix

If I told you I have the fix to the current debate on medical care reform, you'd laugh.  Nobody does or so it seems.
Well, I believe that it is simpler than we are told.  Smile sarcastically and stay with me a minute.

Why is it so difficult?  I's a very complex system that touches every citizen, native, naturalized, resident and illegal.  The solution to the riddle must balance the conflicting interests at an affordable cost over a long period of time which is difficult to forecast.  In addition we want to resolve the issue to everyone's satisfaction and in a hurry with a permanent answer. This is utter nonsense.

The first step in finding the answer is in uncoupling as many of the problem areas so they can be addressed separately.  Secondly is to find strategies that permit incremental changes that are self adjusting over time.  With these two premises here is:

The solution

  1. Give every US citizen and legal resident the right to buy into the same medical care plan that covers US Congressmen and federal employees

  2. Mandate that Congress cannot legislate a separate plan for themselves and cannot have service preferences over other citizens within the system

  3. Eliminate employers' tax deductions for employee and medical benefits.  Give all deductions to the taxpayers for what they pay for medical and other insurance plans

Why would it work?

  1. Over time Congress would see that the quality of service and care is maintained.  They do it now and their service is better than what most citizens get (who said government services do not work?)

  2. Anyone who has other or better private options can use them alternatively or in addition.  More power to them.

  3. The federal medical care option would provide healthy competition to private insurers and will likely reduce costs growth rate

  4. If all care providers have to deal with the feds, electronic record keeping will be easier to implement, will reduce costs and bureaucracy and eventually will be implemented by private insurers as well.  That will evolve later and separately without impacting the policy issue.

  5. The federal claims processing system is already in place and requires no reinvention. It will require increases in processing capacity and that will create the opportunity for efficiency improvements in 4 above

  6. To provide coverage to the poor, the unemployed, those impacted by personal medical catastrophe, etc. the Congress will legislate appropriate tax credits to cover insurance fees and expenses.  That debate, however, will be separate, will be a matter of ethics and of defining our national progressivism without having to affect the "mechanical" system of medical care insurance. 

  7. The cost of services to illegal aliens and others individuals that medical providers must serve according to their oath, should be processed as costs of the federal plan.  This will ensure that hospitals do not disproportionately absorb those costs (because of location of philosophical orientation or funding requirements).  Those costs are currently borne by taxpayers but not explicitly accounted for.  This will ensure accurate accounting of costs that as a nation we must consider when planning border protection policy.

  8. By separating employment from medical care insurance we'd abandon a system created by accident in WWII (was intended as a work around to war time wage controls) and never as a reasoned policy of social insurance.  The result would be to stop the costly nonsense of employees having to change medical insurance provider simply because they change employers.

  9. In this proposal there is no expectation of complete equality for all citizens.  Those that can afford supplemental insurance to "be shipped to the moon for exotic procedures without questions or delays", will continue to be able to do so.  They have those options today and always will.  The currently uninsured however will also have a reasonable option.  That option may be subsidized to the degree that we, as a nation, feel appropriate in the future just as we do now for Social Security and Medicare (without having to change the benefits processing and accounting systems).

The current debate has confused issues to the point that even seniors covered by Medicare plus their supplemental insurance are losing sight that Medicare is serving them well for their basic needs and supplemental insurance is affordable because the basics are covered already.  It is time we extend the same functionality, albeit at a price, to the rest of the population.

Increasing the complexity of the problem and of the solution ensures that paralysis and confusion set in  That only benefits insurers and service providers that can focus their energy to exploit those niches to their advantage and profit.
It is simple than we think.

Monday, August 17, 2009

Venture financing with SBIR grants

When I was at Maricopa Colleges SBDC I developed an audiovisual introduction to the SBIR grants program sponsored by the SBA.  I am not sure if it is still on-line, but I had been told that it is a helpful explanation of the program and how it can  benefit certain entrepreneurs.  I decided to repost it here as a public service.  In addition to this summary, I provide consulting services on how to apply for SBIR grants.  I can also assist with programs provided by the Arizona Department of Commerce to assist innovators that wish to apply for SBIR grants.

