Category Archives: Innovation

POWER PITCH

by John Jonelis

What happens when you give kids—kids gifted in math and science—a real chance to bust out with their God given talents and excel?

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  • What if you trust them to lay their greasy little hands on equipment normally available only at elite universities?
  • What if you allow them to direct their own time?
  • What if you challenge them to construct their own goals and learn by themselves how to accomplish them?
  • What if you dare them to build real startup businesses at such a tender age?
  • And what if you throw them into a competition against a panel of critical judges from the real private equity world?

What happens? Good things! Good things happen! They happen here at IMSA – the Illinois Mathematics and Science Academy. I’ll give you an intimate peek at the inner works of this educational powerhouse so you can see for yourself what makes this one of the biggest success stories in the country.

Showcase – Chandra Gangavarapu

This is a high school with a serious entrepreneurship program. Many of the ideas, business models, and pitches produced here outshine what we’re accustomed to in the business world. Mere students, you say? Some of their companies have gained funding and gone to market. And many of these same students intern at real-world startups throughout Chicago.

According to Britta McKenna, Chief Innovation Officer at IN2, “Kids love to have real-world problems to actually work at. This space provides that opportunity.”

Today’s event is the grueling POWER PITCH. Each team presents its company twice before separate panels of judges—the finalists pitch three times.

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What Do the Judges Say?

The judges are all smiles as they feed at the idea bar after the first round. Competitors get whittled down by secret ballot. I corner John Lump. He’s a colleague at Heartland Angels and a professor at DePaul where I’ve lectured at his invitation on risk profiles in private equity. See IN YOUR FACE RISK.

This a practical guy who’s knee-deep in the real world of business as VP of Federal Home Loan Bank of Chicago. I can count on him for an honest opinion. Here it is verbatim:

John Lump — Judge

“I love being a judge here. Second year I’ve been doing it. And it’s exciting and a lot of fun. The enthusiasm and energy of the kids is just fantastic.”

Swelly – Tyler Stock

“I saw several interesting businesses.

  • Swelly is a temporary insurance company.
  • Blabl is a company to help students with speech disabilities.
  • Rethink Numeracy is one that helps students with Downs Syndrome learn math—a more visual approach.

Some really cool ideas here.”

Blabl – Ayan Agarwal

“Obviously these entrepreneurs are quite young. There are some still in Jr. High. You’re talking kids that are 10, 12, 13 years old and already starting businesses! At Heartland Angels, we see entrepreneurs in their 20s up to their 50s and 60s. So these kids need much more mentoring. But I think you’re going to see some business opportunities here.”

Rethink Numeracy – Akshaya Raghavan

I touch base with Moises Goldman. As I’ve said before, he’s an old hand at private equity in Chicago and a VIP here at IMSA. I’ve known him a long time, and trust what he says. He’s a guy that projects humility, but receives deference and respect.

Moises Goldman – Judge

Today Moises is bursting with exuberance and he speaks with more passion than I’ve ever seen. What he says is as intuitive and emotional as it is insightful.

“Two of these kids blew me away. The company is called Fast Exit. One brother is 12 and the other is 15. Twelve and fifteen! I looked at the father and just jokingly said to him, what is it that you do? These kids are very, bright. Very, very bright—both of them.

[Moises is talking about the Orr brothers, Joshua and Maxwell. The older brother is in 8th grade at Avery Coonley. They are each pitching their own companies today.]

“What blew me away was that they’re two brothers, so I look at the father and I just wonder, what are his challenges as a dad with these two amazing kids? Because the social environment that they have—it must be an alternative universe to the one that I’m used to—that I grew up in.”

Jim Gerry with Joshua Orr of Fast Exit

[I suggest to Moises that their home life must be very nurturing.]

“Yes, somehow. But I’m amazed. That really blew me away—that blew me away. Last year, the older boy had a drone project that was a game you could adapt to Dave and Busters in that kind of environment.”

[I recall that drone project and ask if they’re both planning to attend IMSA.]

“The 12-year old—I don’t know. The 15-year old is applying for the coming year.”

OneNote Quiz – Maxwell Orr

Today there are 17 judges at Power Pitch – Patrick Bresnahan, Dane Christianson, Moises Goldman, Joe Jordan, Sanza Kazadi, Christine Krause, Maria Kuhn, John Lump, Josh Metnick, Nancy Munro, Kelly Page, Jacob Plumber, Lance Pressl, Julia Sanberger, Chris Stiegal, Tom Voigt, Joe Zlotniki. I agreed to be an alternate and fortunately don’t get that tap on the shoulder. I want to see the whole event.

Shop Cheetah – Catelyn Rounds, Julian Kroschke

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Entrepreneurship

IMSA’s entrepreneurship program is called TALENT—Total Applied Learning for Entrepreneurship—led by Dr. Carl Heine, Britta McKenna, and Jim Gerry. Jim is technically retired from the program but still volunteers his time. This is too much fun to stay away.

Heat2Heal – Sushil and Pranav Upadhyayula

At this place, students get real-life experience and opportunities to solve real-world problems and bring ideas to market. The goal is to instill the thinking patterns and mindset of an entrepreneur:

  • Develop a product
  • Form a team
  • Communicate ideas
  • Formulate a business plan
  • Protect intellectual property
  • Work your network
  • Raise funding
  • Start the business

Really? These are high school kids—some even younger. In a world of schools dominated by gangs, drugs, and fear, who would think them capable of such positive desires and accomplishments? Then I come across one of the quotes on the wall:

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IMSA Fast Facts

  • Teaching philosophy – The Socratic approach. Self-directed learning and problem-based learning.
  • 99.8% of IMSA students attend college.
  • 70.1% pursue majors in science or math.
  • 47% of faculty is PhD.
  • Alumni hail from every district in Illinois.
  • This is the school’s 30th year.

