Solid Strides Replace Baby Steps at Recession-Born Startups

April 22, 2010 | Reprint from New Mexico Business Weekly; by Kevin Robinson-Avila

Bruce Fryer, CEO of the New Mexico-based startup ProtoHIT Inc., said a recession is the best time to start a company.

He should know. As a serial entrepreneur, Fryer launched a previous firm during the 2001 economic slump. He also created ProtoHIT, a medical software company that markets University of New Mexico technology, in the heart of the recession in March 2009.

Lower capital and operational costs, plus the need to make do with few resources, keep startups lean, Fryer said.

“Recession forces extreme discipline,” he said. “To succeed, you need a laser-like focus on your mission and goals. There’s just no room for fat or slop.”

Such discipline seems to be paying off at ProtoHIT, which launched with $90,000 in seed funding from venture capitalists in 2009, plus $250,000 more it received in 2010.

The company markets software that reportedly lowers costs for workers’ compensation clinics and private providers by standardizing treatment of injured workers and improving communication among doctors, employers, insurance adjusters and patients.

ProtoHIT signed its first contract last fall with Utah-based occupational health provider TotalRehab, which runs two clinics for Autoliv Inc., a global supplier of automotive safety systems. The company signed a second customer this year, and is negotiating with two more firms, one of them an insurance company, Fryer said.

ProtoHIT is raising $2.5 million in venture funds for mass marketing.

“By launching in recession, you get way ahead of the competition,” Fryer said. “We’re already shipping product, while other firms are just now looking to launch.”

Like ProtoHIT, many local startups that emerged in the recession are making substantial progress in developing products and building markets, according to company executives and private investors.

At least 10 new firms, including ProtoHIT, formed with angel and venture backing between summer 2008, when the economy plummeted, and fall 2010. Many of them are developing technologies related to the health care industry, which took a smaller hit during the recession.

Lower company valuations during the recession attracted private equity. That led to the creation of two new seed and early-stage investment funds, Cottonwood Technology Fund and Phase One Ventures LLC.

To date, Cottonwood has raised $13 million and invested in two startups, Skorpios Technologies Inc. and Respira Therapeutics, which are among the 10 companies started during the recession.

Phase One raised $2 million and has invested in three local startups, but those investments remain confidential and are in addition to the 10 reported startups, said John Chavez, general manager at Phase One and president of the New Mexico Angels.

However, two Angel-led startups, Vista Therapeutics and Lotus Leaf Coatings Inc., are very public about their progress.

Santa Fe-based Vista launched in summer 2008 with $150,000 from the Angels. The company created a medical device that continuously monitors body fluids in trauma patients.

It uses electrically charged nanowires lined with antibodies that attract target proteins as biomarkers to immediately assess a patient’s condition and measure responses to medication.

Vista received a $1 million investment in 2009 from California-based TEL Venture Inc., a subsidiary of the Japanese firm Tokyo Electron Ltd., and another $1.5 million from individual and institutional investors in 2010.

But the company has hit some snags since last year, said Vista CEO Spencer Farr. Japan’s earthquake and tsunami affected some Tokyo Electron operations, interrupting negotiations for a new investment in Vista.

In addition, a special glue to attach antibodies to nanowires didn’t work as planned, forcing Vista to seek an alternative.

Now, however, Vista has forged a partnership with Los Alamos National Laboratory for an alternative glue. The company will receive $100,000 from LANL’s venture acceleration for product development, plus $40,000 in technical assistance, Farr said.

Vista is in the process of raising $5 million. It will present at Technology Venture Corp.’s equity capital symposium May 18-19.

“We’re looking for money to build a fabrication center,” Farr said. “We anticipate launching our product about four weeks after getting funds.”

Lotus Leaf Coatings launched in July with $232,000 from the Angels and Flywheel Ventures.

It’s marketing a super hydro-resistant coating developed at UNM that can protect surfaces such as textiles against stains and metals against corrosion.

Lotus has forged a partnership with a large, but unidentified, medical device maker to apply its product in medically related markets. The company also started generating revenue this year.

“We’re negotiating with some fairly large customers now who want an ongoing contract,” said Lotus CEO Lawrence Chavez.

Cottonwood’s two startups also report progress.

Skorpios, which launched in August with $2 million from Cottonwood and Sun Mountain Capital, is developing technology to lower manufacturing costs for networking equipment used in fiber optics.

Skorpios signed an agreement with German firm Nokia Siemens Networks in March to further develop its technology, said Skorpios President and CEO Stephen Krasulick.

“We will jointly develop a custom optical electronics module for networking equipment that Nokia would include in parts it sells to customers,” Krasulick said.

Cottonwood co-managing partner David Blivin said the agreement greatly boosts Skorpios’ market credibility.

“Nokia is a conservative company. It wouldn’t step out on a limb,” Blivin said. “This really validates what Skorpios has done.”

Respira Technologies, which formed last fall with $1 million from Cottonwood, is developing a new drug inhaler from UNM that could deliver a lot more medicine to patients’ lungs.

The company recently completed its first clinical trials, said President and CEO Jacques Pappo.

“We’re puffing along,” Pappo said, pun intended. “We have interest from some large pharmas. For a six-month-old company, we’ve made a lot of progress.”

krobinson-avila@bizjournals.com | 505.348.8302