Friday, August 14, 2009

Medical Insurance - one more experience, one more opinion

Foreign experience:

I grew up in Italy where national medical insurance was always the norm.  There, people that wanted could afford extra service and options had supplemental insurance to cover private clinics and whatever extra they wanted.  Supplemental insurance was relatively affordable because it was only for the extras.  All citizens are covered with a minimum of care as befits a civilized country.

I lived and worked as a Canadian resident (same taxes and benefits as citizens) and there again all taxpayers have a minimum of medical care as befits a civilized society.  Those that could afford a supplemental insurance to cover extra services and choices could do so at a reasonable price.  Canadian care and facilities in my experience were no less than I've experienced in the US.  A single payer system made it more convenient and efficient.  People can change jobs without having to change insurance and employers largely can stay out of employees' medical lives.

US experience:

In 39 years in the US I had to use personal individual policies, group policies and shop for policies for my employees in several companies.  My views reflect the experience as a consumer and as an employer:
In the US we hail competition, but in reality we regulate insurance at the state level in such a way that competition really cannot work efficiently because information is not standardized and broadly distributed.  Complexity and confusion are the best stiflers of competition.

Insurance tied to place of employment started in WWII as a way to attract workers despite wage controls.  Since then, relative to medical insurance (MI)  we've created two classes of citizens: the employed with group plans (no preexisting condition exclusions, competitive rates shopped by employers, negotiated service fee schedules, little or no cost to the employee, no management of the policy's features and costs by the insured), and the non-employed (self-employed, unemployed, retired, etc.) with a confusing and bewildering insurance options, pre existing condition exclusions, etc.

Since the consumer of care is not the decider of the features of employer provided MI, options selected in policies reflect what the HR department prefers, not what the user would like (cafeteria plans try to address that but only marginally).  Trade offs between insurance cost and deductibles and copays are difficult if not impossible to do.

When one changes employer one has to change MI.  Besides generating employment in the HR departments and insurance sales offices, what is the benefit of this?  Since medical record-keeping goes hand in hand with payment for services, does the continuous changing of insurer not create an artificial obstacle to implementing electronic medical records with a historical scope?

If one goes from employment to new employment to unemployment to self employment as any are learning to do in the new economic environment, one can change insurance many times in few months.  My own recent experience is 3 times (soon to be 4) in six months.

It is argued that employer paid insurance plans promote coverage as they force coverage on workers that would not otherwise provide it for themselves.  I'll ignore the coercive aspect of the argument which is questionable in itself.  However, we manage to make automobile insurance mandatory without involving employers and I suspect auto insurance is more widespread than MI.  The same model could easily be implemented for MI.
Individual MI plans are different by state, so advertising and comparative shopping require a PhD in business analysis and competition is stifled; probably on purpose.

Multiple insurers with different policies and terms make medical service providers insanely inefficient at processing claims and prevents adoption of standardized electronic records, which causes another source of inefficiency.

The idea that taxpayers do not (because they shouldn't have to) pay for the uninsured or illegal aliens is an illusion.  Hospitals routinely provide at least a minimum of emergency care (as they should in a civilized society) to all comers.  The unpaid bill of the uninsured becomes absorbed by society through the most inefficient and uncontrollable process flowing through budgetary deficits, reimbursements, charitable foundations, etc.

Here is a  great analysis from The New York Times of some of the above ideas or click below listen to an economist make the case  


So, what is the point? Here is a proposal that probably does not make much money to anyone so it will never happen:

  1. Start chartering medical insurance companies at the national level requiring all participants to cover all buyers in all states (no more cherry picking people, make money out of efficient processing and promoting preventive care)

  2. Direct a federal agency in whatever department to web publish a side by side comparison of fees and coverage features for all authorized insurers (promote standardization so buyers have an easy time comparing alternatives and making decisions)

  3. Stop employer tax deduction for employer paid MI.  If the employer wants to pay for it, let them pay the employee as wages. 