The IN2 Entrepreneurship Center at IMSA

I snag Dr Carl Heine, as he moves between presentations. He’s director of IMSA TALENT, their entrepreneurship program. I ask him if IMSA still has a presence at 1871, the huge incubator in downtown Chicago, or if all the activity is at the new IN2 facility.

Dr. Carl Heine, Director of IMSA TALENT

“IMSA is still a member of 1871. We take our students on Wednesdays to intern at companies. They’re embedded in startup teams. We can’t teach a class that’s better than that.”

“We do it every Wednesday. 1871 is just one location. We have students at the James Jordan Foundation downtown. Three of them are interning there right now, working on summer curriculum. There are students at a variety of other spots, too.”

[“This year’s Power Pitch is better than I’ve ever seen.”]

“POWER PITCH is an event that makes people feel good about the future. I hope you feel that way as a result of your involvement.

“The top three high school teams are advancing to the Next Launch regional competition in Indianapolis on May 17. If you would like to continue to work with your favorite team as a thought partner, a mentor or more, the purpose of IN2 and TALENT is to make that happen.”

Yoda

[I decide that Carl is the Yoda of IN2. I ask him, “What other events are coming up?”]

“This has been an academy for 30 years now, so we’d like to have a celebration. We’ve put it on March 30th this year, so there’s a 30 and a 30. As part of that, we’re doing the ribbon cutting for the IN2 space, and the new science labs that are part of a capital campaign that just wrapped up as well. And we’re celebrating the accomplishments of the institution over the last 30 years.”

This is just brilliant!

IMSA trains students not to fear any subject. I noticed THEORY OF ANALYSIS on the course syllabus. Normally, that’s offered only at the university level and it’s a course that’s hated and avoided by math majors nationwide. Never be intimidated by difficult subjects.

Award Ceremony

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17 Student Teams

IMSA’s President, Jose׳ M Torres, and the Stephanie Pace Marshall Endowment present the awards.

The top three high school teams—Blabl, Heat2Heal and Flameless—advance to the Next Launch Regional Competition in Indianapolis on May 17. The two winning middle school teams are Fast Exit and Shop Cheetah.

Blabl– Ayan Agarwal

 

Social Good Category Finalists & Winners

  • BlablAyan Agarwal – A mobile application that engages speech impaired children in conversation with an avatar – $1000 prize, Top 3 HS team
  • Heat2HealSushil Upadhyayula, Pranav Upadhyayula – A hands-free, self-powered Arthritis Wrap that converts body heat into electricity to provide targeted massaging & heat therapy for stiff joints – $500, Top 3 HS team
  • Rethink NumeracyAkshaya Raghavan – Teaching numeracy to children with Down Syndrome, leveraging their learning strengths.
  • Double-CheckRishi Modi – A protective biometric alternative to prevent ID theft.

Heat2Heal– Sushil Upadhyayula & Pranav Upadhyayula

Social entrepreneurs create self-sustaining businesses that promote social good. The STEM category is for-profit tech companies.

Fast Exit – Joshua Orr

STEM Category Finalists & Winners

  • FastExitJoshua Orr – A life-saving solution for managing exit signs – $1,000 prize, middle school team.
  • Shop CheetahCatelyn Rounds, Julian KroschkeA groundbreaking store navigation system that saves times and routes customers through the store$500 prize, middle school team.
  • FlamelessSivam Bhatt, Nikhil Madugula – Extinguishing cooking fires automatically with sound waves – Top 3 HS team.
  • SwellyAneesh Kudaravalli, Tyler Stock – A mobile app that allows users to get flexible insurance on personal items in an instant.

Shop Cheetah – Catelyn Rounds & Julian Kroschke

 

Other Competing Teams

  • AlertAshritha Karuturi, Priya Kumar – An app that efficiently connects homeowners to rescue workers, saving time and lives.
  • Be BettahZoe Mitchell – The food search engine and cookbook series that allows for bettah nutrition without changing your lifestyle.
  • Electrofood Alex Orlov – A microbial fuel cell that converts food waste to electricity.
  • OneNote QuizMax Orr – The personalized quiz generator.

Flameless – Sivam Bhatt & Nikhil Madugula

  • SafeSeatElliott Cleven – An app to alert parents if their child is left in a car unattended.
  • ShowcaseChandra Gangavarapu – A web app for musicians and dancers to gain recognition for their art.
  • Social BreadVainius Normantas – Using social media advertisements to raise funding and awareness for communities in need.
  • StrobeJayant Kumar, Zaid Kazmi – LED light strip supplements for fire and carbon monoxide alarms to assist the hearing impaired.
  • Verifact!Shreya Pattisapu – An effective and efficient way to couter fake news.

