Category Archives: Technology

BPV completes successful exit from Tower Cloud

BPV portfolio company Tower Cloud has been acquired by Communications Sales & Leasing, Inc (NASDAQ: CSAL) in a stock and cash deal valued at $230 million plus milestone payments.  

Here is today’s write up from the Tampa Bay Business Journal:

St. Pete fiber optics firm acquired in $230 million deal

tcloudSt. Petersburg-based Tower Cloud is being acquired by Communications Sales & Leasing Inc. (NASDAQ: CSAL) in a stock and cash deal valued at $230 million.

Tower Cloud, founded in 2006 and backed by private equity investors, operates a fiber optic network in 15 markets in the Southeast United States, with nearly 6,000 route miles connecting large markets and Internet hubs with smaller markets and rural areas.

“Tower Cloud significantly expands our backhaul network and greatly accelerates our entry into the high growth small cell and dark fiber businesses,”Kenny Gunderman, president and CEO of Little Rock, Arkansas-based CS&L, said in a statement. “We continue to grow our wireless carrier relationships across all asset classes and are seeing an increasing number of opportunities arise as carriers densify their networks and look toward the deployment of 5G and related technologies.”

In an investor conference call about the deal Monday morning, Gunderman said, “Tower Cloud is very complementary to our strategy of acquiring and building mission critical communications infrastructure and becoming more and more relevant to the national wireless carriers in particular. The deal makes CS&L one of the largest owners of fiber in the country,” Gunderman said.

“We think that fiber is and will be the most critical component of the communications network going forward and Tower Cloud is an established provider of two of the biggest growth areas within fiber including dark fiber deployments and small cells,” Gunderman said in the call.

The acquisition expands CS&L’s national wireless carrier relationships because more than 90 percent of Tower Cloud’s revenues are from national wireless carriers. The deal also advances CS&L’s diversification strategy by increasing its exposure to the national wireless carriers with long-term contractual revenues.

Tower Cloud’s recent dark fiber and small cell awards with national wireless carriers will accelerate the company’s initiatives, the company said in a statement. Tower Cloud is currently constructing dark fiber routes in Florida and Georgia with total contractual revenues of $175 million.

Last November, Tower Cloud signed a contract with one of the “big 4” mobile carriers to expand its fiber network infrastructure and bring high-speed connectivity and capacity to Augusta, Georgia. It also announced last September that it would expand its fiber network into Jacksonville.

BPV announces two new growth equity investments

PowerChord – St. Petersburg, FL
Provider of digital brand management software and services – Ballast Point Ventures has led a $10 million equity investment in PowerChord, Inc. Founded in 2001, PowerChord, Inc. provides a suite of internet brand management and digital marketing services for major brands and their dealer networks in the United States and Europe. PowerChord’s Software-as-a-Service offering allows major brands to maintain brand consistency down to the local dealer level. The Company’s customer engagement platform creates a universal online brand experience for national and international brands with consistent content, data, and messaging at the local dealer level. Today, there are over 9,000 individual dealers on the PowerChord platform. PowerChord is led by CEO Lanny Tucker and Founder and Chief Strategy Officer Pat Schunk. PowerChord will use the proceeds from this minority investment for partial shareholder liquidity, sales force additions, and to bolster its product development and marketing efforts.

 

The Zebra – Austin, Texas
Online automotive insurance agency and comparison platform – Ballast Point Ventures has led a $12.5 million equity investment in The Zebra. Founded in 2012, the Zebra offers a comprehensive automotive insurance comparison platform that allows consumers in all 50 states to compare quotes from more than 200 insurance carriers. The Company’s comparison engine collects user-submitted data via the website and displays the automotive insurance rates from multiple carriers, providing a valuable new tool to insurance shoppers that has earned comparisons to the travel search engine Kayak.com. The Zebra also operates as a licensed independent insurance agency and can currently sell and bind automotive policies in multiple U.S. states. The Company is led by Founder and CEO Adam Lyons and COO Joshua Dziabiak, both of whom were named to Inc. Magazine’s 30 Under 30. The Zebra will use the proceeds from this minority investment to enhance its online comparison platform, expand its insurance agency capabilities and hire new team members.

The only thing he ever made fly was government money

On this day in 1906, the Wright Brothers were granted a patent for their “flying machine.” In honor of the anniversary, we reprint this – one of our most popular, most-read pieces.  

