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BUSINESSPosted on: Sunday, March 14, 2010
Challenges for venture capitalIsle summit focuses on attracting investors in tough climate
By Alan Yonan Jr.Advertiser Staff Writer
Hawai'i's venture capital community is bracing for another tough year, weighed down by continuedweakness in the economy and the disappearance of lucrative state tax credits for technologyinvestment.
VC investors from Hawai'i and the Mainland who gathered inHonolulu for a conference last week cautioned that the environmentfor capital raising probably will remain challenging for some time.
Hawai'i's venture capitalists closed four deals in 2009 valued at$10.3 million, the lowest amount in five years, according to DowJones VentureSources. That compared with $89.7 million in 12 dealsthe year before.
Nationally, there were 2,489 venture capital deals in 2009 totaling$21.4 billion, down from $31 billion the year before.
"I think it continues to be tough time for venture capital not just inHawai'i, but around the country," said Rob Robinson, founder andmanaging partner of Kolohala Ventures, Hawai'i's largest venturecapital fund.
Robinson, who moderated a panel discussion at the annual Hawai'iVenture Capital Summit on Thursday at the Hilton Hawaiian Village,said the Legislature's decision last year to cut back a technology taxcredit known as Act 221 dealt another blow to Hawai'i's reputation asan unfriendly place to do businesses.
"I think the Legislature has created the impression that Hawai'icannot be trusted as place for private investment," he said.
"In combination with the Superferry (closure), that's created an imagethat this is a terrible place to invest. I think we have to work reallyhard to overcome that impression."
TWO-MINUTE PITCH
The daylong VC summit, sponsored by the state-funded HawaiiTechnology Development Corp., brought together venture capitalistsand angel investors from Hawai'i and the Mainland, entrepreneurs
and representatives from local high-technology firms and other deal makers in the sector.
In a scene reminiscent of ABC-TV's "Shark Tank," entrepreneurs were given anywhere from twoto 10 minutes to make their pitches in front of investors attending the conference.
Each pitch was critiqued by a panel of experts. In the final round, three selected companies wereable to meet one-on-one with an investor behind closed doors.
In a two-minute pitch session, Justin MacNaughton, 38, laid out his company's plans to launch acar-share service that will allow visitors to rent cars by the hour via a kiosk in hotel lobbies.GreenCar Hawaii borrows its concept from Zipcar, the nation's leading membership-based car-sharing service, and adapts it to the visitor market.
MacNaughton and business partner Warren Doi, 40, are moving ahead with a pilot program forGreenCar Hawaii at the Grand Hyatt Kauai later this spring that will feature a fleet of four to sixFord Escape hybrid SUVs. GreenCar will charge an all inclusive rate of $15 an hour.
"GreenCar Hawaii is evolving a proven and successful business model by providing car-sharing tothe tourism and travel industry, one of the nation's largest markets," MacNaughton said during hispitch.
"We make money by providing cars for use by the hour with an all-inclusive service fee thateliminates the typical cost of paying for vehicle when you don't need it, gas, insurance and payingfor parking," he said.
"We're currently funded for the pilot program, but we're looking to have meetings with any of youout there to discuss a growth platform to take GreenCar Hawaii from an individual island market,through the state and beyond."
Panelist Christopher R. Hemmeter, managing director of Quest Hospitality Ventures, critiquedMacNaughton's presentation.
MacNaughton should have spent more time talking about some of the inconveniences in renting acar from a traditional vendor, Hemmeter said.
"What I didn't hear up front is what is broken down. It's always really interesting to me when Imeet someone who can identify something about the way things are being done that's broken,"Hemmeter said "That's got to get me first, and to say we can solve it in this way is the nextimportant step."
Other presenters included David Watumull, chief executive officer of 'Aiea-based CardaxPharmaceuticals; and Jeanette Hereniko, founder and president of AsiaPacific Films.com, anonline film library that streams films.