 

Read Part 1 – THE NAME IS IN2

Hope you enjoyed Part 2 – POWER PITCH

Coming soon – INQUIRY & INNOVATION

 

 

IN2 Contact Info

Address – 1500 Sullivan Rd. Aurora, IL 60506

Website – https://www.imsa.edu/

Carl Heine – heine@imsa.edu

Britta McKenna – bmckenna@imsa.edu

Tami Armstrong – tarmstrong@imsa.edu

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Photography by John Jonelis

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
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Filed under 1871, angel, angel investor, Chicago Startup, Chicago Ventures, Education, Entrepreneur, Entrepreneurship, Events, IMSA, Innovation, Innovation and Culture, Invention, investor, MIT, MIT Enterprise Forum, MIT Enterprise Forum Chicago, MITEF, MITEF Chicago, Social Entrepreneur, Startup, startup company, vc, venture capital

THE NAME IS IN2

by John Jonelis

What happens when you give kids—highly gifted in math and science—a state-of-the-art facility entirely dedicated to entrepreneurship? This could be the best-designed business incubator on the planet and the students are going to create real businesses here. Hey—this is too much fun! It sure doesn’t look like high school to me! Where did they put the usual long halls walled by the usual rows of lockers? Where are the standardized rigid rectangular classrooms?

This is IN2, the new entrepreneurship center at IMSA—the Illinois Mathematics and Science Academy—the Statewide high school for the best and the brightest. It’s located near Chicago and students live on campus, as if attending a university four years too soon.

IMSA will host a big party and ribbon cutting for the new IN2 innovation space on the 30th of the month—that’s the 30th anniversary of the school’s founding. I had the unique opportunity to preview this amazing facility. Here’s a sneak peek:

IN2 at IMSA (Note the unique tables and ping pong net)

Britta McKenna is the Chief Innovation Officer here, and led the team that put this together. As I fumble to get my recorder going, I ask her how they pulled it off. Without any hesitation, she pours out an amazing story—so here it is, verbatim:

[First of all, I asked about the name—IN2. What does it mean?]

“Innovation and Inquiry. When people were in focus groups and asked about IMSA, those were the two words that came up over and over. So the company we worked with used Inquiry & Innovation as IN-IN. That’s why it’s called IN2. So you can say, ‘What are you IN2?’ It can be playful.”

Britta McKenna, Chief Innovation Officer

“The story actually goes back 10 years. It was decided an innovation hub would be built—a physical space and a virtual space.

“Three and a half years ago, we got a gift of one million dollars from Steve Chen to build the innovation center, so then the work really began.”

[Chen is an IMSA alum and co-founder of YouTube and AVOS. I asked Britta how they came up with such a wonderful design]

“I got tapped, as chief innovation officer, to figure out what this would be, what it would look like, how it would operate, how it would be funded. It would have to be a private revenue stream to support this.”

[ALERT—All you budget hawks. She’s talking private funding—and she’s got the corporate connections and alumni to do it.]

Maker Space

“So I brought along students to Silicon Valley—15 of them. We went through Chicago to spaces like Northwestern, IIT, University of Chicago, Fermilab, Argon, 1871, Private Industry Chicago, Next Door, and we also went out to Boston to visit MIT Media Lab, and other spaces out there, including artist colonies to be inspired to by what people were doing coast-to-coast in innovation spaces.”

Multi-use conference rooms

“That was a 2-year research project and included the students all the way. They worked in three teams—Developing Technology, Programming, and Facilities. They helped co-design the space, because they are the users, and too many times, we design things in a box outside of the users. So we implemented a user-designed thinking approach.”

Lab space

“We went to Facebook, Google, Dropbox, AVOS, which is Steve Chen’s newest startup, WeWork, which is a co-working space, and Stanford’s StartX, so we literally have done our due diligence.

“And I asked, ‘What space gets used the most? What’s your favorite thing? And what did you do wrong?’

“It doesn’t mean that those things will all work here, but it’s likely that we might have success if somebody else already has. So we synthesized all of that and I became what is known as the ‘hashtag’ Super-User. And the Super-User is the one that funnels all of this information to the architects, because now it actually has to be designed.”

Idea space

“We went to the community. We came together—58 of us—anyone from a Chicago Public School teacher to a city administrator with City of St. Charles. We got public, private, parents, past parents, teachers—everybody came together and literally built models of this space. We went through the design process with architects, we used Cordogan Clark in Aurora, and we built this—it took about a year to build from the time we broke ground and now we’re opening up.”

Sharing space

“So all the spaces here are influenced either by student ideas or places coast-to-coast that we visited. And so we’d probably say that we’re the first secondary school innovation center in Illinois, and dare we say the United States because we haven’t been able to find something like this. First-to-market is great for Illinois, great for Aurora, and puts IMSA on the map. We invite people to come in and see what we’ve built here.”

Collaboration space

“This is really meant as a convening space. Innovation doesn’t happen unless there are people here. We learned from going coast-to-coast that you can have the coolest space ever, but if there’s nobody there, there’s no innovation happening. There’s nothing happening. It’s all about connecting people.”

Coffee Bar

“One of the biggest places we found is around food. So we have a built-in cafe around the corner because you want to meet somebody for a cup of coffee. You just want to have a casual conversation. You want to have a back-of-the-napkin sketch, that can happen there or it can happen in our idea bar.

“We have Idea Baristas that we’re training. They actually wear aprons, and will help people advance their ideas here. They’re all volunteers.”

Idea Baristas.

We’ve got a mentoring office like 1871. We hope by the fall to have regular office hours. So I am a non-profit mentor. On Tuesdays from 4-6:00, I volunteer my time to mentor non-profits in the community. I can go to them. They can come to us.”

Mentoring Office

“Mike McCool, who’s an alum and a software engineer, wanted to donate and I said, ‘How ‘bout we get the McCool View?’ So he funded the beautiful windows that we have.”

The McCool View

“Our reach—about advancing the human condition—can, I think, really be actualized through this space. Not that we weren’t doing it—it just gives us that new front door. The space is just literally right by the front door.”