(Original publish date: April 17, 2013)

The process of productive capital allocation is a critical ingredient of innovation and job growth.   Entrepreneurs spending their own (and their partners’) money will create more jobs, more innovation, and a more vibrant economy than politicians picking winners and losers based on cronyism, campaign contributions, and constituent pork.

When government strays out from funding basic research into either applied research or the means of production, the results range from poor to scandalous.  Ideas are infinite, and in the absence of competent execution, they are worth nothing.  Even if the idea has merit, the true expertise is crowded out.  There are better ways policymakers can help encourage innovation.

The invention of the airplane provides an excellent example.  While we’re all aware it was the Wright Brothers, many interesting details about funding the innovation don’t make it into school textbooks.  In A Tale of ‘Government Investment’  Lee Habeeb & Mike Leven recount the race between the bicycle shop owner/operators and the government-backed head of the Smithsonian.

Who better to win the race [to powered flight] for us, thought our leaders, than the best and brightest minds the government could buy? They chose Samuel Langley. [The War Department gave Langley $50,000, an enormous sum at the time, which The Smithsonian augmented with taxpayer funds of its own.]  You don’t know him, but in his day, Langley was a big deal. He had a big brain and lots of credentials. A renowned scientist and a professor of astronomy, he wrote books about aviation and was the head of the Smithsonian.  It was the kind of decision that well-intentioned bureaucrats would make throughout the century — and still make today. Give taxpayer money to the smartest guys in the room, the ones with lots of degrees. They’ll innovate and do good for us.

For that Solyndra-type investment the country got the “Great Aerodrome,” which “fell like a ton of mortar’ into the Potomac River – twice.  Representative Gilbert Hitchcock of Nebraska remarked, “You tell Langley for me that the only thing he ever made fly was government money.”

Samuel Pierpont Langley’s Aerodrome and launching apparatus.

Nine days after that second failed test flight, a “sturdy, well-designed craft, costing about $1000, struggled into the air in Kitty Hawk.”

How did two Ohio brothers accomplish what the combined efforts of the War Department, The Smithsonian, and other people’s money could not?  The authors cite James Tobin’s To Conquer the Air: The Wright Brothers and The Great Race for Flight (2004) to provide a few answers:

  • Langley saw the problem as one of power:  how to go from zero to 60 in 70 feet, the stress of which was too great for the materials used.  The Wright Brothers, inspired by the practical skills and insights gained from tinkering in their bike shop, understood the problem was one of balance (on a bike, balance+practice = control).  They invented the three-axis control (pitch, yaw, roll) still standard on fixed-wing aircraft today.  Their entrepreneurial technical expertise was an advantage neither the government nor other private competitors (Alexander Graham Bell) could match.
  • Since they couldn’t afford repeated test flights the Wright Brothers were forced to develop a wind tunnel to test their aerodynamics.  This saved money and time, since they weren’t bogged down repairing the wrecks of a flawed design.
  • No government money also meant no government strings.  They were freer to experiment and innovate without worrying about non-essential requests and hidden agendas.  They also managed to do more with less since they couldn’t afford subsidy-induced waste.

Habeeb & Levin also offer this fascinating, if not unexpected, coda:

Though the Wrights beat Langley and the Smithsonian, the race didn’t end there. Powerful interests vied for the patent to this revolutionary invention and, more important, for the credit for it. With Smithsonian approval, a well-known aviation expert modified Langley’s Aerodrome and in 1914 made some short flights designed to bypass the Wright brothers’ patent application and to vindicate the Smithsonian and its fearless leader, Samuel Langley.

That’s right. The Smithsonian’s brain trust couldn’t beat the bicycle-shop owners fair and square, so they used their power to steal the credit. And then they used their bully pulpit to rewrite history. In 1914, America’s most esteemed historical museum cooked the books and displayed the Smithsonian-funded Langley Aerodrome in its museum as the first manned aircraft heavier than air and capable of flight.

Orville Wright, who outlived his brother Wilbur, accused the Smithsonian of falsifying the historical record. So upset was he that he sent the 1903 Kitty Hawk Flyer, the plane that made aviation history, to a science museum in . . . London.

