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Western Business: Nonprofit organization helps Hawaii firms find local venture capital

Posted: Friday, January 25, 2002

HONOLULU (AP) -- A shortage of local venture capital has been a problem for Hawaii entrepreneurs for years. But a new group known as HiBeam appears to be doing what was long deemed impossible: It is connecting Hawaii startups to millions of dollars raised from local investors.

HiBeam, a nonprofit business mentoring organization, has already helped each of its first four ''client'' companies secure more than $8 million in venture capital despite a difficult money-raising environment.

Observers say the group has helped the tech sector regroup after a generally gloomy year of layoffs and company closures. They add that the group's initial successes have lent credence to the concept of growing technology companies in Hawaii.

''A couple of years ago, there's no way you'd be able to raise a million dollars in Hawaii, but that's no longer the case,'' said Kevin Sypniewski, president of Kailua-based Internet firm AssistGuide.

AssistGuide, which offers online services to long-term- and disability-care providers, had to go to the mainland to seek startup money in 2000. But thanks to Hervers say HiBeam is giving much-needed advice, connections, experience and credibility to local startups. The group, which members describe as a ''business accelerator,'' uses methods refined on the mainland, setting up ''virtual boards'' of seasoned tech experts to help entrepreneurs figure out how best to organize their companies and pitch them to investors.

''We need more HiBeams,'' said Joe Blanco, technology adviser to Gov. Ben Cayetano. ''You need someone like HiBeam to structure deals for these companies, to act as the middleman that brings both money, and companies looking for money, to the table.''

The main challenge, observers say, will be maintaining momentum if HiBeam backs a few failures -- a very real possibility, given the recent struggles in the high-tech industry, the general riskiness of startups and the new conservative bent of venture capital. And with HiBeam setting an ambitious goal -- a Wall Street public offering in five years for each client company -- its four current clients could easily flame out along the way.

The group hopes to provide financing for 20 companies, and only expects two or three of those to make the big leagues. The successes may make up in jobs and income for the failures, but HiBeam president Barry Weinman, a venture capitalist from San Francisco Bay Area firm Allegis Capital, said Hawaii investors tend to be a risk-averse group. They need to be patient with HiBeam and other entrepreneurial groups, Weinman said.

''This is a long-term process, so people should not look for immediate results,'' he said.

So far, HiBeam's record is spotless. Its first client, Honolulu software development company HotU, recently finalized a $4 million venture deal. The second client, AssistGuide, is seeking $6 million this year after its $900,000 success last month.

Hawaii Biotech Inc., an Aiea biotechnology research firm which joined HiBeam in the fall, closed a $1.9 million venture round late last month. And several weeks after joining HiBeam, Hoana Technologies Inc. last month got $1.7 million in startup money to help develop and market its medical sensing equipment.

While some HiBeam mentors, including entrepreneur Ron Higgins and venture capital firms Allegis Capital and HMS Hawaii, have invested in HiBeam clients, the organization also has attracted investment from mainland firms and investors with Hawaii connections.

HiBeam has brought in major technology law firms including Venture Law Group and Wilson Sonsini to help structure deals.

It's also attracted the attention of a crucial body of local institutional investors including major trusts, union pension funds and banks. These groups, which normally put a small portion of their assets in risky but high-yield ventures, have avoided investing in Hawaii startups in the past. Now, however, some are coming regularly to HiBeam meetings to look for potential investments. A recent HiBeam meeting drew representatives from the state Employee Retirement System, Damon Estate and Unity House, and the newest HiBeam mentor is Hawaiian Electric Industries.

The group's success is partly due to a new state tax incentive that gives 100 percent tax credits for investments in qualified Hawaii technology companies. Blanco said most of the investments in HiBeam companies were made only after the state Department of Taxation approved the tax credits.

But each of the HiBeam companies say the organization was key in helping them become attractive to investors.

Honolulu entrepreneur Pat Sullivan, founder of Hoana Technologies, said HiBeam mentors not only introduced him to potential investors, but also showed him how to phrase deals, polish his pitch and iron out kinks that would deter venture capitalists.

''When you're trying to get funded, you have to think like a public company from the beginning, and if you haven't done that before, it's hard to know how to deal with it all,'' Sullivan said. ''Sometimes I'd ask why a contract was worded a certain way, and they would say, 'That's just the way it is.' It's very, very valuable to get that sort of advice it really accelerates you through the process.''

HiBeam's approach may be unique in Hawaii, but the ''accelerator'' mentoring concept has become widespread on the mainland as communities seek alternatives to brick-and-mortar business incubators.

Many mentoring groups are outgrowths of brick-and-mortar business incubators, such as the Manoa Innovation Center on Oahu, which offers reduced rent to entrepreneurs and attempts to coach them to ''graduation.''

To succeed, incubators require a well developed business community. However, Meredith Erlewine, director of publications for the National Business Incubator Association in Athens, Ohio, noted that mentoring groups have proved useful in places where startup activity is too small, scattered and eclectic to warrant an incubator. For example, an ''incubator without walls'' in suburban Maine offers top-notch professional services to people starting cottage businesses, Erlewine said.

In San Diego, the 8-year-old Springboard program helps entrepreneurs refine their investment pitches by connecting them with a volunteer expert, usually a senior executive for a local high-tech company. After six to 10 weeks of coaching, the startup presents itself to a panel of professionals. The 200 ''graduates'' of the program have raised more than $260 million, though much of this is concentrated in several big success stories, said Springboard manager Dennis Leidall.

The success of these programs has been varied; the most effective mentor groups are those that truly dedicate themselves to helping the companies, Erlewine said.

''It all comes down to making sure you're a phone call away, so when your client needs services, they don't have to look around town,'' she said.

HiBeam mentors have to pay $10,000 dues just to get the chance to give free advice to client companies. The incentive? Developing contacts, learning from each other and making Hawaii a place for bona fide technology investments, said venture capitalist Bill Richardson of HMS Hawaii's

''All of us here have our reputations on the line,'' Richardson said. ''We want to be able to show these companies to anyone and not get laughed out of the room.''

End ADV for Jan. 26-27



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