A huge competition between student startup companies— POWER PITCH—is going on here today. I’ll give you an inside look at that in the second article in this series.

Moises Goldman – Judge at POWER PITCH

I run into an old friend, Moises Goldman—angel investor, a big driver at MIT, and an important contributor at IMSA. Today he’s one of 17 judges at POWER PITCH. I ask him what he thinks of the new facility. Moises responds in his gentle, deliberate, and old-world manner, condensing his thoughts into a few words:

“I think it’s always been the desire to be in a type of space that recognized talented students. This is our recognition of these students. That makes a difference to me.”

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Notable IMSA Alums

The school’s alumni reflect its excellence. Browse through a few:

Steve Chen – Co-founder/Chief Technology Officer of YouTube and AVOS. Early engineer at PayPal.

https://en.wikipedia.org/wiki/Steve_Chen

Steve Crutchfield – Chicago Trading Company. CBOE Advisory Board, Head of Options, ETPs, Bonds at NYSE Euronext.  2012 Crain’s Forty Under 40.

http://marketswiki.com/wiki/Steven_Crutchfield

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Dr. Julia Comerford – Astronomer. Discovered several supermassive black hole pairs—occurring in the merger of galaxies.

http://www.sci-news.com/astronomy/pair-black-holes-distant-galaxy-03546.html

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Dr. Scott Gaudi – Astronomer, discovered over a dozen new planets and a new solar system.

https://www.imsa.edu/news/releases/2012/08/06/president-obama-honors-dr-b-scott-gaudi-91-highest-honor-early-career-scien

http://www.astronomy.ohio-state.edu/~gaudi/

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Nathan Gettings – Co-founder of Palantir. Founder of robotics company Robotex.

https://en.wikipedia.org/wiki/Palantir_Technologies

Also – http://www.robotex.com/

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Ramez Naam – Software developer and international bestselling author. Developer at Microsoft Outlook and Internet Explorer projects.

https://www.amazon.com/Ramez-Naam/e/B001IOH84S/ref=sr_tc_2_0?qid=1489516515&sr=8-2-ent

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Mike McCool – Software Engineer at Google, Robot Invader, Aechelon Technology, Netscape, and many others.

https://play.google.com/store/apps/details?id=com.robotinvader.fooding&hl=en

Rob McCool – Software developer and author. Developed the original NCSA Web server, later known as the Apache HTTP Server. Part of original NCSA Mosaic team with his twin brother Mike.

https://en.wikipedia.org/wiki/Robert_McCool

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Tim Meyer, PhD – Chief Operating Officer, Fermilab

http://www.fnal.gov/pub/about/timothy-meyer.html

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Yu Pan – Co-creator of PayPal and the first employee at You Tube. Co-founder of kid’s kraft company Kiwi Crate.

https://en.wikipedia.org/wiki/Yu_Pan

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Dwan Prude – Financial Analyst, Boeing Company. Motivational speaker.

https://www.imsa.edu/news/releases/2012/08/20/dwan-prude-97-gives-passionate-and-motivational-2012-convocation-address

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Russel Simmons – Co-founder of Yelp. Early developer at PayPal.

https://en.wikipedia.org/wiki/Russel_Simmons

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Clara Shih – Bestselling author, THE FACEBOOK ERA. Founder of Hearsay systems. In 2010, she was named one of most influential women in tech.

https://en.wikipedia.org/wiki/Clara_Shih

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Kevin Wang – Founder of TL;DR Legal. Theil Foundation fellowship recipient.

https://www.imsa.edu/academics/talent/kevin-wang-new-thiel-fellow

Also – http://www.geekwire.com/2012/kevin-wang/

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Sam Yagan – American internet entrepreneur. Co-founder of SparkNotes and OkCupid. CEO Match.com. Named in Time Magazine’s 100 most influential people in the world list.

https://en.wikipedia.org/wiki/Sam_Yagan

 

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Hope you enjoyed Part 1 – THE NAME IS IN2

Go to Part 2 – POWER PITCH

Coming Soon – INQUIRY & INNOVATION

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IN2 Contact Info

Address – 1500 Sullivan Rd. Aurora, IL 60506

Website – https://www.imsa.edu/

Carl Heine – heine@imsa.edu

Britta McKenna – bmckenna@imsa.edu

Tami Armstrong – tarmstrong@imsa.edu

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Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
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1 Comment

Filed under Chicago Startup, Chicago Ventures, Education, Entrepreneur, Entrepreneurship, IMSA, Innovation, Innovation and Culture, Invention, new companies, Public Schools, Social Entrepreneur, Startup, startup company

IN YOUR FACE RISK

by John Jonelis

“Oh, you’re an angel investor! Isn’t that risky?” I hear such drivel all the time. Are people afraid of outsized returns? Or perhaps they don’t understand risk, don’t know how to measure it, or how to take control of it. Yet all that is quite easily done and it’s a real charge to play the game using a Monte Carlo simulation (MC). I’ll show what’s likely to happen if you follow three simple rules. Then I’ll break one rule—just a little bit—and we’ll use the simulator to see what happens.

fear-color

Rules of the Game

Rule #1 – Diversification and the Law of Large Numbers—This is the only free ride in the investment world. Invest in as many dissimilar companies as possible.

The portfolio technique known as the Efficient Frontier suggests you indulge in alternative investments to the tune of 10% of your overall portfolio to maximize return and minimize risk—that’s right, both! Angel investment is definitely in the alternative camp, so restrict your fun to 10%. No more! It’s true—angels are like anybody else. They also own stocks and bonds, futures and options, currency spreads and real estate, antique cars and art collections.