But truth is a stubborn thing. And in 1942, after much embarrassment, the Smithsonian recanted its false claims about the Aerodrome. The British museum returned the Wright brothers’ historic Flyer to America, and the Smithsonian put it on display in their Arts and Industries Building on December 17, 1948, 45 years to the day after the aircraft’s only flights. A grand government deception was at last foiled by facts and fate.

As for Samuel Langley, he died in obscurity a broken and disappointed man. Friends often noted that he could have beaten the Wright brothers if only he’d had more time — and more government funding.

Some things never change.

The Wright brothers’ airplane business never took off (groan) due to a combination of poor business decisions and sloppy patent work.  Wilbur sadly died young (in 1912 at age 45, of illness that some suspect was contracted due to exhaustion from the patent battles) and Orville sold the company in 1915.  So the industry grew under the leadership of other companies and other men.  (Although the Curtiss-Wright Corporation remains in business today producing high-tech components for the aerospace industry.)   One can’t help but wonder what the original inventors might have done had they been the beneficiary of a strong partnership with a VC fund…

 

 

Sunken treasure and the limits of decision models

What $12.7 million investment in 1988 yielded a vanishing $48 million in 1991, nothing again until this year, and yet may still have fabulous upside?  As ESPN films explains in In Deep Water, a real-world “National Treasure.”

When a hurricane sank the SS Central America in 1857, over 400 lives and at least 3 tons of California Gold Rush fortune were lost.  “At least” because the steamer was also rumored to carry in its hull an additional secret 15 tons of gold headed for NY banks.  The loss contributed to The Panic of 1857, as the public came to doubt the government’s ability to back its paper currency with specie.

gold

1989 file photo shows gold bars and coins from the S.S. Central America

131 years after the ship was lost, oceanic engineer Tommy Thompson  and a team of “data nerds” used Bayesian modeling to find the ship and new deep-water robot technologies to recover items from the ocean floor.  We caught the 30-for-30 movie this week and it captivated us on several levels:  (a) it’s the greatest lost treasure in American history, (b) it includes important lessons about corporate governance, (c) it demonstrates the importance of intuition, and (d) the tale ends with a local twist – fugitive entrepreneur/treasure hunter Thompson was just recently captured in our backyard (Boca Raton).

The story has parallels to another favorite of ours – The Greatest Comeback Ever and the Limits of Decision Models – in which intuition augmented or even trumped the computer model.  Following a hunch they discovered her on “the edge of the probability map,” ending one mystery but starting another.

Thompson – “a combination of Indiana Jones and Tesla” – used lack of transparency and poor corporate governance to keep his investors at bay for 16 (!) years.

The first seven years were consumed by a flurry of lawsuits from 19th century insurers and not directly his fault; his backers then patiently waited for the next nine years as Thompson told them the gold had to be marketed just so.  He sold 532 gold bars and thousands of coins for $48 million in 2000, purportedly to pay loans and legal bills.  In 2005 two investors sued, in 2006 some crew members sued, and Thompson became a recluse in a rented Vero Beach mansion which he paid for with “moldy smelling” $100 bills (they’d been buried underground).  He missed a 2012 court appearance and was officially on the lam up until being caught earlier this year in Boca Raton, FL.

A new company (Tampa-based Odyssey Marine Exploration) re-started salvage efforts in April 2014 – only 5% of the wreck was excavated by 1991, and it’s been left un-touched since then. Recovery efforts will continue indefinitely (is it 3 or 18 tons of gold?) and be used in part to reimburse the original investors.

 

End-of-year twitter digest, 2014

Thank you to all our readers for joining the conversation here in 2014.  We wish you all a happy and prosperous 2015, and look forward to seeing many of you at the 24th Annual Florida Venture Capital Conference, January 29 – 30, 2015 at the Diplomat Resort & Spa in Hollywood, Florida.

Offered for your reading pleasure, in case you missed any:  a compendium of our twitter highlights from 2014.

BPV twitter header

 

Inventions That Didn’t Change the World

Inventions That Didn’t Change the World” sounds like a book-length version of our Vintage Future series.

inventions-that-didnt-change-the-world-2-638Author Julie Halls comes to the defense of such Victorian era oddities as “an improved pickle fork” and “an elastic dress and opera hat.”

