Outside Erie

6 Responses to “Investing in Kanzius”

1. TJ
   May 15th, 2008 at 10:16 pm

   Private enterprise is efficient. Large investors will track down good ideas and invest in them so financing the idea should be left up to the open market to nurture the growth. (Any socialist will argue differently though.)

   If gov’t were to provide any level of funding, it would prove to be one more hurdle in the face of one of the most important advancements in recent health care history.

   There is no government subsidized industry that is self sufficient in the face of competition. A curing technology like Kanzius’ does not need to be caged in that condition.

2. George Vietze
   May 16th, 2008 at 6:28 am

   The Erie Times continues the “Your Image of Erie?” articles as Erie turns the spotlight on itself. Todays article “Erie’s Midlife Crisis is an Opportunity!”. One of Erie’s young women, Jennifer Dobbs Woods, observes her community as being 30-35 years behind the times, with her eternal idealism sees this as an opportunity for growth and evolution to make use of our current resources while seeking out new ones. She states,”At some point in time, maybe in my lifetime, we will catch up with the times and give other, more sophisticated cities a run for their money.” She defines Midlife crisis by referring to the Chinese character consisting of two words, one signifies “danger” and the other “opportunity”, Midlife crisis is a good place to be, the City is trying to find itself, going through growing pains, making mistakes, learning, discernment and coming out better each time. This will lead us where we really want to be. Some may embrace it, some may resist it, others may not participate. She states, we are in the process of maturing.

   The Kanzius project is an opportunity that has shown up in Erie and we can either embrace it, resist it or chose not to participate. All of the aforementioned are choices we as a community get to make. Erie can ill afford to miss another opportunity to help itself and mankind and not embrace this opportunity. Opportunities start with thought, focus and attention and eventually manifest itself but you have to be awake at the time of manifestation or the opportunity passes by to others who seek to go forward. Our local, state and medical community as well as our investment seekers need to come together as this “opportunity” is a good time to rise to a level of maturity that we now are capable. Time has come our way and NOW is a good a time as any to rise to the occasion. If our representative want an opportunity to shine a “positive” spotlight on Erie and move mankind forward it will embrace this opportunity and help the private sector support our local benefactor, this will help our local economy and our image around the world as a community that has truly risen from the PAST as it moves to the FUTURE…….

3. Mark
   May 16th, 2008 at 8:18 am

   As I watch our government twist, bend and force the image of the Comunity College to make it fit whatever mold it must conform to in order to get taxpayer financing, an idea for treating the scourge of cancer, that continues to prove itself through rigerous trial and experimentation, is ignored by Erie’s leaders, political and otherwise. If this idea and so far proven treatment, which is potentially the world’s greatest medical dicovery in decades, is not good enough for our leaders, I ask……WHAT IN THE HELL IS??????????

4. MGR
   May 16th, 2008 at 11:08 am

   To Peter’s point concerning private capital offers that have been submitted to date, the earliest stage investments can be dicey and many VC’s will seek to gain unfair advantages so the entrepreneur must be selective. Also, private strategic companies can seek to buy new ventures and John must absolutely not deal with them (think SC Johnson, Phillips, McKesson). What I perceive to be happening at this point, though, is that the venture’s risk is declining and the earnings potential is growing, putting John in a better position to pursue investments which will provide a strong return while allowing him to maintain maximum control.

   The reason a private investment partnership/hedge fund format may be ideal is that it would open up the field of investment to passive capital sources. While both hedge funds and VC’s often have passive investors, they operate differently. In the case of a venture capitalist or VC firm, there is a dedicated group focused on structuring early stage deals according to a specific format and every group has a different strategy. While typically they don’t seek control investments so they are not liable for failure, they may put provisions in their agreements that can call for their ability to seize control, seek early liquidity events or change management if results are not in line with their plans. Also, they tend to seek the highest returns possible and impute the maximum risk into their valuations. For many ventures, this is perfectly acceptable, but certainly not for the earliest stages of a potential cancer cure.

   Most established hedge funds also have a strategy, but they are formed to invest for whatever reason the organizers desire. In this case, a newly formed hedge fund with a trustworthy general partner could be formed solely to acquire a set percentage of Therm Med, LLC member units with a stated lockup period. For the sake of discussion, let’s just say it will acquire 5% in exchange for $10MM dollars. That would mean that the venture has an anticipated enterprise value of $200MM ($10MM/5%). -NOTE: I am assuming that the $100B estimate is an estimate of revenues based on the anticipated number of machines to be produced to attain some high saturation point in the market. Enterprise values by contrast are based on a typical market multiple value of annual earnings.

   Although hedge fund LP interests cannot be publicly advertised, they can be directly sold to accredited investors and approved purchasers and they are guided by their partnership agreement.

   What this would do for John is open up the field for him to obtain direct passive investments from participants that he cannot access currently. For example, the pool of Erie investors with net worths between perhaps $3-20MM. As I noted in an earlier post, Erie’s wealthy have not organized themselves previously into these types of investment vehicles, perhaps because there has not been a compelling enough argument to do so. In this case, each of those investors could buy into the partnership at whatever level they are comfortable and stand to earn a significant return on their investment. Many of these investors would be very uncomfortable shouldering too much of this investment for obvious reasons, i.e. $200K that may be lost for a possible 30-50% return ok, $2MM no chance. Also, companies with investable portfolios such as Erie Insurance or First National Bank usually are permitted to buy LP shares of hedge funds and VC funds, but they are not permitted to make direct investments into startup ventures for risk management purposes. There is also no reason that persons and entities outside of Erie couldn’t invest because there would be no provisions in the partnership agreement to permit the hedge fund to ever seize control or significantly influence the firm’s operations outside of being a minority investor.

   This might be a great way to shortcut the road to funding, plus it might get the ball rolling for more investment vehicles of this type to be organized in Erie. Last but not least, it would teach the citizens that Erie doesn’t need government money to succeed, we have the ability to shape our own destiny.

5. MGR
   May 17th, 2008 at 9:42 am

   To further demonstrate the benefit this type of investment vehicle can bring to both the investors and to John’s project, here is a quick calculation. If an accredited investor buys $200K of the fund and it has a lockup of 5 years with a target return of 30% annually, the value to be redeemed in 5 years will be $743-880K depending on how the compounding is structured and less any management fee or performance fee charged by the general partner. Therefore, the value of the entire hedge fund after 5 years would be $37-44MM, which I would bet is very pale compared to the earnings potential of this company. I am not sure if 5 years is a correct estimate of time to reach revenues and operating profits, but after 5 years several things could happen - shareholders could continue to hold their 5% of shares which would appreciate with the company; the company could buy back the shares by using debt at probably 8-10% interest rates if the earnings have reached maybe $15MM; or the company could buy back the shares by obtaining liquidity through a public placement of <5% on the AIM. The AIM is the London Stock Exchange’s alternative investments market and it does not carry minimum capital requirements or many of the other hassles involved in a public offering. There are more options, but this is a fair sample.

6. Leon
   July 21st, 2008 at 1:05 pm

   I love it; when and where do I sign up?