Invest Southwest announced the presenting companies for the 2008 Invest Southwest Conference.

Congratulations to these firms.

Thirteen firms made the cut for December’s Invest Southwest conference.

Organizers for the annual event, which aims to pair promising new technology firms with investors who can help finance future growth, have announced which companies will be presenting.

The finalists were selected from about 80 applicants.

Most of the companies are Arizona-based. Nearly all of them focus on software development or biotechnology.

Here’s the list:

* Captivemotion LLC – The Tempe-based firm uses technology to study facial motions for video games and movies.

* CellTrust Corp. – The Scottsdale-based company provides security software to protect data that is transmitted mobilely.

* Clareity Security – The Scottsdale firm provides identity fraud protection services for the real estate and financial services industries.

* Consolidated Energy Systems LLC – The company in Salt Lake City, Utah is developing a patent-pending process to convert pretroleum coke into fuel for modified diesel engines.

* Grip (R) – The Glendale-based firm provides software systems for businesses in the audiovisual industry.

* iMemories – Based in Scottsdale, the company convers home movies and photos to DVD and hosts consumers’ content online for sharing.

* Medipacs – The Tucson biotech firm has developed programmable infusion pumps for medical use.

* MedTrust Online LLC – The Scottsdale company operates an online community for doctors.

* nanoMR Inc. – The Albuquerque, N.M. firm is developing a replacement for traditional blood cultures that takes less time to develop.

* Octopi LLC – The Tucson company business develops online video games.

* Protein Genomics – Based in Sedona, the company says it has developed the first commercially viable human elastin protein for wound care and regenerative medicine.

* Solar-Breeze LLC – The Phoenix-based firm says it has developed the first solar-powered robotic pool-skimmer.

* Unima Integral Biosecurity – The Jalisco, Mexico-based firm is developing products to control food-borne illnesses in the food-production industry.

To qualify, companies must be seeking between $250,000 and $5 million in financing.

The company’s officers will spend the next several weeks honing their business plans and crafting their investor pitches.

The conference will take place Dec. 11-12 at the Four Seasons Scottsdale at Troon North.

[From Invest Southwest names presenters for VC conference]

From AZCentral’s Innovator’s Circle blog by Andrew Johnson:

Fledgling companies often turn to “angel” investors when they’re trying to fund start-up costs.

The term refers to individuals who invest small amounts of money – typically under $2 million – in early-stage firms. They hope to get a return on their investments once the firms start generating a profit.

Although such investors are more willing to funnel money to companies that are dealing with unproven technology or have a significant customer base, many still require companies to have a management team and potential for commercial success before they provide funding.

Thus, many early-stage entrepreneurs complain that they can’t get these early-stage investors to provide capital.

A study released Thursday by the U.S. Small Business Administration’s Office of Advocacy may provide a reason why some angels are apprehensive to take a risk on these firms.

The study, “The Importance of Angel Investing in Financing the Growth of Entrepreneurial Ventures,” says the majority of such investors do not experience positive returns after placing their money in the firms.

The reason, according to researchers, is that the most profitable investments typically come from companies that go public. However, “only a small portion of angel-backed companies go public,” the study says.

The study noted the difficulty in pinpointing exact returns for angels because of challenges in defining a truly representative sample of such investors.

However, the study cited other research conducted in 2007 in which 539 angel investors from 86 associations were surveyed.

Combined, the 86 groups had made 3,097 investments, from which they experienced 1,137 “exits.” An exit refers to when a company is bought by or merged with another firm or goes public. Typically such an events are when investors see the biggest return.

The average investment made by the sample in that study turned a profit of $295,000 on an investment of $191,000 in 3.52 years.

However, the median investment for this group was $50,000, and “that returned $40,000 or 80 cents on the dollar,” the study said.

The study included other information that differs from common perceptions researchers and start-up companies have about angel investing.

The market for such investments is considerably “smaller than is generally believed,” the study said. “Few companies are appropriate for angel financing, a fact that limits demand for this source of financing.”

Also, a big portion of angel investors fund their investments with debt or equity, contrary to the belief that they not as interested in taking an ownership stake in the firms they provide funding to.

[From Few 'angel' investors get positive returns, study says]

Given the state of the economy and markets – this is not good press for those of us trying to raise seed funding.

As it turns out the recovery from every financial downturn has been led by small businesses. With micro businesses currently representing 95% of all U.S. firms we need to be aware that cutting off capital to “high risk” startups will deepen the current crisis… not improve it. The economy can only recover when we start developing high pay, high value jobs in the U.S. – more jobs at WalMart will not do it.

Why is this so important. Home prices are an issue because the cost of housing has increased while wages have not. Only when those numbers are brought back into balance can any real recovery take place. There are two ways to do that:

1. Reduce the cost of housing
2. Increase wages

The problem with the first option is that is requires tens of thousands of (more) foreclosures to bring things back into balance. Investing in small businesses is the best path to creating high wage/high value jobs which will support home prices at (something reasonably near) current values.

If all the capital evaporates from the SMB sector – specifically if individual investors (i.e., Angels) close their wallets the SMB sector will crash.

Net/net – watch the small business sector – if we start to see that sector crash we know this will be a long protracted downturn.

Via Wired.