Trifling or otherwise, these designs provide a fascinating insight into the social history and technology of the period.  Some seemingly inexplicable inventions make sense within their historical context.”

It’s not hard to imagine our great grand children chuckling at more than a few of the apps created in our present “historical context.”

But as this review points out, all that stupid experimentation and unexpected discovery may seem pointless, and, in hindsight, laughable; but one could say it had a pretty important side effect:  progress.

Though human ingenuity reaches back into the dimmest past, the intensive production of inventions only began in the past few centuries…

In a Darwinian mood, one might contemplate these trusty devices as living fossils of invention, the flotsam left behind during the evolution that finally brought us smartphones. As one realizes in reading Ms. Halls’s book, the 19th century really invented invention itself, not just the production of occasional new devices but the unremitting, self-reinforcing stream of novelties that generated our present expectation of innovation as the normal state of affairs. We have become so accustomed to this process that we may forget to wonder when and how it gathered steam (literally and figuratively). Whatever may be the fate of any particular innovation, for good or for ill, we may never leave the age of invention.

“We challenged that dogma, and it was incorrect.”

ed-at003_winter_j_20141205170433The Weekend Interview in Saturday’s WSJ – “The Oilman to Thank at Your Next Fill-Up” – provides an absorbing look at the “shale revolution” and touches on several of our favorite themes:  iterative collaboration, how to fail the right way, the incremental, adaptive ways by which success is achieved, and even the role of luck – although we’d describe it a bit more favorably as “serendipity.”

The pioneering company featured prominently in the article is EOG Resources, a former division of Enron discarded in 1999 when that company “decided to jettison tangible assets as they evolved into a trading company.”  By 2007 – one year after the last remaining piece of pre-bankruptcy Enron had been sold off – the former red-headed stepchild had become an industry leader.

(That particular charming detail brings to mind one of our very first posts, Built to Flip or Built to Last, in which we mused about an alternate history in which Hewlett and Packard sat in their garage, sipping lattes, saying to each other, “If we do this right, we can sell this thing off and cash out in 12 months.”)

Flush with success, EOG looked at their innovation and thought: we’re doomed.

“About 2007,” (CEO) Mr. Papa recalls, “I looked around and said, EOG has found so much shale gas, but there are a whole lot of other companies that have found vast amounts of shale gas. All the other companies were ecstatic, and their whole business strategy was, ‘We’re going to find more shale gas.’ I stood back and said this probably doesn’t bode well for natural-gas prices in North America.”

So rather than cling to their initial intuition they tried something impossible:

If gas prices would remain depressed due to a glut, as in fact they would, Mr. Papa’s insight was that perhaps oil, as well as gas, could also be coaxed from shales. Oil molecules are several times as large as gas molecules, and “because the flow paths through these shales are very small, very narrow and restrictive, the general feeling was that you could not produce oil from shales commercially.”

Mr. Papa and his team suspected this was “an apocryphal old wives’ tale,” and no one had “really done the work to prove that conclusively. So we challenged that dogma, and it was incorrect.”

EOG maintains no central research-and-development department. “Our R&D was just applied R&D,” Mr. Papa notes. “We went out there, drilled some wells, and the first eight or nine were unsuccessful. We got improvements, improvements, improvements, until we finally ended up hitting the right recipe for success.” EOG’s decentralized technical operations and “minimum bureaucracy” encouraged engineers to experiment well by well.

Late in 2006, EOG showed that shale oil was feasible in the Bakken. This discovery meant that EOG could switch to oil, with production flipping to 89% liquids (mostly crude) this year from 79% gas in 2007. More to the point, by proving everyone else wrong—again—Mr. Papa changed the domestic industry as other companies chased his achievement. To the extent that U.S. shale oil is transforming world-wide markets, he deserves a lot of the credit.

EOG is a great example of a contrarian definition of entrepreneurship:   see economic value where others see heaps of nothing, combine the self-confidence to defy conventional wisdom with the determination to overcome obstacles, and distinguish yourself more by the ability to achieve the impossible than the originality of your thinking.  They’re also a great example of stupid experimentation:

(A)t the creative frontier of the economy, and at the moment of innovation, insight is inseparable from action.  Only later do analysts look back, observe what happened, and seek to collate this into categories, abstractions and patterns.

