25 Aug New Silicon Pastures director envisions more home cooking for Wisconsin angels
Milwaukee, Wis. – Teresa Esser sees incredible opportunity for private equity business investors in Wisconsin and, as the new director of the Milwaukee-based Silicon Pastures angel investment group, she aims to see more of that opportunity realized.
While others are talking about brain drain and the lack of capital in Wisconsin, particularly in the tech sector, Esser sees plenty of positives that smart investors can foster and capitalize upon.
“There are unrecognized opportunities here, unrecognized values,” said Esser, a Waukesha native who earned a degree in creative writing and brain and cognitive science from the Massachusetts Institute of Technology, where she met and married her husband, former Silicon Pastures director and NBX co-founder Pehr Anderson.
Her outlook is not just wishful thinking. It’s grounded in the first-hand experience she’s had with venture capitalism and through the knowledge she gained interviewing scores of entrepreneurs, investors, lawyers, and others in the technology world for her acclaimed book, The Venture Café: Secrets, Strategies and Stories from America’s High-Tech Entrepreneurs.
Esser’s connections to capital seem to have popped up all along her life. While studying drama in Australia, her teacher told the class for drama writers had three subjects to pick from: sex, death, and money. “I chose money,” she said.
Esser, a writer at heart, made a living in the publishing world after graduating from MIT, working as an acquisitions editor for Netherlands-based Kluwer Academic Publishers (which was sold to London-based venture capitalists in 2002). Meanwhile, Anderson and some colleagues were building a company, NBX, which was developing an Ethernet-based telephone as an alternative to PBX-based phone systems.
Along with the brutal realities of the publishing world, Anderson’s experiences with NBX gave Esser valuable insights into entrepreneurialism.
“I was working in the book-publishing world and was trained to follow the money,” Esser recalled during a recent interview at her office at the Milwaukee County Research Park. “Meanwhile, Pehr’s company got a $16.7 million investment. I was amazed. I wondered why people would give this little company that kind of money.”
The investors saw a good deal; NBX eventually was purchased by 3Com for $80 million in cash and $10 million in stock options. After investors were paid off, the three NBX owners each ended up with a hefty payout. It was another shock for Esser, who had quit her job to work on the Venture Café book.
“Wildcatters”
“We were living in this basement apartment, an apartment that had been flooded when the previous tenants lived there. It was very modest,” Esser said. “Then suddenly, we get this call that the NBX business was sold. I didn’t get it; it was huge for us.”
The deal was consummated in the historic and exclusive Locke-Ober restaurant in Boston – where railroad barons made deals in the 1800s. (Esser noted that what is now called “angel investing” was then known as “wildcat investing,” with such participants as author Mark Twain.) The Locke-Ober experience made an indelible impression on Esser, who said that Silicon Pastures does its deals in similar settings here.
But perhaps more impressive to Esser and Anderson, a North Dakota native, was their newfound ability to foster other business ideas via angel investments. The couple made an initial investment in a Boston technology company, and then took a larger risk in another.
They moved to Wisconsin in 2004, partly for quality-of-life and family reasons (her mother lives here), partly with a goal of helping other technology entrepreneurs succeed, and partly to take advantage of the opportunities Esser and Anderson see here.
“Although I have family ties that brought us to Wisconsin in 2004, our goal of giving back and financially supporting technology entrepreneurs was also a draw,” she said. “And I can get incredible deal flow here. There is less competition, and my dollars will go farther here, especially with Act 255,” she added, referring to the Wisconsin legislation aimed at promoting investments in and expansions of business.
“We really have everything we’ve wanted here. And we’re well positioned for deals. I can cherry-pick deals in Chicago, Milwaukee, and Minneapolis; I don’t know why more people don’t come here.”
Code of silence
Maybe it’s because of the quiet, reserved nature of Midwesterners who aren’t prone to boast about things. Watch for Esser to do some of the shouting for them.
“Wisconsin is really proud of its industries and has some really great technology and some really great companies,” Esser observed. “But we’re not allowed to talk about it, and that’s really weird.”
Part of the “quietness” is related to the regulatory requirements imposed on publicly held companies such as GE Healthcare. “They’re developing great technologies, but they are quiet. They can’t make forward-looking statements. And then there are all the companies in the financial services industry here that have great technology, but that’s an industry that is conservative and quiet.
“On the coasts, they are naturally outspoken, so when a company goes public, they have to learn how to be quiet and not say anything. Here, we don’t have to learn how to be quiet.”
But Wisconsin companies do need to be louder in touting their technologies and expertise, she said.
Expect Silicon Pastures to be a vehicle for that promotion. The organization now has 20 members who are presented with deals after being vetted by Esser. Like most angel investor groups, the money of individuals is not pooled into a fund. Rather, members invest individually.
Angel investors come in two varieties, Esser observes. There are those with a personal mission, such as to cure a disease, with that mission outweighing an interest in seeing a huge return on investment. On the other hand, there are investors who take a more business-like approach, primarily interested in vetting a company based on great potential returns.
There are now several angel investor groups in Wisconsin, and more than 250 organized groups across the nation. They have three distinguishing characteristics, Esser says. The first factor is their portfolio, the type of companies they tend to invest in. The second is geography. “These are people with a lot of money; lifestyle is important to them. Being part of an angel network and investing in a company often comes down to how far they are willing to drive for a dinner that includes a glass of wine, and then drive home.” The third factor is social and the natural desire to be among people with similar interests.
Silicon Pasture members have primarily invested in life-science companies, but the group’s portfolio also includes: Npoint, which designs, builds, and sells nanopositioners – devices that allow manipulations in the position of a sample to infinitesimally small degrees; Virent, which produces hydrogen from sugar or renewable biomass; and Clearent, which is developing technology for the payments processing industry.
Silicon Pastures also has seen two successful exits: online retailer BuySeasons, which was recently acquired by Liberty Media Corp., and UltraVisual, which has since merged with publicly held Emageon.
“We’re looking for technology where there is reason for us to create value, where some change has taken place – some new law or some change in technology that, as an early mover, our members can capitalize on,” Esser said.
The vetting process involves close examination of business plans, management teams, and existing operations. She looks for flaws and then tries to determine whether those flaws might be fatal. The process also involves a level of trust that the angel network fosters among its members.
Market magic
Esser doesn’t even want to consider a deal if the fund-seeker can’t prove market demand.
“I am not your limiting factor in getting money,” she said. “Your customers are,” she added, referring to the need for a product or service to have real market demand.
The sales factor is so crucial that Esser’s first response when asked about the qualities of a good leader was “a CEO whose middle name is sales.”
Esser recommends that entrepreneurs get their house in order before approaching an angel network. “If you’re connected to a university, take advantage of that connection and utilize its services. Second, try pitching your product to a public company and get rejected; it’s a good learning experience. Third, if you’re not affiliated with a university, take advantage of a consultant that can help you organize your idea and business.”
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