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Posted on: Sunday, March 14, 2010
Challenges for venture capital
Isle summit focuses on attracting investors in tough climate
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By Alan Yonan Jr.
Advertiser Staff Writer
Hawai'i's venture capital community is bracing for another tough year, weighed down by continued
weakness in the economy and the disappearance of lucrative state tax credits for technology
VC investors from Hawai'i and the Mainland who gathered in
Honolulu for a conference last week cautioned that the environment
for capital raising probably will remain challenging for some time.
Hawai'i's venture capitalists closed four deals in 2009 valued at
$10.3 million, the lowest amount in five years, according to Dow
Jones VentureSources. That compared with $89.7 million in 12 deals
the year before. Sopogy Inc. uses SopaNova mirrored collectors on
the Big Island to intensify sunlight and generate
Nationally, there were 2,489 venture capital deals in 2009 totaling
$21.4 billion, down from $31 billion the year before.
"I think it continues to be tough time for venture capital not just in
ANGEL OR VC?
Hawai'i, but around the country," said Rob Robinson, founder and
managing partner of Kolohala Ventures, Hawai'i's largest venture Angel investors and venture capital providers are
capital fund. similar in that they invest in growth businesses in return
for an ownership stake in the company and a degree of
involvement and control. They do, however, differ in
Robinson, who moderated a panel discussion at the annual Hawai'i
Venture Capital Summit on Thursday at the Hilton Hawaiian Village,
said the Legislature's decision last year to cut back a technology tax • Source of funds: Angel investors, acting alone or in
organized groups, are usually wealthy individuals, often
credit known as Act 221 dealt another blow to Hawai'i's reputation as with a successful entrepreneurial record, who invest
an unfriendly place to do businesses. their own money. Venture capital funds are corporate
entities that pool money from a range of institutional
and individual investors.
"I think the Legislature has created the impression that Hawai'i
cannot be trusted as place for private investment," he said. • Deal size: The range of angel investor transactions is
typically $25,000 to $100,000 for an individual, and up
to $1 million, or more, when acting in a group. The
"In combination with the Superferry (closure), that's created an image
range of venture capital transactions is large, from
that this is a terrible place to invest. I think we have to work really around $500,000 to $10 million, or above. Venture
hard to overcome that impression." capital may provide second-round financing after angel
TWO-MINUTE PITCH • Stage of development: The focus of angel investors
is typically earlier-stage businesses. Different venture
The daylong VC summit, sponsored by the state-funded Hawaii capital firms focus on different stages of business
development, but the unifying criteria is that they seek
Technology Development Corp., brought together venture capitalists
high growth companies capable of achieving exit
and angel investors from Hawai'i and the Mainland, entrepreneurs strategies that meet the fund's return criteria within a
and representatives from local high-technology firms and other deal makers in the sector. specified time frame.
Source: LBO Advisers
In a scene reminiscent of ABC-TV's "Shark Tank," entrepreneurs were given anywhere from two
to 10 minutes to make their pitches in front of investors attending the conference.
Each pitch was critiqued by a panel of experts. In the final round, three selected companies were
able to meet one-on-one with an investor behind closed doors.
In a two-minute pitch session, Justin MacNaughton, 38, laid out his company's plans to launch a
car-share service that will allow visitors to rent cars by the hour via a kiosk in hotel lobbies.
GreenCar Hawaii borrows its concept from Zipcar, the nation's leading membership-based car-
sharing service, and adapts it to the visitor market.
MacNaughton and business partner Warren Doi, 40, are moving ahead with a pilot program for
GreenCar Hawaii at the Grand Hyatt Kauai later this spring that will feature a fleet of four to six
Ford Escape hybrid SUVs. GreenCar will charge an all inclusive rate of $15 an hour.
Venture capitalist Christopher R. Hemmeter, left, talked with
Justin MacNaughton, center, and Warren Doi of GreenCar
"GreenCar Hawaii is evolving a proven and successful business model by providing car-sharing to Hawaii following their presentations at the Hawaii Venture
the tourism and travel industry, one of the nation's largest markets," MacNaughton said during his Capital Summit this past week in Honolulu.
pitch. NORMAN SHAPIRO | The Honolulu Advertiser
"We make money by providing cars for use by the hour with an all-inclusive service fee that
eliminates the typical cost of paying for vehicle when you don't need it, gas, insurance and paying
for parking," he said.
"We're currently funded for the pilot program, but we're looking to have meetings with any of you
out there to discuss a growth platform to take GreenCar Hawaii from an individual island market,
through the state and beyond."
Panelist Christopher R. Hemmeter, managing director of Quest Hospitality Ventures, critiqued
MacNaughton should have spent more time talking about some of the inconveniences in renting a
car from a traditional vendor, Hemmeter said.
In his two-minute pitch at the Hawai'i Venture Capital
Summit, Justin MacNaughton of GreenCar Hawaii told
"What I didn't hear up front is what is broken down. It's always really interesting to me when I investors he wants to meet with them "to discuss a growth
meet someone who can identify something about the way things are being done that's broken,"
NORMAN SHAPIRO | The Honolulu Advertiser
Hemmeter said "That's got to get me first, and to say we can solve it in this way is the next
Other presenters included David Watumull, chief executive officer of 'Aiea-based Cardax
Pharmaceuticals; and Jeanette Hereniko, founder and president of AsiaPacific Films.com, an
online film library that streams films.
STATE HAS AN EDGE
Many of the morning panel discussions focused on the challenges Hawai'i faces in developing a
robust venture capital community in an area so far from the established technology and financing
But there also was widespread agreement about where the state has a competitive advantage:
Kolohala Ventures' Robinson said Hawai'i's progress in developing technologies to harness solar,
wind, ocean and geothermal energy will help attract venture capital at a time when investors are
becoming more choosy about where to put their money.
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"I think renewable and sustainable technologies is a definite bright spot for Hawai'i," Robinson
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Darren Kimura, founder of the Honolulu-based solar power company Sopogy Inc., said the firm
that he launched in 2002 has expanded its operations to seven western states, including a
manufacturing facility in Los Angeles and a sales and marketing office in San Jose. Its research Business alerts
and development operation, however, remains in Hawai'i. Enter cell phone number to get
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Sopogy uses mirrors to intensify sunlight and generate power as opposed to photovoltaic systems
that use panels made from silicon cells that convert the sun's rays into electricity.
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William Reichert, managing director of Garage Ventures, an early-stage VC firm based in Palo
Alto, said Sopogy is an example of a Hawai'i-based company that would be successful in any
"There are sort of two types of entrepreneurs from Hawai'i," Reichert said.
"One is the entrepreneur from Hawai'i who's clearly from Hawai'i. And the business model, the
orientation, the focus is, 'We've got this thing we're doing in Hawai'i and its really cool and we
think we can build a good business doing this.' And from our point of view it's quite possible you
could build a good business doing that but your orientation is too narrow.
"The other type of entrepreneur from Hawai'i is a global entrepreneur day one. And it's a person
whose frame of reference is not Hawai'i, they just happen to be from Hawai'i and they happen to
have a team from Hawai'i but the frame of reference is global."
Reach Alan Yonan Jr. at firstname.lastname@example.org.
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