It’s the best of times … and the worst of times.
Best, in that participants in this year’s Wharton School Business Plan Competition represented an unusually diverse number of industries, ranging from alternative energy and pet health insurance to medical devices and wireless mesh networking equipment.
Worst, in that the ability of entrepreneurs to raise seed money from venture capitalists is distinctly hobbled by a dismal economy and, not surprisingly, an equally dismal venture capital industry.
Consider the experience of the team that won last year’s competition. “I underestimated how tough it would be to raise capital in the northeast corridor,” says Onne Ganel, a team member of 2002’s first place winner Envisia, which has since changed its name to MicroMRI. “I haven’t heard of one company that has raised seed funds in the last year. Nobody is getting any new money.”
For MicroMRI that has meant coming up with “creative strategies” to continue developing its virtual bone biopsy (VBB) add-on device for existing MRI scanners. For example, the company has teamed up with a major pharmaceutical to sponsor a pilot trial; it is also entering into a strategic alliance with a contract research organization to perform the clinical trials, and has applied for several grants in addition to raising funds from family and friends. Two of the original four team members have dropped out to take fulltime jobs.
Although Ganel, who graduates from Wharton’s MBA program this month, is still talking to some potential investors, he advises others “not to count on the old VC model, because all bets are off.” The venture, he adds, “has been really hard work, but it’s fun. I have no regrets at all.”
According to the organizers of this year’s competition, the 2003 ‘eight great’ were chosen from a field of 151 teams representing 271 students. Only one Internet-related concept was among the finalists – a noticeable change from the 2000 competition in which seven of the eight finalists were either e-commerce or Internet-related businesses.
During the business plan competition venture fair on April 28, the eight student teams each had 20 minutes to make their case to a panel of judges drawn from Goldman Sachs, Johnson & Johnson, Flatiron Partners, Business 2.0, Flagship Ventures, Thomas, McNerney & Partners and Anthem Capital Management. Judges had an opportunity to question each team following its presentation.
The first place winner received $20,000. The second and third place winners received $10,000 and $5,000.
Here are descriptions of the eight finalists, in alphabetical order. The winners are announced at the end.
Air in Motion: AIM will capitalize on the growing demand for clean energy and carbon credits by promoting wind farm franchises and selling the resulting carbon credits.
Global installed capacity in the wind energy business nearly doubled from 2000 to 2002. While most of this development has been carried out by utilities, an untapped market remains: the independent entrepreneur.
To capitalize on these development efficiencies, AIM will market a standardized, pre-packaged development kit along with advisory services to local entrepreneurs for the development of wind farm franchises. The franchisee pays for the development kit along with fees for construction and other services. These fees are projected to grow to $4.4 million by the fourth year of operation.
Presenter Jacob Susman noted that Air in Motion can construct a wind farm in ten months rather than the two to four years needed for larger utilities. The average wind farmer would have 10 1.5-megawatt turbins on his or her site.
Biogenomix: Biogenomix is an early-stage drug development company focusing on advanced therapeutic treatments for vascular, inflammatory and infectious diseases.
Biogenomix has created a breakthrough Platelet Delivery System (PDS) that exploits the auto-regulated functions of blood components to deliver therapeutic proteins with specificity to injured locations. PDS platelets are enhanced to over-express therapeutic proteins that will begin their function once they have reached the injured areas of the body.
The platelets are transfused into the body and will continue to act as normal platelets until they have reached the proper destination at which point they will be activated and released, thereby eliminating the toxicity risk. The result is a drug therapy that is drastically safer, highly effective and significantly more economical than current treatments.
The $4.2 billion limb-threatening chronic wound care market currently serves as the leading opportunity for PDS.
FerroSolutions: FerroSolutions has begun development of a novel energy harvester to capture vibrations from the local environment and convert them into usable electric energy.
The device is approximately 1 inch x 1 inch x 0.2 inches. The FS energy harvester could act as an independent power source (similar to a battery) or as a battery charger. Power output will be in the range of 1-10 milliWatts, enough to run a low-power sensor.
