03 Oct Ralph Kauten on how to raise angel financing
“Ralph is one of the most successful entrepreneurs in the state, in the field of bioscience,” said Frank Langley, president and CEO of Point One Personal Genetic Systems.
But you’ll never get Ralph Kauten to admit that his success in high-tech entrepreneurship is somehow related to his own efforts.
“I’ve been lucky,” Kauten said in an interview. “I’ve been a lucky guy.”
When asked to share the personal habits that have contributed to his success, Kauten said: “Keep trying. Don’t give up. At any point in time, anything can be considered to be a failure. But if you keep trying, you learn something along the way.”
Kauten knows a thing or two about persistence. He became the CFO of Promega Corporation in 1979, when the company consisted of just two people. At that time, Promega “was running out of money and floundering,” Kauten recalled.
Desperate for cash, Kauten decided to raise $150,000 from wealthy angel investors. This was no small feat back in 1979, when the concept of established angel networks simply did not exist. But the opportunity Kauten offered was a good one. Today’s Promega Corporation employs over 700 people and has annual revenue in excess of $140 million.
In 1992, Kauten left Promega to start an “unauthorized spin-off” called PanVera Corporation (now Invitrogen). PanVera helped pharmaceutical companies lower the cost of creating new drugs by screening out drug candidates that don’t work. At PanVera, Kauten raised $4 million from angel investors and built the company into an extremely successful operation. In March 2001, PanVera’s investors received a healthy return on their investment when PanVera merged with Aurora Biosciences.
A few years after Kauten founded PanVera, some professors from the University of Wisconsin-Madison approached him about starting a new gene-transfer company, called Mirus Corporation. Kauten never joined Mirus Corporation as an employee, but he served as chairman of the board and advisor. After helping the professors write their business plan, Kauten helped Mirus raise $700,000 or $800,000 from a group of angel investors.
Kauten’s strategy for raising angel financing does not involve making presentations to groups of investors who market themselves to the general public. “I find going to people who don’t know me not very productive in terms of raising money,” Kauten said. “If people don’t know you, they’re not going to invest in you. But people can get to know you through your network. Networking has been essential for my success in raising money.”
Some of the people who have invested in Kauten’s various businesses over the years did not know Kauten personally, but they did know other people who knew Kauten.
When asked to share his strategy for raising money, Kauten said: “I follow the law. I take the same approach that an investment banker would take: Create a good business plan, and present that business plan to a number of people. It is very important to be up front and honest about the risks.”
The law Kauten referred to is Regulation D of the Securities Act of 1933, which establishes certain guidelines about how wealthy a person must be before they can invest in an early stage corporation. Investments in early stage companies are inherently risky, the law encourages investors to avoid risking any money they cannot afford to lose.
Kauten believes that before an entrepreneur can raise money from angel investors, they must establish a reputation for being trustworthy. “People put their trust in you, and you have to live up to the fiduciary responsibility that is being placed in you,” Kauten said. Being trustworthy means saying what you are going to do, and then finding a way to do what you said.
Kauten believes that it is important for entrepreneurs to keep their investors’ interests in mind when making business decisions. “People have entrusted you with their money,” Kauten said. “Do something that makes sense. Try to provide as good a return as you can while recognizing that you have other constituents as well, including your employees and your community. First and foremost, meet the needs of your customers.”
In 2002, Kauten joined Quintessence Biosciences, an early-stage biosciences company focused on developing novel cancer therapies. “What we think we can offer is a cancer cytotoxin that doesn’t have harmful side effects,” Kauten said. “We have early indications that that may be true. But you have to wait until you get into humans to see how that will respond.”
If everything goes according to plan, the solution being proposed by Quintessence Biosciences will be the perfect replacement for chemotherapy. “You could fight cancer and not have to turn your lifestyle upside down,” Kauten said. If the cytotoxin passes its clinical trials, a person will be able to fight cancer without losing her hair, without becoming sick, and without becoming infertile. Kauten expects that Quintessence Bioscience will be able to run the first human treatments on its revolutionary cancer therapy in early 2006.
At present, Quintessence Biosciences has a staff of ten people, six of whom hold Ph.D.s in areas such as chemistry, biochemistry, microbiology and immunology. The company’s two founders are Ron Raines and Laura Kiessling, both professors at UW-Madison.
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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.