On the Scene: Angel Oregon 2011

sceneblogbwThe room was packed to standing room only at Wednesday’s Angel Oregon 2011 event at the Governor Hotel, with equal parts entrepreneurs looking for backing and investors looking for opportunities.

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By Ben Jacklet

The room was packed to standing room only at Wednesday’s Angel Oregon 2011 event at the Governor Hotel, with equal parts of entrepreneurs looking for backing and investors looking for opportunities.

State Treasurer Ted Wheeler applauded the turnout and urged for more participation still, noting that only about three percent of high net worth individuals are involved in angel investing to spur promising young companies to success. Wheeler presented a detailed plan to increase participation, and to jump-start the state’s still-sluggish economy. He also asked a few tough questions of attendees gathered to judge young companies seeking funding.

“Do we have the guts to pick winners and losers?” asked Wheeler. “Oregon is a very democratic state… but in the business of picking winners and losers it’s okay to use a non-democratic model.”

Wheeler also made some stark admissions. He admitted that the Oregon Growth Account, a state program to boost local companies, “has not delivered… It’s tough for me to make the case that negative 8 percent is okay.”

Wheeler also made a stark (and somewhat unfair) comparison between Oregon universities and the Massachusetts Institute of Technology, an institution that has generated thousands of high-performing businesses. “Do we support higher education to the degree that we should in Oregon?… My answer is no, we do not.”

Having openly admitted to the huge amount of work to be done to improve Oregon’s business landscape, Wheeler closed by pledging “to help create the best environment in the nation for small and emerging businesses.”

Then came the chosen presenters, who agree to endure the stress of pitching their companies in public in return for exposure and, with luck, money.

Round One: Windows and Coffee Makers

The first young company to present was Indow Windows, an eight-employee operation in North Portland founded in March 2009. The company designs and builds cut-to-fit window inserts that improve a building’s thermal efficiency. It’s a market with great potential, considering how many middle class families living in older homes pay huge heating bills due to inefficiency.

Indow Windows CEO Sam Pardue lugged a display model up to the stage for his presentation. He decided to start the company after getting frustrated with the leaking windows in his 100-plus-year-old home in Northeast Portland. “They just let cold air float in, and my heating bills just float out.”

He attacked the problem until he found a solution: a tough, custom-fit insert that you press in place on the inside of your window.

“It’s a huge issue we’re trying to solve here,” said Pardue, noting that 55 million residences in the U.S. still have single pane windows. The company’s projections call for big growth over the next five years to $25 million in revenue.

Indow has identified a strong market in home performance contractors hungry to offer customers a solution to the problem. Neil Kelly, Imagine Energy and other large players in the Portland market have signed up to carry the product.

“We have great product advantage,,” said Pardue, “but can we sustain it?” Another question: Can they scale up and develop an efficient delivery model for new markets outside of Portland?

The business is seeking $1 million in growth capital. “We’ve been off to a great start with phenomenal response,” said Pardue. “We think Angel Oregon would be the ideal partner in this journey we’re going on.”

John McCalla led the due diligence team that looked into Indow Windows. He said they found customers were excited about the product and the leadership team was experienced and well positioned in a market with huge consumer interest.

McCalla also expressed a few concerns, such as the team’s limited experience in the building trades industry, and the lack of a true specialist in manufacturing and operations. Pardue said Indow is recruiting for an operations manager and is very close to making a hire.

The next company to present was Vancouver, Wash.-based Hourglass Coffee, a two-person business founded in 2007.

Hourglass has created a patented coffee maker that brews java without heat or electricity to create “stomach-friendly” hot or iced coffee drinks at home.

Sales director Kim Kapp said the product targets the 40 million Americans who have difficulty handling the acidity of coffee. She describes it as “something new in an already successful business.”

Kapp said that coffee brewed Hourglass style contains 69% less acid, 82% less “cholesterol-elevating compounds,” and 59% less tannic acid (which erodes teeth enamel).

Kapp also pointed to a huge business opportunity in helping people to make gourmet iced coffee at home.

The Hourglass currently sells at Whole Foods, Sur la Table and Kitchen Kaboodle but sales have been minor thus far – just $188,000 in 2010. Kapp expects that to change quickly, with growth projected to $11 million by 2013.

Sara Conte led the due diligence team that investigated Hourglass. She praised the company for developing a great product that could become part of a trend and for breaking into strong markets. She also expressed a concern about the leadership team’s relative lack of experience, their part time status and the lack of a CEO.