FerroSolutions will earn revenues by selling energy harvesters to companies that design and build monitoring systems, as well as revenues from sales to corporations that would include energy harvesters in their products or in their manufacturing monitoring systems. This technology will allow engineers and designers a new degree of freedom in where they can place devices that consume electricity.
According to presenter Kevin O’Handley, the technology, which was developed at MIT, “can run a remote sensor, a small fluorescent light bulb or a tiny motor. It can, for example, help the U.S. Navy when repairs are needed for pumps, engines, motors and valves, and can do this inexpensively. It also allows the Navy to predict and prevent critical failures.” The heating, ventilation and air conditioning industry is another potential market for this device, he added.
FriarTuck: FriarTuck develops customer-centered event planning solutions and services supported by advanced scheduling software. Expertise in constraint programming technology enables FriarTuck to target a wide range of event planning domains. The first product line focuses on sports tournaments. FriarTuck is also conducting research and prototype development in the market of personnel rostering and course timetabling.
For the sports industry, the benefits include increased revenue as network packages are optimized, the scheduling process is shortened and fewer people are involved in the effort. For healthcare, better nurse rostering allows cost reductions due to lower overtime and potentially higher employer retention. In education, the benefits include better use of resources, including facilities and lecture time.
Presenter Ee-Ching Tay noted that while it currently takes program producers 24 hours to schedule the Atlantic Coast Conference (ACC) basketball tournament, FriarTuck’s technology could it do it a matter of seconds.
The high-end sports segment represents significant revenue potential. The media broadcast rights of the major sports leagues amount to $3.5 billion annually.
FriarTuck is currently building a strong sales and marketing team and strategic alliances with key industry players to maximize its reach.
JMesh Technologies: JMesh Technologies designs, markets and sells wireless mesh networking equipment to Wireless Internet Service Providers (WISPs), enabling ubiquitous wireless Internet access. Using proprietary algorithms and commoditized hardware components, JMesh will significantly lower deployment costs for network operators.
High-speed wireless (WiFi) hardware sales have been growing at 80% annually, reaching 11 million devices last year. JMesh products are WiFi-compatible and will scale to thousands of users, thus leveraging this rapidly expanding user base. Once established, JMesh will diversify into the “last-mile” market, enabling operators to offer high-speed Internet access to homes at significant cost savings over cable or DSL.
Nik Cell Target: Targatron: TargatronTM has the means to revolutionize the drug industry by providing the tools for delivering drugs to potentially any desired target cells. This will improve drug efficacy and greatly reduce, if not eliminate, side effects.
The company’s ultimate vision is to provide a vehicle to prolong life and reduce human suffering. While its immediate goal is to focus its efforts on the large yet greatly underserved lung cancer market, ultimately the company will pursue other disease targets.
Key to its success will be to align with strong strategic partners in the pharmaceutical and biotech industries. The main value proposition the company offers is faster and cheaper pathways to better and safer drugs. This will allow Targatron to become the pre-eminent innovative partner for developing cell targeting reagents, allowing pharma companies to replenish and expand their product pipelines.
PAWS Pet Health Insurance: PAWS is an insurance underwriting manager offering pet health insurance to the millions of pet owners who want to provide the best possible veterinary care to their cats and dogs.
PAWS offers simple yet comprehensive accident and illness pet health insurance to pet owners in the U.S. It appeals to people who see their pet as part of the family, who play an active role in pet disease and illness prevention and who prefer to budget small, regular amounts in order to avoid large, unexpected veterinary bills. PAWS operates as an insurance underwriting manager, i.e. a marketing company that pays an insurance underwriter to take the insurance risk, protecting PAWS against all insurance claim losses.
There are three main drivers for the exploding demand for veterinary services: First are the technical advances in veterinary medicine; second is the increasing humanization of household pets, where pet owners demand levels of veterinary care similar to human medicine, and third is a sharp rise in the number of households in which pets are substitute children.
A robust mix of policy features are based upon sound actuarial principles. These policies provide high-end cover along with innovative features not offered by other U.S. pet health insurance companies.
Renovex: Cardiovascular disease is the number one cause of death worldwide. Renovex has achieved the next generation in cardiovascular technology in its product, the Bioactive Stent.
