Cashing In


By David Perloff
and Pat Sherman/
Photos by Brevin Blach
and John Mireles

Angels don’t need wings to help businesses fly. They need money and expertise. The private investors of the non-profit Tech Coast Angels (TCA) have both-and they give them to entrepreneurs.

“Our purpose is to facilitate (TCA members’) ability to invest in early-stage companies,” says Stephen Flaim, president of TCA’s San Diego network.

By analyzing companies and constructing their term-sheets (documents that outline the value of a company and the means by which an investor can buy in), TCA provides entrepreneurs a roadmap to fundraising.

For an entrepreneur, such assistance from a seasoned veteran-one who has not only the wherewithal to write a check for $25,000 but also a network of colleagues who can do the same or more-can feel like a heaven-sent gift.

The help doesn’t stop there. TCA members/investors also mentor entrepreneurs, guiding them through fundraising and beyond, in some cases directing them toward either another round of financing or the sale of the company.

With roughly 300 members spread across five Southern California chapters, TCA is the nation’s largest angel investment network.

“We’ve invested over $100 million of our own money,” says Flaim. “The companies we’ve invested in have gone on to raise over a billion dollars in follow-up financing.”

Despite all the cash they put in, however, TCA members don’t strike gold every time: Flaim notes that getting a good return on one in 10 investments is a solid track-record. About one out of every 100 investments, he adds, becomes a “massive deal.”

“We had a company we invested in seven years ago called Green Dot, which owned the technology for rechargeable gift cards, basically. That went public, and the people who invested at the very beginning got 180 times their investment back. They are very happy.”

“Very happy,” in this case, describes the feeling one gets when an investment of $25,000 (the minimum chunk a TCA member can cough up for a deal) yields a return of $4.5 million.

The next investment on track to make TCA members very happy is AnaBios Corporation, which has developed technology enabling researchers to conduct drug trials on human tissue, versus human subjects. Previously, researchers who had proven the efficacy and safety of their drugs on animals would then have had to take a leap of faith (and cash) to begin testing on humans, which Flaim says is expensive.

“You need to plunk down the $5 million it’s gonna take to do the first human clinicals, and a lot of times those fail,” he says. “What these guys are doing is exciting for the fact that it’s going to help a lot of companies basically get drugs to the market quicker and cheaper.”

(Somebody loan me 25 grand, quick.)

Less-wealthy, non-angel San Diegans also have something to be excited about.

“Anabios will get a lot of contracts,” Flaim says. “They’re going to hire a bunch of people, so we’re going to see jobs created around that company here in San Diego.”

Putting together deals of this magnitude must take some brainpower, but Flaim doesn’t regard himself a genius.

“I’ve never considered myself to be very smart,” he says, “but I realize that I’m willing to roll my sleeves up and work. If you want to be successful, even more now than ever, you have to be willing to work for it.”

Meet five entrepreneurs whose hard work has paid off in the form of investment from TCA, angels who not only write checks... but also take entrepreneurs under their wing.

Capital Gains
A number of successful, San Diego-based companies received an early cash infusion from the Tech Coast Angels’ (TCA) San Diego network. Here, company founders and executives share how TCA was indeed an angel on their corporate shoulder-helping to launch their products and technologies or boost their business to the next level

A Scent to the Top
Fledgling fragrance innovator passes the smell test

In 2007, the budding San Diego fragrance and flavor ingredient manufacturer Allylix wowed a group of local TCA members-so much so that they encouraged members of the Pasadena Angels and the Life Science Angels (not part of the TCA) to join them in investing more than $3 million in the company.

“That was the key funding round for us to be able to start scaling up our platform and getting our products closer to market,” says Allylix’s chief executive officer, Carolyn Fritz, who joined the company in 2004.

In 2010, TCA spritzed another $2 million at Allylix as part of a venture capital round of nearly $9 million.

“Not only did they give us a good, solid initial investment, but were there to help us continue to build,” Fritz says.

With 22 employees and a research facility in Lexington, Kentucky, Allylix manufactures a class of organic compounds known as terpenes, which are produced naturally by a variety of plants.

While terpenes are found in oranges and grapefruit, extracting them from citrus is expensive. Allylix produces its terpenes more economically, using yeast strains fermented in stainless steel tanks. Its first two terpene-based products, valencene and nootkatone, are used in the manufacture of products ranging from citrus-flavored sodas to household cleaners and high-end perfumes.

The company is currently developing a replacement for DEET, an active ingredient in insect repellents that can cause skin irritation and has been linked to seizures.

“We believe there’s a significant opportunity to provide substitutes that are safer and equally effective,” Fritz says.

Gaining a Foothold
Angels give lift to a local company’s shoe insoles

When Thomas Pichler decided to launch his company in 2002 (in the shadow of the dot-com crash), big-time investors weren’t racing to put their money in untested shoe supports.

“The bigger venture capitalists who like to give a few million were pretty much dried up,” says Pichler, chief executive officer of Orthera, a manufacturer of medically engineered orthotic shoe insoles. “If your friends and family don’t have a lot of money, you’re basically looking for angel investors.”

Pichler found one in TCA.

Orthera’s insoles offer an affordable alternative to the pricey custom shoe orthotics prescribed by doctors, which, though effective, are rarely covered by health insurance. “They can cost anywhere from $200 to $600, and that’s a lot of money,” Pichler says.

Orthera insoles cost around $15 a pair.