Rule #2 – Identical Minimum Sum—Nobody knows whether a company will succeed or fail. Nobody. Even the best, most experienced, wisest, most savvy investors can’t tell. So out of your alternative portfolio, invest the identical minimum sum in each and every deal—no more, no less—no exceptions! Make it as small as you can. 2% is a good number to shoot for. Ideally, with profits taken along the way, you’ll eventually own 50 to 100 companies!

Rule #3 – Join an Angel Group—Contrary to public opinion, most investors aren’t multi-millionaires. An angel group allows you to invest small sums in concert with others in the group, and coincidentally, it makes it possible to obey Rules #1 and #2.

I also assume that a personal research staff isn’t in your budget. A good angel group solves that problem by splitting the workload among its members according to their particular expertise. A strong group will accelerate your learning curve. The trust and camaraderie you build with other members makes angel investing a real joy. My own experience as a member of Heartland Angels has broadened my horizons and given me so much more than I could ever contribute.

It’s not a rule, but read the book ANGEL INVESTING by David Rose. You’ll be glad you did.

dice

Beware

If you don’t like to help companies grow from raw idea to industry leader; if you aren’t willing to participate in the fascinating and often perplexing details of a new business venture; if you can’t stand people; if you’re afraid—then invest in a mutual fund or put your money in gold coins and count them every day, just for something to do.

 

Picture Your Risk

I’m visually oriented. To paint the picture of risk, I use a Monte Carlo engine. MC is a sophisticated and arcane statistical tool that any child can use. If you’re a spreadsheet whiz, you can set it up yourself. I downloaded a program called Equity Monaco that makes it easy to enter investment outcomes, and analyze results.

NOTE: If you find yourself gazing at a bunch of confusing readouts with a vacant stare, read my paper, ALTERNATE HISTORIES. It’s written in plain language. It’s short. You’ll be an expert in no time.

angel

How Angels Make Money

Angel investing is long term—3-10 years. But like any investment class, you’ll cash out of one deal and put that money in another. It’s a continuing cycle. It’s also a homerun strategy. Can a homerun strategy be a winning strategy? Let’s run the numbers and see.

First, we need a data set of ordinary, average, run-of-the-mill trade results. Turns out, the Kauffman Foundation keeps statistics and publishes them.

Here’s the bottom line, according to Kauffman, 38.1% of startups grow and get acquired by a larger company, at which point all the investors throw a party! 11% become lifestyle businesses. These may provide a nice living for the employees but it takes the investors a really long time to cash out. 50.9% of companies go belly-up. Of those, 0.9% just disappear!

startups

Actual Angel Returns

Let’s keep this simple. From the investor’s perspective, all the returns from Kauffman’s wealth of past data boil down to five distinct outcomes. I express these as multiples of cash invested. (“10x” is a return of 10 times your investment.) Then I list the probability of each outcome.

return-vs-probability

Return as a multiple of investment vs. probability

Kauffman Foundation

 

Using these numbers, and applying our rules, it’s simple to build a simulated portfolio that represents likely outcomes.

Let’s assume that 10% of your portfolio amounts to $50K. Your angel group’s minimum investment is 10K. That means you need to plunk down 10% of your stake per deal, rather than the recommended 2%. You’re undercapitalized! Your Identical Minimum Sum, is high.

What does that mean to you? You’ll participate in fewer trades than some rich slob. All other things being equal, your results will be less predictable. The rich get richer, etc. etc. But you’re young and aggressive. Let’s say you go ahead anyway.

Now create a list of outcomes, based on Kauffman’s stats.

how-deals-shake-out

Notice that you follow all three rules. You invest exactly the same amount each time. Using an angel group, you invest the smallest amount you can get away with, and you participate in as many attractive deals as you can.

 

The Face of Risk

We’re ready to run our simulations. Feed those numbers into your MC engine and let the computer do the work. (I apologize for omitting legends from the charts, but the numbers in my program are too tiny to read. Hey, these are actual screenshots from my software package. So permit me to clue you in:

  • The X axis is about 100 deals.
  • The Y axis runs from zero to almost $2,500,000.
  • All equity lines start at $50K—your alternative portfolio.

std-10-long

10 possible equity curves

Here’s an MC output of 10 runs from the set we just built. Each line is a distinct equity curve that represents your portfolio. All are possible. Notice that two of them go negative quickly and never recover. But the rest do quite well. This isn’t enough data to draw any valid conclusions. Let’s run more simulations, using the same data set.

std-30-long

30 possible equity curves

Here we have 30 equity curves. The projections are getting clearer. Let’s run a few more, using exactly the same data set.

std-100-long

100 possible equity curves

Ah! Here we go—100 outcomes. The variation is nice and tight. Kurtosis is evident in the plot—in other words, the most likely results cluster around the mean. Looks like a good experiment to me. Let’s use this one.

 

ANALYSIS

Analyzing these plots is amazingly intuitive. For this experiment, the equity lines all start at $50K—your portfolio. A few outcomes go negative, but most look quite promising. The luckiest investor walks home with $2,450,000. MC plots don’t necessarily follow a standard distribution, but the mean looks to be about $1,450,000. Let’s focus on that number.

If we achieve the mean, we’re looking at an average return of 28 times investment. Does 28x get your attention? It gets mine! It even raises suspicions about possible survivorship bias in Kauffman’s numbers. But these are the best statistics we have so we’ll go with them.