Currently, the primary treatment for coronary artery disease is placement of a stent. The most common side effect is restenosis, occurring in 40% of the procedures. To combat this problem, many medical device companies plan to produce stents that release anti-proliferative drugs to destroy tissue that could potentially cause restenosis.
However, all current drug-eluting technologies have serious drawbacks. Also, they use a primitive ‘dip-dry’ delivery platform resulting in irregular and unpredictable drug release.
The Renovex Bioactive Stent overcomes all these limitations. Its novel loading technology provides a uniform, controlled release of its drug, enabling the company to guarantee long-term benefits in addition to excellent immediate results. Renovex has completed feasibility demonstrations in animal models that show its Bioactive Stent to be far superior to competitors’ technology.
Delving into the Unknown
And the winner?
PAWS pet health insurance, by a whisker (sort of), followed by Biogenomix (second place) and FerroSolutions (third place).
PAWS Team members include Natasha Ashton, Chris Ashton, Laura Bennett and Alex Krooglik – all of whom completed the Wharton MBA program this month, and Kevin Dalton, who is a second-year insurance PhD student at Wharton. Plus several cats and dogs, which is where the idea for PAWS originated.
After Natasha and Chris Ashton arrived from Britain in the fall of 2001 to start the Wharton MBA program, their cat Bodey became seriously ill. The veterinary bills came to more than $5,000. “We looked into getting pet health insurance in the U.S., but we couldn’t find an adequate plan,” says Natasha. “There were too many exclusions and the insurers cap a lot of the illnesses.” Even if the Ashtons had taken out insurance, their reimbursement would have been less than $500.
Pet insurance in the UK is far more common, say Chris and Natasha, who are married. Although the U.S. has 130 million cats and dogs, only $100 million worth of insurance policies are written. The UK, with its 14.5 million cats and dogs, has about $250 million in policies. In addition, more than 60 companies in the UK sell pet health insurance compared to five in the U.S. Finally, less than 1% of pets in the U.S. are insured, compared to 10% of pets in the UK.
While anticipating that it will take about $2.4 million to “get us into profitability,” the group is looking for an initial round of $500,000. Their business plan calls for PAWS to act as a marketing company working in conjunction with an insurance underwriter that agrees to cover the insurance risk. “We take the money we get in premiums, keep a percentage of it, and give the rest to the insurer, with the proviso that the insurer pays all the claims,” says Chris. Team member Kevin Dalton, who has started and sold his own insurance company, has contacts with potential insurers as well as investors, he adds.
Although the judges at one point suggested that the team consider increasing the money it has allocated to marketing, the group intends to focus on inexpensive marketing methods, such as using spokespeople within the veterinary industry, to help promote the product. The team has worked closely with the University of Pennsylvania’s veterinary hospital and the School of Veterinary Medicine.
Current pet health insurers have the obvious advantage of existing claims data, notes Chris, but PAWS has the ability to analyze raw data it has collected from veterinary clinics, primarily due to team member Laura Bennett, who has more than 12 years experience as an actuary. “This data is proprietary,” Chris notes. “It’s very hard to get … we did consulting reports for the clinics in exchange for it.”
All of the team members plan to work fulltime on PAWS when they graduate. Although they come from different parts of the world – the two Ashtons are British, Bennett is Canadian British, Krooglik is Australian and Dalton is American – they anticipate locating the company in the Northeastern U.S., possibly in the Philadelphia region.
They all recognize that challenges lie ahead. For Bennett, “the biggest short-term challenge is to get an underwriter to believe in us – a start-up they have never heard of and have no reason to trust that we won’t snow them under with higher-than-expected claims. I think our actuarial data and modeling, plus our contacts … should break through that barrier.”
For Natasha, the biggest challenge “is delving into the unknown. There is absolutely no security with this, no guarantees. But at the same time it’s such a tremendous opportunity. I don’t want to look back ten years from now with regret that we didn’t take that risk.”
And the challenging economic climate? “It’s probably for the best,” says Chris. “It makes you focus on every single dollar you have. You don’t go out and buy assets. You keep fixed costs low. I figure that if we can succeed in this economy, we will be well set.”