Pichler’s initial pitch to TCA in 2004 was well received but did not result in funding for the Harvard Business School grad. Undeterred, Pichler stayed in touch, providing TCA with updates every couple months. He took their advice to heart, building the business and his client base before interviewing with TCA a second time.

“They went through all the levels of due diligence, talked to different customers, looked at the books and everything around it,” he says.

In the end, TCA invested $250,000 in Orthera, allowing Pichler to grow his business.

As a condition of his recently inked contract with one of the largest warehouse retailers in the U.S. (which Pichler chooses not to name), Orthera moved its production stateside from Colombia. It also went from fewer than 20 employees to about 100 at its production facility off Miramar Road and Interstate 15.

“We’re probably (making) three or four times last year’s revenue,” Pichler says. “We’re probably one of the fastest-growing companies in San Diego right now.”

Swarm Wishes
Data-mining entrepreneurs strike gold

Since launching Swarmology at the end of last year, Malcolm Bohm has raised about $750,000 for his company-the majority of it from TCA.

The company analyzes conversations taking place across social media networks, providing a context for the digital dialogue that can serve as an invaluable marketing tool.

“It’s strategic market intelligence from social media,” says Bohm, Swarmology’s CEO.

Swarmology first garnered buzz in the healthcare industry, which sees the technology as a way to enter into existing conversations about healthcare taking place online.

“Ninety-one percent of U.S. adults look for health solutions on the Web,” says Bohm, who previously served as a global development team leader for Viagra. “Over 30 percent of them are talking about health solutions in the social networks.”

Initially, TCA members didn’t swarm around the concept-Bohm first had to prove himself.

“I was prepared to do this great presentation,” Bohm says. “I got there and one of the guys came over and said, ‘We prefer to just talk.’ So I sat down at this long table with all these new faces, and we had a quick Q-and-A session. It was challenging-these are pretty sophisticated individuals.”

Bohm and his partners eventually passed muster, earning the confidence of TCA. Beyond the money his company received, Bohm says he gained much insight.

“Angel funding is actually a very important early step for smoothing out the model for companies at our stage,” Bohm says. “(TCA) certainly wants to put their hands in and give you the opportunity to take their assistance. What they don’t do is force themselves on you.”

Shocking Success
TCA member taps into own network to lessen IED blast impact

When Doug Giese was seeking a cash infusion for his company, AgileNano, he needed look no further than his fellow TCA members-who invested about $600,000 in his company.

AgileNano produces an energy-absorbing liquid-and-silica mix that is used in athletic shoes and military helmets. The product, named AgileZorb, has proven particularly helpful in reducing the blast impact of an improvised explosive device (IED).

During such a blast, the liquid is forced into the normally empty pores of the silica, absorbing and then releasing a significant amount of the pressure and vibration that would otherwise be transferred into a soldier’s body.

“Hundreds of thousands of soldiers have been affected with traumatic brain injury,” says Giese, noting that helmets made with AgileZorb were tested via lab blasts conducted on crash test dummies. “This material appeared to be a really good way of absorbing high-energy blasts, so we focused on the military market.”

The technology was invented by Dr. Yu Qiao, UCSD Associate Professor of Materials and a member of AlgileNano’s management team.

Though Giese usually dispenses advice to TCA beneficiaries, he says fellow members served as “a good sounding board and second opinion, bringing up things I may not have thought of.”

Giese says he ultimately wants to, “as the angels say, have a nice, profitable exit-sell the company for a good amount of money.”

One to Watch
New technology reduces video surveillance energy needs

TCA beneficiary MicroPower Technologies manufactures wireless data transmission systems that can transmit video footage while using up to 95 percent less energy than current technology.

The company’s first target applications are video surveillance cameras used to monitor freeway traffic and parking lots, which currently require either bulky batteries and large solar panels or power cords laid beneath the concrete.

Brad Wallace, MicroPower’s founder and chief operating officer, says his cameras require dramatically less energy thanks to the hardware’s design and a proprietary wireless link that makes video transmission more efficient.

“Video is the biggest bandwidth hog and the biggest challenge in doing wireless,” Wallace says. “We operate on the Wi-Fi band, but it’s non-specifically Wi-Fi; Wi-Fi is power-hungry.”

Wallace says the 4-inch by 10-inch solar panels used on his outdoor cameras (and the batteries used inside them) are also nearly 95 percent smaller, requiring no outside electricity or cabling. “They can accomplish the same thing for one-tenth the (normal installation) cost,” he says.

Though Wallace says the U.S. Department of Justice is interested in utilizing his technology, when he and co-founder Jon Siann launched MicroPower in 2008, venture capitalists still reeling from the stock market crash were looking for companies further along in development.

“Gone are the days where the venture capitalists will fund a concept on the back of a napkin,” Wallace says. “They like to see proof of concept-and revenue. The sweet spot for angels is to come in earlier: They’ll take more risks, but they’ll get a better (return).”

After filling out an initial funding application through TCA’s website and meeting several times with the group’s investors, Wallace and his partner secured $365,000.

“They were willing to take the risk without much more than our laboratory testing and being able to convince them our product would work without an actual prototype. That takes a lot of faith.”

Wallace says the potential applications of his technology are limitless and include providing police officers and other emergency responders with a wearable camera the size of a Bluetooth headset that is capable of transmitting live video anywhere.

In the future, Wallace sees MicroPower moving away from manufacturing and into the sale of its technology.

“We’re kind of looking at the Qualcomm business model,” he says. “They introduced products that proved their technology worked. Now, it doesn’t make any of those products.”