More generally, innovation appears to be built upon the kind of trial-and-error learning mediated by markets.  It requires that we allow people to do things that seem stupid to most informed observers — even though we know that most of these would-be innovators will in fact fail.  This is premised on epistemic humility.  We should not unduly restrain experimentation, because we are not sure we are right about very much.

Mr. Papa adds that, in retrospect, they “misjudged the upward slope of technological progress” and undershot by a factor or two or three times what the effect would be on total U.S. production:

Where we sit today with shale is the same place a petroleum engineer sat in the 1940s with a conventional sandstone reservoir,” Mr. Papa says. The best recovery rate then was 10% to 15%, leaving the rest underground, much like shale now—but since has climbed to 40% or 50%. The technology doesn’t yet exist for shale to yield similar shares, but Mr. Papa is confident that over the next 10 years it will emerge, “which basically means we’re going to double or more the amount of oil we’re going to recover. . . . Technology is always going to find a way to unlock each increment of resources.”

Mr. Papa discounts what could be considerable political risks to the energy boom, like some carbon tax or a federal takeover of fracking oversight. On the latter, he thinks the business is well regulated by the states and “there’s been a million frack jobs performed in the U.S. with zero documented cases of damage to the drinking-water table. For my set of statistics, those are pretty good odds.”

As for everything else that might come out of Washington, Mr. Papa says: “It’s my belief that for likely the next 40 or 50 years, we’ll continue to be in a hydrocarbon-powered economy, the main drivers of which are natural gas and crude oil. . . . You have to rely on the logic of the American people and our legislators to say, look at the economic benefits. The benefits are so obvious that an objective person would question whether we want to impose punitive regulations that will diminish what’s accrued.”

Mr. Papa reels off a few examples: A new burst in employment, business investment and GDP. Self-sufficiency in natural gas “for probably the next 50 years” and a two- or threefold competitive price advantage over Europe and Asia, leading to a revival of in-sourced manufacturing. A state and federal tax-revenue bonanza. Diminishing the importance of Persian Gulf and Russian energy dispensations in foreign policy.

Mr. Papa observes that these disruptive gains confounded the zodiac readings of the experts. The gains were driven by smaller, independent, nimbler companies, risking their own capital on potential breakthroughs across mainly state and private lands without federal subsidies.

“If you want to point to a success of private enterprise, and how the capitalist system works for the benefit of the total U.S. economy,” he says, “I can’t come up with a more glowing example.”

Vintage Future VII

Our Vintage Future series takes a tongue-in-cheek look back at the failed predictions of past generations of investors and futurists, and the sometimes tortuous routes to success of unlikely ideas.

In our line of work it’s good to guard against the hubris inherent in projecting conventional wisdom too far out into the future, and to remind ourselves that today’s trend can be tomorrow’s punchline – and vice versa.

Our VIIth installment takes a look at “the greatest thing” ever invented and a simple innovation that dramatically altered how we see the world.

Even sliced bread took 18 years to succeed.  Otto Frederick Rohwedder, a jeweler from Missouri, built his prototype “Machine for slicing an entire loaf of bread at a single location” in 1912 but saw it destroyed in a fire.  15 years later he filed his patent, but the end product languished due to its untidy appearance and concerns about freshness.  One year later a St. Louis baker named Gustav Papendick put it in cardboard trays and wrapped it in wax paper, yet even then it didn’t take off until it helped a little company called Wonder Bread go national in 1930.

Grok this:  Betty White is older than sliced bread!

Grok this:  Betty White is older than sliced bread!

Except for a brief ban during WWII (the steel used to build the slicers had more pressing uses), sliced bread grew quickly and became a platform on which others could dream and build – in this case new types of spreads and jams.

Sometimes a simple idea – like digging ditches – can change the world.  Before most cables ran underground, all electrical, telephone and telegraph wires were suspended from high poles, creating strange and crowded streetscapes.

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A phone tower with 5000 lines in Stockholm, Sweden in use 1887-1913

A startup must have good answers to seven questions

All happy companies are different because they found something unique that gives them a vision and a monopoly of sorts;  all unhappy companies are alike because they’ve failed to escape the essential sameness of competition.”

So says Peter Thiel – business subversive, founder of PayPal, first outside investor in Facebook, one of Silicon Valley’s leading investors, thinkers, and, since finding himself portrayed in the movie The Social Network, celebrities.