  4. Make all MI costs tax deductible to the taxpayer. 

  5. At tax filing time require the taxpayer to demonstrate personal medical coverage (PMC).  If PMC is not demonstrated, the taxpayer is charged a premium (like is done now for Social Security) for a federal insurance to cover the minimum level of care (use a developing country or Sweden or something in between for a standard).  Those happy with the federal insurance can still buy supplemental  for whatever extras they desire.

  6. Mandate electronic medical records maintenance by the insurers along with services records. Providers may subcontract, but the service must be provided and standardized so all clinics and hospitals can easily process all bills to all insurances along with all medical records.  This is not over regulation - for instance we already demand all automakers to make cars that drive the same way on the same highways with similar signaling devices, etc.

  7. Have all unpaid medical bills for illegal aliens charged to the Homeland Security Department.  By doing so we'll see how much this aspect of the business costs and how much we should spend to fix it.  Now we have no tracking method we as a society we pay the full cost any way for sure.

Probably other aspects could be added, but the idea is to have a prescription that is SIMPLE so lobbyists cannot turn it into a paralysis by complexity.  Once an open competitive market is fostered, competition will take care of the rest.

One aspect I purposefully did not address is: What is the minimum level of medical care that a taxpayer or any human being should be entitled to?  The range from developing country to Sweden is big.  A national debate must address that, but it does not have to be mixed with the decision of how to process payments or to insure ourselves.  It is a moral issue that hospitals confront daily and requires ethical decisions of allocation of resources.  Within the parameters proposed above, directives to service providers can be defined the reflect what "as a society we are willing to pay for".  On their own, service providers may choose to do more, but if so they will have to do it as their own charity and not charge society for their value system.

You comments are welcome

Thursday, July 23, 2009

Due Diligence for Angel Investors

In another post in this site, addressed to business owners seeking angel investment, I proposed that, in my experience, Angel Investors fall in one of two groups: "Golf Cart Investors (GCI)" and "Professional Angels (PA)".

GCIs buy into deals pitched on the golf couse by a buddy with supposedly inside knowledge of a revolutionary shure thing.  They generally experience an improving golf handicap, a badly handicapped portfolio, significant loss of capital and a high level of frustration resulting from failures that are perceived as unpredictable and arbitrary.

PAs spend perhaps less time on the course to put more effort in Due Diligence Investigations (DD) of the deals they are offered thereby resulting in fewer deals being done, but with a higher probability of success.

The difference between the two groups is the degree of due diligence they apply to investigating all aspects of a deal before getting into it.
GCIs frequently see due diligence as no more than reviewing financial statements and projections and calculating deal terms that could let them "make a killing" if the deal succeeds.
PAs on the other hand see DD as absolutely required to develop the necessary competence in the business and its technology to decide whether to go on to negotiating the terms of their funding knowing that besides capitalthey may have to contribute advice and expertise to see the vnture succeed.

So, what does DD have to address?

  1. Management team

  2. Technology assessment

  3. Market assessment

  4. Scalability

  5. Potential returns

  6. Exit strategy

In my experience the order of the above list is not accidental because the answers found at each step determine how the following stage may be approached. Let's look at the questions and answers involved in each:

[hana-code-insert name='dd4ai' /]

or check my roadmap.  In either format the above list is only a brief summary for illustration purposes.  A comprehensive DD effort requires a variety of domain experts with an emphasis on determining the scalability of the process and of the company, which is most often the Achilles' heel of new technology businesses. For more information contact the author or SafeTnet Consulting LLC

Friday, July 10, 2009

AngelCalc - Calculating With Angels

Do you know when your young business venture is "fit" to attract angel investor financing?