STATE HAS AN EDGE
Many of the morning panel discussions focused on the challenges Hawai'i faces in developing arobust venture capital community in an area so far from the established technology and financingcenters.
But there also was widespread agreement about where the state has a competitive advantage:renewable energy.
Kolohala Ventures' Robinson said Hawai'i's progress in developing technologies to harness solar,wind, ocean and geothermal energy will help attract venture capital at a time when investors arebecoming more choosy about where to put their money.
"I think renewable and sustainable technologies is a definite bright spot for Hawai'i," Robinsonsaid. "I think that if we're going to establish a local center of excellence in any industry, that is oneis that has the highest chance of success."
Darren Kimura, founder of the Honolulu-based solar power company Sopogy Inc., said the firmthat he launched in 2002 has expanded its operations to seven western states, including amanufacturing facility in Los Angeles and a sales and marketing office in San Jose. Its researchand development operation, however, remains in Hawai'i.
"Because of the type of company we are, we have an unfair advantage here in Hawai'i that youdon't find anywhere else in the world," Kimura said.
"In Hawai'i you have access to some of the best solar radiation year round with virtually noseasonality. If you can solve the challenges (of remoteness) the technology will work anywherearound the world. Because of that our R&D is in Hawai'i."
Sopogy uses mirrors to intensify sunlight and generate power as opposed to photovoltaic systemsthat use panels made from silicon cells that convert the sun's rays into electricity.
THINKING GLOBAL
William Reichert, managing director of Garage Ventures, an early-stage VC firm based in PaloAlto, said Sopogy is an example of a Hawai'i-based company that would be successful in anysetting.
"There are sort of two types of entrepreneurs from Hawai'i," Reichert said.
"One is the entrepreneur from Hawai'i who's clearly from Hawai'i. And the business model, theorientation, the focus is, 'We've got this thing we're doing in Hawai'i and its really cool and wethink we can build a good business doing this.' And from our point of view it's quite possible youcould build a good business doing that but your orientation is too narrow.
"The other type of entrepreneur from Hawai'i is a global entrepreneur day one. And it's a personwhose frame of reference is not Hawai'i, they just happen to be from Hawai'i and they happen tohave a team from Hawai'i but the frame of reference is global."
Reach Alan Yonan Jr. at [email protected].
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F r i d a y , A p r i l 9 , 2 0 1 0
Sopogy Inc. uses SopaNova mirrored collectors onthe Big Island to intensify sunlight and generatepower.
Sopogy photo
ANGEL OR VC?
Angel investors and venture capital providers aresimilar in that they invest in growth businesses in returnfor an ownership stake in the company and a degree ofinvolvement and control. They do, however, differ incertain respects.
• Source of funds: Angel investors, acting alone or inorganized groups, are usually wealthy individuals, oftenwith a successful entrepreneurial record, who investtheir own money. Venture capital funds are corporateentities that pool money from a range of institutionaland individual investors.
• Deal size: The range of angel investor transactions istypically $25,000 to $100,000 for an individual, and upto $1 million, or more, when acting in a group. Therange of venture capital transactions is large, fromaround $500,000 to $10 million, or above. Venturecapital may provide second-round financing after angelinvestors.
• Stage of development: The focus of angel investorsis typically earlier-stage businesses. Different venturecapital firms focus on different stages of businessdevelopment, but the unifying criteria is that they seekhigh growth companies capable of achieving exitstrategies that meet the fund's return criteria within aspecified time frame.
Source: LBO Advisers
Venture capitalist Christopher R. Hemmeter, left, talked withJustin MacNaughton, center, and Warren Doi of GreenCarHawaii following their presentations at the Hawaii VentureCapital Summit this past week in Honolulu.
NORMAN SHAPIRO | The Honolulu Advertiser
In his two-minute pitch at the Hawai'i Venture CapitalSummit, Justin MacNaughton of GreenCar Hawaii toldinvestors he wants to meet with them "to discuss a growthplatform."
NORMAN SHAPIRO | The Honolulu Advertiser
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