01 Sep Entrepreneurial Profile: Kelly Henrickson, founder of Prodesse, Inc.
One day back in 1992, someone telephoned Dr. Kelly Henrickson, Associate Professor of Pediatrics and Microbiology at the Medical College of Wisconsin (MCW), and offered to pay him $25,000 for 1 ml. of fluid with a monoclonal antibody in it.
Henrickson was happy to fill this order, and his customer was happy to have found a way to purchase monoclonal antibodies. “We had an assay that physicians were clamoring for,” Henrickson explained. The initial request was followed by a barrage of other requests, and soon Henrickson found himself operating a service laboratory out of his office.
Henrickson recalls that the policymakers at MCW supported his moneymaking endeavors by providing him with the services of a laboratory technician. If Henrickson’s new business proved successful, he promised to reimburse the college for the cost of his technician.
The new business, named Prodesse after the Latin word meaning “to benefit,” also promised to provide the college with a research grant to cover the cost of Henrickson’s labor.
“The clinical reference lab was very successful right away,” Henrickson recalled. After one month, Prodesse had earned enough money to reimburse MCW for the services of its lab technician. Six months later, Prodesse moved off campus into its own space.
Raising Cash to Finance Growth
After Henrickson had developed some confidence about his company’s viability, and after he had filed some patent applications, he decided to hire a professional fund-raiser to help him look for some angel money. The professional fund-raiser accompanied Henrickson to a couple of business lunches and brought him to a couple of venture fairs, where he was asked to give his pitch in less than two minutes. But neither Henrickson nor the professional fund-raiser, whose services cost Henrickson $1500, was able to convince anyone to invest in the fledgling business.
“So I went to a bank,” Henrickson said. “Banks will loan doctors money. They loaned me some money just on my name.”
Henrickson used his bank loan to rent 1,300 feet of lab space and to buy some equipment. Orders poured in, and Henrickson used this cash to turn his service business into a product company. After securing its new space, Prodesse began to manufacture kits and components that would allow customers to create the Hexaplex in their own laboratories, instead of paying Prodesse to create it for them.
The huge demand for Prodesse’s Hexaplex kits provided Henrickson with an opportunity to grow his company quickly, if he could find some way to obtain the cash necessary for expansion. It would have been convenient for Henrickson to obtain this capital from the bank that had provided his original loan, since he already had a relationship with those lenders. But Henrickson’s strategy for using debt to finance his company’s rapid growth was starting to make the bankers nervous. They told Henrickson that the only way they would feel comfortable making additional loans to his business was if he could show a three-year history of profitability.
“At that point I turned around the business,” Henrickson said. He reduced his company’s expenditures to below the level of revenue and kept it there for three years.
Once he had achieved three years of profitability, Henrickson decided to expand. In 1999-2000 he bought a piece of property behind American TV in Waukesha, and used a combination of loans and credit cards to build a completely new facility. “That was a lot of fun,” Henrickson recalled. “I love building things.”
In May of 2001 Henrickson’s company moved out of their “horribly cramped” 1,300 sq. ft. laboratory and into the new, much larger facility. By the end of 2001 the company had grown to eight employees. “Things were going very well,” Henrickson recalled.
Henrickson was proud that his company’s flagship product, Hexaplex, could detect the seven most common lower respiratory viruses, including several varieties of influenza. But he believed that if he could invest more time and money in research and development, his employees could create assays for detecting SARS, herpes, West Nile Virus, Bordetella pertussis, and the Epstein-Barr virus.
The bankers’ mandate of having three profitable years in a row, and encouraging Henrickson to grow Prodesse very conservatively, was preventing Henrickson from investing in the research and development of tests to detect these new diseases. So Henrickson turned to the Small Business Administration (SBA), which helped him guarantee additional bank loans.
Henrickson continued to feel bullish about his company’s future, but he was starting to become uncomfortable with the level of debt he had assumed. “Even though the company was growing, I was going deeper and deeper into debt on my personal signature,” Henrickson recalled. At its peak, Henrickson’s personal debt burden exceeded $250,000. “It was getting to be stressful,” Henrickson recalled.
Bring In The Angels
Although Henrickson wanted to bring in venture capital partners,
“I didn’t have time to look for money,” he explained. As an Associate Professor of Pediatrics and Microbiology Henrickson was responsible for seeing patients at least 10-12 weeks out of the year, and he was also responsible for running research projects at both MCW and Prodesse. He had three employees, and it took time to support everyone beneath him.
When someone suggested that Henrickson work with TechStar to raise angel financing, he jumped at the chance. “Oh yeah,” Henrickson recalled himself thinking. “Let’s get some money in here.”
Henrickson recalls that after partnering with TechStar, developing a professional business plan, and working with accountants to put together a set of financial projections, he was able to raise $1.5 million in venture financing from angel investors very quickly.
Today, Prodesse offers a suite of products that assist physicians in detecting the microbes responsible for a wide variety of illnesses, including: influenza, pneumonia, chronic cough syndrome, SARS, West Nile, herpes, encephalitis, aseptic meningitis, shingles, and chicken pox.
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Teresa Esser is a contributing columnist for the Wisconsin Technology Network and author of the book, The Venture Café. She can be reached at teresa@wistechnology.com.
The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.