There are many theories and rules of thumb being bandied around about how angels seek their targets. The reality is that angel investors can be roughly divided in two groups, each with dramatically different decision making processes (and ROIs).

"Golf Cart Investors"These are the ones who buy into a deal on a hot tip, topically received by a buddy on the golf course.  Most often the buddy has done little or no due diligence, has little or no knowledge of the industry and technology involved, and has received the supposedly hot inside information from another buddy in similar fashion.
These angels are dangerous to your and your business' health.  They invest with virtually no understanding of the deal, have unjustified expectations and eventually will prove to have little or no patience to wait for the business to succeed.  Their returns are almost inevitably negative and most often they will do no more than one or two deals before they go back to golfing only. Unfortunately they will tell others that angel investing is a crap shoot and waste of money, thus limiting startup capital availability in the community.

"Professional Angels"These are the real Angels entrepreneurs want to work with.  Frequently they work in groups so that they can share the heavy burden of due diligence research required and they bring to their side of the table scientists, engineers and management experts in different industries and technologies.  They will ask a lot of questions and then more questions and then proof and supporting documentation.  They will not move fast but will cover their bases well. When they invest they will stay involved and help with seasoned advice and working their contacts to help the business succeed. These are true ANGELS.

Research by the Kaufman  Foundation shows that their returns are on average quite attractive (2.6 times their investment in 3.5 years).  On the other hand, a rule of thumb often quoted is that these angels consider a deal if they see a potential to earn 30 times their investment in about 5 years. These two seemingly conflicting perspectives are reconciled if one presumes that the probability of success of a well researched deal is only about 10-12%.  From experience I believe that it is a reasonable and not overly pessimistic expectation considering that the typical business that fits angel investors has many or all of these characteristics:  Little or no sales, limited proof of market, may have lab tested technology, but little or no  production, no proof of scalability, delivery, distribution experience.  Moreover, all of the following may aply: in some other garage a similar or better mousetrap may be ready to come to market, the management team may have or may develop unforeseeable weaknesses (from sociopathy leading to financial embezlement to personality incompatibilites to love affairs - I've seen them all as causes of aborted successful businesses); "effective" IP protection may prove difficult to obtain or worse may be revoked when prior art appears unexpectedly (see the post about patents and RIM's adventure), government regulations may prevent or delay market acceptance, unforeseen and totally unrelated vested interests may create insurmountable barriers to market acceptance. All considered the 10-12% probability may even be high, but it appears to be what angels use implicitly if not explicitly.

So, with all this in mind, below is AngelCalc (copyright Marco Messina 2007-2010).  Its intent is to help you determine if your business has sufficiently high growth and profitability potential in an industry with sufficiently high PEs to satisfy the requirements of the Pro Angels.  Services, generally are unlikely to qualify unless they have a unique IP component and market dominance potential.  If your business cannot  meet the angels' criteria, your funding efforts will be better put elsewhere.  F&F (friends and family) may be an alternative at least until the criteria may be met.

Calculating with AngelsThis model attempts to explain the finance-ability of a business based on angel investors' required returns.
Its objective is not to set a valuation.  It seeks to determine whether the relationship among the following factors allows a viable solution that meets investors criteria.

The factors for a P/E-Multiple based calculation (as for a public company) are:
1. time horizon is 5 yrs,
2. future EBITA,
3. future PE and market cap (from current comparables),
4. investor's average returns and required return,
5. the ASK needed to implement the plan
6. The % equity to give up for the ASK

The factors for a valuation based on revenue multiple (e.g. selling the company) are:
1. Time horizon is 5 years
2. Revenues in year 5
3. Applicable multiplier for comparable companies sold

With both valuation methods the implied probability of success is 12% because it reconciles the return multiple identified by the Kaufman Foundation research (2.6 times return in 3.5 years) with the rule of thumb often quoted of "30 times the investment".

Questons or comments?  I'd love to hear from you,
    particulalry if you disagree.

