BrownHEN interviewed George Lauro,
Brown '80, Founder of Alteon Capital Partners, LLC, Saratoga, CA.
1. George, what lead you to found Alteon Capital Partners?
I have always been excited about working with small teams launching businesses that are commercializing advanced technologies. This work can range from providing direct investment to providing "Advisory" assistance with corporate development, recruiting top tech and management execs, raising money, and finding an acquirer for the company. I found that many VC funds only do the investing aspects, and do not do advisory. Also, from an advisory point of view, many of the startups are too small or too technically esoteric for tech investment banks to focus on. There are many smaller tech companies needing a blend of advisory and investment, and do not have a one-stop shop for this. I formed Alternxt to fill this unmet need in the marketplace.
2. What are the important differences between having your own firm and working for a large firm like Wasserstein Perella?
Wasserstein Perella did a combination of LBOs and VC investments. The VC work was fun while we had large and active funds. Once our VC funds were fully invested, Wasserstein focused more on the LBO deals, which often were non-technical companies. This is not as interesting for me as working with the early stage startups. Also, the autonomy of running your own shop is wonderful.
3. This is the question you have been expecting. What advice do you have for an entrepreneur looking for financing for her/his venture? What do you look for when someone hands you a business plan?
VCs are looking for the following in making an investment (in rough prioritized order):
• A CEO who has started a company in a similar area to this company, and who built the startup to a successful exit in which investors made a good return (over 4X of their money back).
• The startup's product should be targeting a large and growing market opportunity with a product that will leap-frog the state of art incumbent products in key customer purchase areas (performance, cost, price, reliability, size, power consumption, etc).
• The business plan shows an ability to achieve cash flow breakeven at a low revenue run rate (<$20M/year) and that this can be met on a total capital investment under $20M.
• The startup's product is being built on unique IP and technology that is protected with patents and/or substantial know-how, which would be very difficult for competitors to duplicate.
• Customer validation that they will purchase the product at the envisioned price and performance.
• Ideally, some level of customer commitment—an engineering project, joint development project, etc.
So, I'd suggest any entrepreneur prepare this type of plan if they seek investment from VCs.
4. You were a very successful engineer at IBM. Why did you change your career?
Though I enjoyed technology and engineering, my true passion is for launching new businesses based on innovative technology-rich products. At IBM and Motorola, I was involved in starting up new businesses within large corporations by commercializing technology from the labs. In many ways, this was a form of "internal VC" within these large companies. The big difference is that VC funds make decisions, deploy capital and close transactions much more rapidly than corporations can. In corporations, one needs to obtain approval from a number of organizations before committing to a new startup or investment. A lot of people are looking over your shoulder and "stirring the pot.”
5. Dean Hazeltine remembers you as an electrical engineering student. You also did graduate work in astronautics at MIT. Where do you see the big technology opportunities today?
I think the best areas for technology investing are ones related to large and growing markets that have unfilled needs and where emergent companies can drive substantial leverage via advanced technologies. Another important attribute for tech investing is that the product/market sector should be characterized by high public company valuations and frequent M&A exits and IPOs. Exits are the only time a VC investor makes money.
A few areas high on the list are startups developing leapfrog products addressing converged portable devices like cell phones, personal navigation systems, MP3 etc. Many of these devices will be fused into single devices. To do this in a small size, low power, high performance product requires many new technologies in batteries, power management, radio, display, user interface, etc. Many small companies are working on new components in these areas and small teams can create businesses that are worth 50X revenue in an M&A exit. A second interesting area is clean tech, which includes solar, wind, and storage/batteries. Biomass and power transmission is another promising area—big market and many new technologies. A few other areas are MEMS, nanotech and medical devices.
6. Can you comment on the value of an engineering education? If a second year engineering student came to you and said he/she were thinking seriously of changing out of engineering because the work was too demanding compared to the rewards, what advice would you give?
It depends on what the person's ultimate career goal is. For tech venture capital, especially investing in seed and Series A deals, it is essential to have fairly deep technical understanding because many of investment opportunities are in small teams, for instance two people and a bench prototype. The investor needs tech depth to assess the value and risk of the investment. If the person is interested in investment banking, buyouts or late stage private equity, then a finance degree with some tech exposure is probably sufficient.
7. One reads about the "social responsibility of businesses,” and also about the social responsibility of engineers. Would you give us your thoughts on the subject? Do corporations or engineers have a special responsibility to society?
Corporations have a responsibility to make safe and reliable products and to protect the environment. Also, to the extent they are profitable, it would be great for them to give back to the community and society to some extent via charitable programs. I also think it is great if engineers mentor youngsters and get them interested in technology and inspired to enter technical and engineering careers.
8. Would you speak about fear as a motivation or hindrance toward accomplishment? How has that played a factor in your path, if any?
Never really had a situation where "fear" was an important motivator. I have been in situations where my portfolio companies urgently needed to close financing or close down. The responsibility to the workforce and shareholders was a strong motivator to turn over stones/meet many investors to find the financing to keep the company alive.
9. Do you have a mentor who has helped you in your career path/personal development? Who are three individuals who have influenced you?
• My Uncle Aldo DeSimone. He was director of MIT Instrumentation Lab/Draper Lab. He got me hooked on rocketry and astronautics, and particularly in MIT's work in the area.
• Gil Amelio, former CEO of Apple Computer and National Semiconductor.
• Rud Istvan, my boss at Motorola.
10. What is the latest insight (about life, work, play) that you picked up and would like to share with BrownHEN?
I suggest that it’s best to direct your career toward areas that you truly enjoy, and to work with people whom you like and respect and who have high levels of integrity. Avocations that are easy and fun for you usually fit well with your strengths and weaknesses. Always be sure to keep monetary and "power" aspects as only secondary/tertiary goals.
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© BrownHEN.org – 2008
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