Posted by Richard Gabriel on Thursday, July 29, 2010 @ 12:00PM
By Richard Gabriel
I live in Massachusetts and let’s face it; we live in what is perceived to be a high tax state. Whether this belief is true or not we share that belief of high taxes with California, New York, New Jersey and Michigan. On the other hand Florida, Texas and North Carolina, among others share a different belief and it is reflected in each states approach to funding of Life Science companies. And each of those states would kill for the concentration of Life Science, technology and educational institution that we enjoy with California and the other so called high tax states.
Sure, taxes in Massachusetts and the overall business environment for start up companies are less than ideal. There is frankly, no comparison between the incentives being offered in Florida and Texas for start up companies to move to those states and start their businesses. Some entrepreneurs have moved to these states and have taken advantage of the help, financing and favorable state environments. Each time a technology leaves Massachusetts heading for more fertile pastures, we lose jobs, tax revenues and population, which in turn decreases our real estate values, creates more stress on our commonwealth to raise taxes even more, it’s a vicious cycle and yet we sit on one of the greatest natural intellectual resources in the world and have yet to figure out how to fully mine its fountain of bubbling opportunities.
However, in my last blog, we talked about a new funding model for biotech and the life sciences industry and we received hefty responses from VC’s that were interested in exploring a new way of funding. Some ideas that we kicked around included a new ‘fund’ that would have a longer time horizon, attract a more patient and less capricious group of investment partners that weren’t demanding a 5 year exit with double digit returns per annum, but rather a combination of long term debt, mixed with long term equity investment.
How would such a fund work? Well a possible appropriate debt to equity ratio should be 1 to 4. Every dollar in long term debt at a reasonable interest rate is backed by 4 dollars in equity. This ratio, provides the limited debt partner with the interest only coverage for the life of the debt, which in Life Sciences, should be no less than 10 years. Additionally, expecting a short term double digit return on a Life Science equity investment is, frankly, ridiculous. Not only does it place an unfair burden on the entity that is being formed and its management, it is an unfair hurdle and it’s artificial to the practical operations of starting and running this type of business.
Well then, what about the risk? How is a venture fund ever to make any money? All these choices have their pluses and minuses and are self evident. For the entrepreneur, think, Steven Jobs, Michael Dell, Bill Gates and not a veteran of multiple start up companies, all of whom have, by now, failed, been swallowed or otherwise disappeared and, if alive, are headquartered in another part of the country. Perhaps the alternative though of invest big, hold, pay dividends and interest or buy back the shares at an appreciated rate that reflects the true value of the business that was built has some merit today? Take a look at the valuation gaps between a pre-clinical candidate and the sums of money paid by Pharma for Phase 2 & 3 compounds, the gap is astronomical and it is that gap that tells us or should tell us that the current model is wrong
We should be looking more carefully at the broken institution of funding our start ups in our state and instead of letting Texas, Florida, North Carolina and California pirate our technologies and people away, find a way to fund them and keep them here. Build businesses and jobs and people will start coming back to Massachusetts or perhaps they won’t even leave after they graduate! Got any ideas? Write us. We’d love to hear from you.
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Richard Gabriel is head of the Life Science practice at Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Private Equity funds-under-management and technology diligence services. Semaphore currently holds fiduciary obligations as General Partner for six Private Equity and Venture Capital funds and advises General and Limited Partners as well as Corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.
Posted by Jon Klein of The Topline Strategy Group on Thursday, Feb. 25, 2010 @ 10:45AM
By Jon Klein
Though only 177 of the total 258 Olympic medals have been awarded so far, with Germany and the United States still battling for medal supremacy (as of February 23, the US had 26 medals and Germany 23), the real winner of the 2010 games has already been decided : American entrepreneurism.
From 1964 until 2002, the United States' performance in the Winter Games could only be described as dismal. During that period, the US ranked no higher than 3rd and as low as 9th in the medal count and only earned between 5% and 10% of all medals awarded.
US Winter Olympic Performance Lagged from 1964 to 1998, but Has Improved Dramatically Since
However, US fortunes started to change in 2002, when the country ranked 3rd in the medal count and won an impressive 14.5% of the medals awarded. In 2006, the US rose to 2nd in the medal count and as of February 23rd, US performance at the 2010 Games has hit its highest water mark since 1952, ranking 1st in the medal count and winning 14.7% of the medals.
So what happened to transform the US from Winter Olympics straggler to the champion of the games? If you think the reason is that a group of premiere Luge academies and Biathalon camps were established in the US to improve our training, guess again. The answer is that over the last 20 years, the US has innovated its way to the top of the medal count. Of the 15 Olympic sports contested in Vancouver, one-third of them made their Olympic debut during or after the 1992 games: Snowboarding, Freestyle Skiing, Short Track Speed Skating, Skeleton, and Curling. The three of them that award the most medals (Snowboarding, Freestyle and Short Track) were primarily invented in the US and the US remains the unquestioned leader in these events.
2010 Winter Olympic Sports by the Year They Debuted in the Olympics
Notes: Despite Skeleton's presence in 1928 and 1948, the more relevant year for this analysis is 2002, the date it returned to competition. Mass Start Speed Skating, the forerunner to today's Short Track, was the popular form of the sport in the US and included in the 1932 Lake Placid games.
The impact of these events on US performance cannot be overstated. Of the 2010 medals awarded in these sports, the US has won an astounding 25% of the total. Without them, instead of ranking 1st in the medal standings, the US would be tied for 2nd with Norway, 6 medals behind Germany.
Performance of the Top 3 Medal Winners by Date the Sport Debuted in the Olympics
So what does this all mean? First, it means that we get to mingle great entertainment with national pride. For me, the highlight of the Games has been Shaun White winning the Half Pipe with a performance head and shoulders above everyone else. Second, and more importantly, it is a reminder that the strength of our country comes from our entrepreneurial spirit. These sports were invented in the US and through the hard work and dedication of the sports' innovators, generated a worldwide following that ultimately led to their inclusion in the Olympic games.
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Jon is the founder and general partner of The Topline Strategy Group, a strategy consulting and market research firm specializing in emerging technologies. Jon brings a unique blend of strategy consulting and hands on operating experience to The Topline Strategy Group and works closely with Semaphore on a variety of engagements.