Bob Rice gives us his take on the VC landscape:

Well, the classic V.C.’s simply have too much money under management, and too expensive a talent pool, to waste time looking at investing anything less than $10 million in a project. Meantime, no entrepreneur wants to give up equity by taking in more money than he absolutely needs. So, when it only costs a few million to get a serious new company off the ground, how can the V.C.’s really play? They have to find places to make gigantic gambles, usually overpaying because the other big V.C.’s are also trying to invest in the few really big-dollar opportunities out there. It has become a system doomed to failure.

I think Bob hits the nail square on here. What it takes to start an online service today is quite small (I know, I’m doing it). It isn’t millions… really, to get started it isn’t even hundreds of thousands. Given that what start up is going to give up a huge share of the company to take a massive VC investment – and all that goes with it.

All too often what comes with the large investment is an over-emphasis on growth (specifically subscriber growth). That in and of itself isn’t a bad thing – provided you are ready for it. Often what is required is small amounts of cash to invest in determining how to tap massive growth – while ensuring that both the technology and the business (processes and people) scale. If they don’t scale what is the point of the rapid growth?

All too often this is what drives the fad/flash in the pan tech sector. Find something cool… publicize the heck out of it… grow really fast… disenchant users because the company isn’t mature enough to handle the growth. I refer to this growth stage as “chucking them off the back of the bus as fast as you can load them on the front”.

More after the jump…

The challenge – for those who want to create a business – is that you have to be careful about how you present yourself. If you tell an investor that you don’t want or need 3-4 million dollars they may hear “low valuation, low return”. When in fact what you mean is “to achieve a valuation of 25 million I believe we only need 400k” or “3 million today is a waste of your money, invest 400k today and we’ll take the 2.5 in 2 years”.

What that tells the investor is either:

1. This person has the fundamentals completely wrong
2. This opportunity has great multiple potential

The difference is how well you can tell the story.

Full Article:

Bob Rice has had many careers. He was an attorney with the U.S. Department of Justice, a partner at law firm Milbank Tweed Hadley & McCloy, C.E.O. of a tech startup, and now runs merchant bank Tangent Capital, which he founded in 2005.

In his spare time, Rice managed to write Three Moves Ahead: What Chess Can Teach You About Business, one of the more interesting business reads to come down the pike this year, in which he uses the tried-and-true strategies of chess for insight into running a business.

Today, he’s squeezing in some blogging. One day. One place: Portfolio.com.

Ah, those Sand Hill Road visionaries, the venture capital guys who finance the future and dictate the trends. It must be fun out there, getting the first glimpses of tomorrow. But suddenly there’s a wonderful irony at work: That very future is destroying their industry.

Newspapers are rife with stories about the decline of big V.C. investments, pointing to the trend as a sign of a more conservative investment environment. But I don’t think that’s really the issue.

Instead, something much more profound is going on: The basic V.C. model is broken. And new technology is driving a much more efficient system for capital allocation to startups.

In fact, technology is largely at fault both for what’s wrong with the V.C. world and for what’s replacing it. The problem with the industry is this–it’s just too cheap to start new companies these days.

Virtual offices allow talent to gather from around the country to work on a new idea without having to quit full-time jobs too early. Servers, computers, and bandwidth are essentially free, and a robust telecommunications platform can be rented for a few tens of dollars a month. Software development can be outsourced without taking on big fixed costs. There are countless programs to manage customer relations, mine contacts, handle the books, and plan and monitor projects. And of course, the internet has reduced the costs of finding customers and testing new concepts to nearly nothing.

Okay, so what? Well, the classic V.C.’s simply have too much money under management, and too expensive a talent pool, to waste time looking at investing anything less than $10 million in a project. Meantime, no entrepreneur wants to give up equity by taking in more money than he absolutely needs. So, when it only costs a few million to get a serious new company off the ground, how can the V.C.’s really play? They have to find places to make gigantic gambles, usually overpaying because the other big V.C.’s are also trying to invest in the few really big-dollar opportunities out there. It has become a system doomed to failure.

The flip side of the story is the rise of angel investor groups. These investment consortiums have always been ideally positioned to provide $500,000 to $5 million equity injections; but until recently, that wasn’t enough to get a serious effort off the ground. More fundamentally, however, they have historically not been terribly investor-friendly, largely because the individual members have other occupations.

The individual members didn’t work in the same place or even at the same times, so angels were terribly inefficient at evaluating transactions, sharing information, and negotiating and documenting deals.

Those days are over, thanks to software developed by David Rose, founder of the New York Angels (yes, I belong). Angelsoft is a wonderful collaboration platform that manages deal flow, helps match talent and expertise to projects, provides easy-to-use data rooms for potential investors, and generally drives the investment process. It combines project management and social networking in a way that, for the first time, makes the angel process efficient for both the company seeking capital and the potential investors.

The big news now is that, in a period of just a couple of years, over 400 angel groups around the globe have standardized on the platform. That means, of course, that they will also be able to share deals between themselves, vastly expanding the capital and expertise available for any given project.

And entrepreneurs can now create one submission to get access, literally, to a world of sophisticated, organized investors. It sounds like a revolution to me. Check it out at the group’s website.

And so, once again, technology is driving a paradigm shift. But this time, it’s France in 1789: The progenitors of change are becoming the victims.

[From Tech Making Traditional VCs Obsolete]