How much is 28x as an annual percent return? That depends on turnover of deal flow. The shorter the hold time, the larger the IRR. 3 years is better than 10.

By the way, you may be wondering which curve is yours. There’s no answer to that question. But since your portfolio is so small, you’re more likely to find yourself on the fringe. An investor that’s filthy rich and participates in many more deals, enjoys a more predictable outcome and probably lands close to the mean.

 

BREAKING THE RULES

Let’s find out what happens if we break just one rule. And who doesn’t do that? So you invest $100K in a really juicy deal. It’s the best prospect you’ve ever seen and you figure it’ll make you rich. This thing can’t miss! Hey, it’s just one investment—how much difference can it make? You have just violated the Identical Minimum Sum rule. I know. I made this mistake once.

We add it to our data set and run the simulation. For this, we increase your portfolio size and retain all the same trades from the last run. This is what the hotshots call sensitivity analysis.

undis-100-long

100 possible equity curves – breaking one rule

Whoa! Look at what that one lapse in discipline does to your projections! The mean is now flat—zero times return! Half the outcomes are negative. No, I don’t’ want to play in this sandbox.

Successful investing is primarily adherence to a solid set of rules. That’s called discipline. The goal of discipline is to keep the probabilities in your favor. Discipline defines success.

That doesn’t mean that a successful angel can get by without a good skillset. You need to exercise brilliant judgement. You must perform your due diligence. Knowledge and experience are huge. Always keep the human side in mind. And you need to follow-up. Watch your companies closely as they pivot and grow. I leave you with this thought:

david-rose-quote

Also read – ALTERNATE HISTORIES

 

John Jonelis is a writer, investor, fisherman, author of the novel,

THE GAMEMAKER’S FATHER, publisher of Chicago Venture Magazine, and editor of News From Heartland.

The term IDENTICAL MINIMUM SUM is from the author.

Thanks to David Rose and his book ANGEL INVESTING.

Statistics from the Kauffman Foundation.

MC plots from Equity Monaco by TickQuest.

Graphic courtesy MS Office.

DISCLAIMER – Do your own due diligence. It’s not my fault if you lose money.

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.

.Copyright © 2016 John Jonelis – All Rights Reserved

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HOW BAD IS IT

bobs-bad-poetry-swtby Loop Lonagan

Lotsa people keep tellin’ me good things about Bob’s Bad Poetry so I’m checkin’ it out. Yeah, yeah, I know what yer thinkin’. But there’s no law against an angel investor goin’ in fer high culture. That’s right, I like literature ‘n’ modern art too—’specially the abstract stuff. You got some problem with that, bud? Hey, me fodder and me mudder’s both Irish ‘n’ both poets, so’s I got it in da genes. Maybe you already figured that out from da way I talk.

And hey—dis ain’t just any poetry—it’s high tech—performed exclusively on da internet. Maybe it’s a startup company! Y’know how I like t’ invest in them. So I ask ya—lookin’ at da macro picture—with this lousy economy, dis goofy election, crime ‘n’ all—can it be that hard times once again spawn a renaissance o’ creative juices? Will demand fer artistic expression skyrocket like it done in da 60’s? Doncha wish you invested in Mick Jagger or Paul McCartney back then? Could it be that bad poetry is da next growth industry? Sounds like a winner t’ me! But how d’ya make a thing like that fly?

I sneak onto You Tube while da boss ain’t lookin’. He’s over dare, behind his big fat beat-up WWII air force desk tyin’ flies. Yeah, flies! Fer fishin’! Guy’s got da worst case o’ writer’s block I ever seen. He won’t notice me takin’ in a little culture. Don’t seem to notice nothin’ nowadays—unless it’s new fishing gear or maybe a Cubs game. Yeah, he put in a big-screen TV and DVR here at our corporate offices in the backroom of Ludditis Shots & Beer—just so he don’t miss a single inning.

ludditis-shots-and-beer-500

Our Corporate Offices

Whoa—look at dis site! This is fer real! Bob’s pumpin’ out a new poem every single day. Weekends too! I watch five of ‘em and find myself feelin’ real, real good—kinda grinnin’ to myself like I just downed a big mug o’ prime porter and lickin’ my lips. But beer costs money and dis poetry site is entirely free! Don’t cost me a single dollar! And only five minutes goes by! Yeah, deeze poems is all short—real short—just da way I like ‘em! So I subscribe, just to make sure I don’t miss any.

bobs-bad-poetry

Bob Badpoet

Can high culture be good fer a guy and this much fun too? Bob’s Bad Poetry. Looks to me like a creative genius maybe figured a way t’ use dis high tech world t’ make money—in an industry where nobody made money before! And if he’s revenue positive, dat’s what I call da businessman of today! If he’s selling shares, I’m in!

And if you don’t believe me, see fer yerself. Click here: BOB’S BAD POETRY

 

Please listen to poetry responsibly.

Graphic by Jennifer Otsuka

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.

.Copyright © 2016 John Jonelis – All Rights Reserved

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5 STARTUPS WE LOVED FROM TECHWEEK

Chicago’s Launch Competition

techweek-logo T

 

by Jeff Segal

Why does a B2B digital marketing agency that works with some of the biggest and best-known companies in America send a team to a startup competition?

Because marketing and startups actually have a lot in common.

  • Marketing is about problem solving, and startups are founded to solve problems.
  • Marketing is about storytelling, and every startup has a story.
  • Finally, a great marketing campaign and a successful startup both make people say, Wow, I wish I’d thought of that!