Good luck. May you be so lucky to find a real ANGEL.

Monday, June 29, 2009

The Gift Of Time

Leaving one's job can be distressing to put it mildly.  Many are living through that stress these days.  However there is another side to that coin: Free Time, time free from the requirement of going to an office and focusing on narrow concerns of your employer. Free time is the opportunity to surf the internet unbound and research the answers to one's curiosity.  Since leaving my last position I have gorged on that opportunity.  Information is freely available, but that most of the time hidden behind too few hours in the day, too much focus on business decisions to be made.

My father, in retirement, with the luxury of plentiful time, became my information digest of all that fit "must read".  Since he died last August I missed his "must read" warnings.  So, starved and eager I've been catching up.  In case I can save you some time or share some of the doors I opened for myself, here is the list with brief comments.  Of course it is all stained by my particular interests and viewpoints.  As my forced freedom permits I will continue this effort. If you want to know when I dig out something new subscribe (RSS or email - top right).
Your comments will be greatly appreciated and your sharing your own "must read" findings even more so.

Global WarmingThe landscape seems to be changing.  As mass hysteria increased and penetrated our political process, dissenting views of scientists seem to get a little more attention in the media. Skeptics have become slightly more vocal. The populace has lost some interest after the high mark of the months leading to the Presidential Election. The fear of the staggering cost of taking action is finally translating into "are we sure enough of this before we spend trillions on it?" or "if India and China's negative impact accounts for 5 times the best that could ever be expected if all participants implemented Kyoto 100%, what difference could Kyoto make? Do we not need a better plan?" (see Fareed Zakaria below).

Must Read/WatchClimate changes are not global warming - Interview with John Coleman, weather scientist and founder of The Weather Channel
Testing The Hypothesis of Global Warming - 5 Tests of CO2 - Prof. Bob Carters at Conference on Climate Change N.Y. 2008
Sen. Inhofe on Al Gore
Charlie Rose and Michael Crichton on Global Warming (skip 22 min. to GW)
20/20 John Stossel: The myth of consensus
20/20 John Stossel: The media and global warming
20/20 John Stossel: Don't fight it, adjust to it
The real greenhouse gas
Why use scare tactics and doctored data if the argument holds?
The debate is not over, Al Gore
Those so convincing photos...
The naked truth of An Inconvenient Truth

Geopolitics and Economics
The world is changing and we hardly notice because nationally we are trained by mass media to be concerned only about the US. Our markets are large enough so too many companies think exporting is too much trouble. We are the last industrialized country not on the metric system (along with Myanmar). We are pleased that the whole world is learning English, so we do not learn their languages and our educational system makes sure that some do not master English even here and live speaking a pidgin English in the name of diversity.

Then you run into an interview by Charlie Rose with Fareed Zakaria and in one hour you learn a lot, really a lot. If you read The Economist or The Atlantic regularly you'd learn even more, but few even seem to know they exist.

Is "Peak Oil" not at peak?
Then what about ethanol?

Old Standby Brain food
2008 Did You Know 3.0  the stats keep changing...
2007 Did You Know 2.0
2006 Did You Know

TED Conference  if you are curious, this is heaven
       Jill Bolte Taylor - inside view of her stroke
       Eva Vertes a most brilliant mind

Now be nice, leave some of your favorites "must read".  If they do not agree with mine, so be it, I'll learn from you.  Thank you.

Friday, May 8, 2009

Saved BY (not from) the Swine Flu

This is not a story of medical details, but one of people, their courage and the difference they make

My blog is not only for proclaiming my opinions (I probably do too much of that), but is a world-sized wall where I can write, for the world to see, of the bad and the ugly in search of a fix, and the good: my tribute to the people that cross my life and make a difference - sometimes the give the gift of living a better rest of my life.

What follows are facts with medical details only for context. All the names are true. To those whose names I omitted, I apologize for my poor memory and the hospital's policy to not give me the names.