Hourglass has identified a CEO who is expected to begin soon. The business is seeking $480,000 from investors.

Round Two: Mobile Technology Startups

The second round of presenting companies moved back into the tech world with GlobeSherpa and 4-Tell.

GlobeSherpa is a two-person Portland-based mobile ticketing business that enables commuters to pay for and use public transit tickets, plus plan trips, with their smartphones. The company will begin partnering with TriMet in July 2011 and is seeking $750,000 to develop its technology and expand market share.

GlobeSherpa CEO Nat Parker made a strong pitch that his company’s cheaper and more robust than the systems in place – and better at preventing free rides: “Ticketing should be easier. Transit riding should be easier. Especially in Portland, where we’re standing in the rain.” In his view, mobile is the solution. “What the cell phone did to the phone booth, Globe Sherpa is going to do to the ticketing machine.”

The GlobeSherpa plan is to make money through commissions and licensing fees, going from $141,000 in 2011 to $7.4 million in 2014.

4-Tell is another small mobile software company with big plans, just four employees based in the fast-growing Columbia River Gorge town of Stevenson, Wash. The company specializes in customer recommendations – if you liked this, you would probably also like this. It’s a technology platform for web, email, social media and mobile devices – and could also work at in-store kiosks.

Founded in 2009, 4-Tell has received $248,000 from investors including Vesta CEO Doug Fieldhouse, Digimarc CEO Bruce Davis and Insitu CEO Steve Silwa.

4-Tell’s energetic CEO Ken Levy pointed out that 35% of Amazon’s revenue comes from recommendations, and there is a huge market in helping mid-sized businesses whose online retail machines are not as smooth as Amazon’s to gain similar advantages.

The company has paying clients including Columbia Sportswear and expects to be cash flow positive by end of year.

Round Three: Beans and e-learning

The third and final session brought out the third product company of the day, the Better Bean Company, followed by the third tech company, OpenSesame.

The Southwest Portland-based Better Bean Company was founded in 2009 with a mission to bring easy-to-cook fresh beans to market rather than the usual canned mush or rock-hard raw legumes. The product is already selling in 25 local stores including Whole Foods and New Seasons Market.

Better Bean President Keith Kullberg made a strong first impression by asking the audience, “When’s the last time a friend of yours called up and said, ‘Come on over for dinner. We’re having canned beans tonight.’”

He called beans “one of nature’s best health foods” but pointed out correctly that canned beans have inferior flavor and texture. His company hopes to solve that problem and has already completed product development, established manufacturing and sold 17,000 tubs of beans in its first year.

Kullberg said the $1.6B wholesale canned bean market could be upgraded into a new, premium market and grow larger than it was previously. “Think Sanka becomes Starbucks.”

If that happens Better Bean could grow from $400,000 in 2010 revenues to $24 million by 2015. That could make for yet another specialty foods success in Oregon, in the tradition of Kettle Chips, YoCream, Oregon Chai.

The final presenting company of the day was OpenSesame, a nine-employee technology business founded in June 2010, focused on setting up an online market for e-learning courses.

OpenSesame CEO Don Spear got the attention of the audience early by comparing the business to Amazon or eBay and pointing out that the revenue model would be identical to that of the iPhone app store.

Online courses are proliferating. The problem is, sellers have a hard time finding buyers for online courses. There are thousands of buyers but they don’t have one organized place for searching. It’s a fragmented market, and Spear pointed to huge opportunity in bringing it to order.

He said the potential of the market was verified quickly after OpenSesame launched at an e-learning trade show. “Everyone who came to our booth instantly understood what we were doing and said, “Gosh, it’s about time. Why didn’t we have something like this sooner?’”

OpenSesame has raised over $1.5 million so far and is looking for an angel round of $1 million. The business has acquired over 1200 online courses and just received several hundred more on the day of Angel Oregon.

While audience members waited for the final vote results from investors, they got to mull over data about the 40 Angel Oregon alumni businesses that have presented since 2003. Of those 40 companies, eight have closed shop, five are on shaky ground, five are on an accelerated growth track and four have had “positive exits,” making money for investors.

Who will be the next success story? The investors who voted at Angel 2011 are putting their money on OpenSesame. Their investment is sure to lead to others, creating jobs and generating economic activity at a time when we desperately need more of both.

Ben Jacklet is managing editor of Oregon Business.