Out of the dozens of startups entered in last week’s Techweek Launch competition, here are five that made me and my coworkers say, “Wow!”

Techweek

 

CAST21

Technology has revolutionized nearly every aspect of healthcare in the last 20 years. But if you break your arm, your cast will look and feel just like one from 50 years ago.

Cast 21 wants to change that. Their lattice design—stiff on the inside, soft on the outside—lets patients shower and even swim, and lets doctors dress and treat the affected skin underneath. No more itching, no more smell.

Cast21

CEO Ashley S. Moy explains, “Our co-founder [and bio-mechanical engineer] Jason Troutner wore casts for nearly three years of his life. He was passionate about solving the complications that accompanied the casts, and his energy was contagious. We knew there was no other option but to change the way people heal broken bones.”

 

COMMON CENTS

If you know a college student or recent grad, you’ve probably heard about the increasing burden students loans are putting on the youngest members of our workforce.

Some recent University of Chicago graduates have designed a platform that makes paying off loans a little easier. Common Cents connects mobile spending apps like Venmo to a student’s loan accounts, so spare change from everyday purchases goes directly toward paying those loans down.

Common Cents

How much difference can a few cents here and there make? Co-founder Madeleine Barr says an average student who puts just $1.33 per day toward loan repayment can save more than $3,000 before finishing school, and more than $20,000 over the lifetime of a loan.

She adds, “As recent graduates with student debt, we are building the app we wish existed for us.”

 

FIND YOUR DITTO

Find your Ditto CEO Brianna Wolin has lived with multiple chronic illnesses since she was four years old. And she spent four stressful years at college without meeting a single other person living with the same conditions.

Her solution: build a mobile platform that allows people to make local, on-demand connections with others living with the same chronic illness. These connections can help relieve the isolation and depression that so often accompany chronic conditions like Crohn’s disease, celiac disease, diabetes, cancer and eating disorders.

Find Your Ditto

 

The result: Within five days of Brianna starting the Find Your Ditto pilot at the University of Michigan, another female student with exactly her same conditions had signed up.

 

FLIPWORD

If you read lots of online content, Flipword can help you learn a new language without special classes or software.

Like many startups, the idea for Flipword came from a real-life problem. CEO Thomas Reese was trying to teach himself Mandarin, but didn’t have time to study. One day while browsing the web, it hit him that he could learn Mandarin at the same time.

Flipword

The concept is mind-bogglingly simple. Read whatever online content you like, and Flipword replaces a few words per page with words from the language you want to learn, along with definitions and pronunciations. Maravilloso!

 

HERE 2

Jelani Floyd, CEO of Here2, explains how this “pop-up social broadcasting” app came to be:

“My brother and I attended a Bulls game at the United Center. We noticed so many people around us taking photos and videos and we wondered, where was all this content going? We searched hashtags on Facebook, Instagram and Twitter, but we could not find any content relevant to that game.

“We posted a photo to Facebook, and one of our friends—whom we had no idea who was also at the game—commented on our pic and said ‘I’M HERE TOO!!’”

Here 2

Here2 locates users geographically, so they can connect with each other in real time without having to guess hashtags or channels. And users who can’t make an event can still get authentic insight from the crowd’s perspective—the next best thing to being “here too!”

 

Links to the Five Companies

Cast21

Common Cents

Find Your Ditto

Flipword

Here2

Jeff Segal

Jeff Segal writes blogs and social content for digital B2B marketing agency StudioNorth, while crusading tirelessly against the words provide, quality, strive and utilize. This post originally appeared at Inside the Studio, the StudioNorth blog.

Check out Stories We’ve Told and Techweek Launch Competition

Graphics courtesy Jeff Segal


Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.

.Copyright © 2016 John Jonelis – All Rights Reserved

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SOURCING STRATEGIC INVESTORS

Monopoly Investor MS Office clipart TPart I – Funding your Business with Strategic Corporate Investors

by Laurence Hayward

It’s common to think of strategic investors, or strategics, as large established corporations that make equity investments in entrepreneurial ventures (and that is precisely how the Kauffman Foundation defines it). However, the reasons they make these investments vary and are more subtle than the definition implies.

The obvious reason is to gain a strategic or operational advantage by investing in emerging technologies. But let’s give it a bit more color.

  • To serve as a single contact point for emerging technologies, which historically can get lost in the organization.
  • To fill the gap in the capital markets where meaningful innovation needs to occur.
  • To align interests between several technology companies, which bring value to the corporate enterprise.

Corporations also create open innovation programs and becoming limited partners in independently managed venture capital funds. A corporation need not have a dedicated fund division to be actively involved in the world of venture-backed companies.

Monopoly Investor MS Office clipart

 

Corporate VCs

A strategic, in many cases, wants just the opposite of the typical venture capital operation. A VC fund is operated by a team of professional asset managers backed by limited partners as part of a financial return strategy. Much like the average investor in stocks and bonds, one doesn’t tell his mutual fund manager what to do. Like the average investor, limited partners often want little or no connection to the assets managed. They seek capital gains, not strategic or operational benefits.

This distinction was not always so clear. In the heat of the late 90s, corporations caught the private equity bug and many large companies entered the venture game—with or without venture experience. Companies often targeted companies not strategically aligned in product or service. It didn’t end well and many of these initiatives terminated. Today, I see corporate investors making significant efforts to ensure business unit alignment—seeking an operational benefit in addition to a financial one.