In the interview clip below, Mr. Thiel also says that we have “a very powerful but very narrow cone of progress around the world of bits, not so much in the world of atoms.”

The entire Uncommon Knowledge interview – which discusses competition in business, the value of monopolies, and the battle between humans and computers – can be found here.

Explosions of Creativity, a review of Peter Thiel’s Zero to One – Notes on Startups, or How to Build the Future a book based on “careful” notes taken by a student during a course on innovation Thiel taught at Stanford in 2012.

One suspects that the course was more a seminar bull session than a rigorous academic analysis (not that there’s anything wrong with that!) and it does not escape the genre, set forth in the subtitle, of “Notes.” The result is a loose collection of aphorisms and bits of wisdom, not a sustained inquiry.  Nor does the book probe deeply into Thiel’s own experience. There are occasional references to PayPal, but the bloody details of entrepreneuring in one of the most cutthroat eras of business history are omitted…

To Thiel, the only valuable ideas are those that most other people disagree with, and the initial point for successful entrepreneurs must be: “What valuable company is nobody building?” He thinks the dot-com crash taught the wrong lessons: It convinced Silicon Valley to eschew grand visions, avoid plans in favor of opportunistic flexibility, focus on improving on existing products already offered by competitors, and avoid products that need intensive sales efforts.

All of these ideas are wrong. A great startup must have a vision and a plan, it must avoid competition, and it should recognize that if a better mousetrap falls in a forest and no one knows about it, it might as well not exist.

***

To have a shot at success, a startup must have good answers to seven questions: Engineering — can you create a breakthrough, not just incremental improvements? He uses the figure that technical improvements must be ten times as good as incumbents to succeed. Timing — is now right? Monopoly — are you starting with a big share of a small market? People — do you have the right team? Distribution — can you deliver the product? Durability — is your market position defensible over time? The secret — have you identified a unique opportunity that others do not see?

The goal is market power, usually based on combinations of technical superiority, network effects, scale economies, and branding.

These are not earth-shaking insights, but it is useful to be reminded of them, because they are regularly ignored. Thiel notes the problem with the wave of green tech that swept over Silicon Valley in the Aughts: The companies lacked good answers not just to one or two of these questions; they had bad answers for all seven.

Sitavig revolutionizes treatment for cold sores

sitavigInnocutis’s product – a novel delivery system for a well-established drug (acyclovir) – was recently featured on the cover of Dermatology Times and could help the scores of millions of people suffering from cold sores in the U.S.  Herpes labialis is an extremely widespread condition, with between 20% and 40% of the adult population suffering from recurrent cold sores.

Sitavig® is a tablet which adheres to the gum above the incisor tooth on the side of the lip that is infected with a cold sore, providing sustained release of acyclovir – a drug that has been around for 30 years.  This safe and effective delivery system results in fewer, shorter, and less severe outbreaks because the drug is released locally for 12-15 hours – during the period when the virus is attempting to replicate.

“There have been obstacles to overcome to ensure the optimal use of acyclovir and optimal healing,” says Stephen Tyring, M.D., Ph.D., principal investigator of a phase 3 double-blind, placebo-controlled trial on Sitavig (50 mg acyclovir, BioAlliance Pharma). “Compliance was always an issue when it was used five times a day in the oral form. We began recommending that patients use it three times a day and double the dose. In the case of the topical use of the medication, patients need to constantly reapply it. With this type of application, they simply put it in the right place and it stays there.”

About Sitavig®

Based on proprietary Lauriad® technology and patented until 2029 in the major territories, comes in the form of a mucoadhesive tablet which the patient places on the gum and which delivers a high concentration of acyclovir directly to the lip, the site of the cold sore infection. In addition to its efficacy, Sitavig® offers the major advantage of a particularly unobtrusive and simple formulation with a single application for the episode’s entire duration, particularly adapted to patients suffering from recurrent herpes sores.

About Innocutis

Innocutis is a pharmaceutical company specializing in the development and commercialization of therapies focused on medical treatment of dermatological conditions, with a portfolio of established branded prescriptions. Innocutis meets growing unmet medical needs is this specialty and with “best-in-class” therapies, provides clinicians with improved solutions for the management of daily challenges experienced in their practice.

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