Today, corporate venture capital is experiencing a renaissance, but one more circumspect than in the past. This marks the strongest year since the crash of 2000. According to National Venture Capital Association, corporate venture groups invested $5.4B in 2014 accounting for 11% of all venture dollars invested.

Large corporations are playing an increasingly critical role in financing important technologies. There is a distinct lack of non-strategic investment in vital sectors such as Cleantech, Agriculture, Material Science and Advanced Manufacturing. (Cleantech investors themselves want more competition.) Because companies in these sectors tend to be capital intensive, with extended sales cycles, financial venture firms are straying back to traditional areas of focus such as Infotech.

Fortunately, strategic investors have stepped in where financial investors have exited. This is important. Many of these companies are commercializing breakthrough innovations that benefit mankind. Government research dollars alone cannot bring them all to market. I’m reminded of a cover of MIT Technology Review featuring Buzz Aldrin saying, “You promised me Mars Colonies. Instead, I got Facebook.”

 

Types of Strategics

Many entrepreneurs in underfunded sectors ask how to work with strategics. Just like other types of investors (angels, family offices, venture capital firms, etc.) there is a wide spectrum. They don’t all approach deals the same way.

Many strategic investors begin by making investments from their balance sheets through operating divisions within the company. This important activity may not be captured in the industry statistics, which represent more formalized venture funding.

Other firms set up a separate venture capital unit, in some instances as a separate corporate entity or business unit. This is done for a variety of reasons including internal organizational considerations for the strategic, but it is also done to address a key concern of the entrepreneurs, such as, “Will the strategic attempt to tie me up in some way?” Separate venture capital units are designed to avoid these concerns.

In most of strategic transactions, the investor seeks some special rights in addition to the purchase of equity. These can come in the form of distribution and supply agreements, license agreements, exclusive rights to product/technology, right of first refusals (ROFRs) for sale of the acquired company, preferred pricing arrangements and so on. It is critical for the entrepreneur and any co-investing financial investor to understand the implications of the agreement before beginning discussions with a strategic. These terms can make a significant impact on a company’s ability to pivot, its opportunity to exit, and ultimately its valuation.

For example, most venture capital funds will advise their entrepreneurs that ROFRs are a non-starter—and with good reason. A right of first refusal in the sale of the company can make a competitive bid or auction process entirely impractical. Why would a competitive buyer delve deep into diligence if they know the company holding the ROFR can sweep the deal away from them at the last minute? The potential buyer will also wonder how deeply entrenched the company is with the strategic owner and be concerned with competitive disclosure issues. The ROFR can restrict an entrepreneur’s ability to maximize value in an exit and inhibit a true auction-like environment.

Remember the objective of most venture-backed companies is extraordinary returns, not average returns. From the perspective of the entrepreneur and the non-strategic investors, it is not about seeking a fair price in an exit, it is about getting the best price possible.

 

Separating Equity from Everything Else

Many strategic investors in formally run venture capital units do not necessarily seek to become eventual acquirers of the companies in which they invest. And they often avoid conflicts such as ROFRs. Strategic and operational gains can be found in other ways.

For example, the gain can be a customer, distributor, supplier, etc. It can be first to market with a new technology. A distribution or supply agreement can be of great benefit. For example, imagine a small company that quickly gains access to global distribution of a large corporate enterprise. Therefore, a key consideration is the value of any arrangement outside of or in addition to the exchange of equity.

It’s important to account for any exchange of value above-and-beyond the equity. For example, a license provides value via access to technology. Such agreements often include upfront payments and royalties for the value of the technology to the strategic. A company will want to clearly capture and specify this value.

 

Too Many Cooks

An entrepreneurial venture will require multiple types of investors over time. If an angel, a venture capital firm, and a strategic invest in the same company, how do you ensure they have equitable value especially if the strategic is getting “extras”? On the one hand, access to the emerging company technology might provide the strategic a major competitive advantage in the marketplace. Then again, the strategic investor might bring added value that the angel investor can’t. What is one to do?

The answer is to account for each unique benefit with a discrete standalone agreement, separated from the equity arrangement. For example, if there is access to technology, then structure a separate license agreement. On the flip side, if the strategic is providing access to new markets, a distribution agreement might help ensure fair compensation for selling the company’s product. In other words, price “extras” separately where possible.

At some point, equity interest and operational interest may diverge. For example, a strategic may at some point elect to exit an equity position, but might still want to have an operational relationship such as a license with the company. If those are intermingled in the original agreement, separating them may become a challenge.

In short, meticulous accounting is required for operational and strategic benefits. They need to be valued separately from the price of equity. After all, the price paid for equity involves a fair exchange in percentage ownership in the company just as provided to any other investor.

 

GO TO PART II

Larry Hayward Photo

Venture Lab Logo

Laurence Hayward | lkh2@theventurelab.com | VentureLab | 2100 Sanders Road | Northbrook, IL 60062

This article is abridged from News From Heartland and TheVentureLab.

Copyright 2015. The VentureLab

Image Credits – Parker Brothers via MS Office, Laurence Hayward

Subscribe to Larry’s articles at http://theventurelab.blogspot.com/

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.

.Copyright © 2016 John Jonelis – All Rights Reserved

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CANCER STOPPER

Cancer Treatment from MS Office TEssential Biotechnology –

New Treatment for Hard to Treat Cancer

Jayson Kurfis

A protein, CRR9, serves as a nexus for tumor cell survival. It’s located on the cell surface, making it an accessible drug target. By developing antibodies to the CRR9 protein, Essential Biotechnology has devised a method to kill therapy-resistant tumors. Continue reading

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