MCED Blog

MCED helps innovators fill in the gaps between their deep industry expertise and the strategic business skills critical to launching a scalable, sustainable venture. Maine's unique economic and geographic challenges demand more that a traditional business incubator. They demand a catalyst.

Mentor Highlight - Manual Hernandez

 

 

 

 

 

 

Manuel Hernandez has been steadily involved as a mentor for the Maine Mentor Network and MCED community for over three years. He specializes in strategic leadership for the execution of top line organic growth through business development. He helps companies address issues in multi-channel marketing, business analytics, and risk mitigation both nationally and internationally.

Manuel is currently principal for consulting firm, Uptimizm, LLC which holds offices in New England and North Carolina. As a consulting leader for a top firm, he helped drive growth for several Fortune 500 companies. 

Manuel earned an MBA from Ross School of Business at The University of Michigan and an undergraduate degree in International Economics at the Georgetown School of Foreign Service. 

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Top Gun 2016 Class Announced

Congratulations to the 29 companies selected from three regions to participate in Top Gun 2016. This year marks the second consecutive year that sessions will be held in three locations: Portland, Bangor and Rockland. The incredibly successful program, is designed to transform it's particpants from promising entrepreneurs into successful companies. The program has been running seven years, since 2009 and has graduated over 110 companies.

The selected entrepreneurs completed a rigorous application process that included submitting a pitch deck, presenting a pitch to a panel, interviews and participating in an optional PreFlight workshop series.

“This year’s Top Gun class truly represents the uniqueness and diversity of Maine’s startup community,” said Don Gooding, Executive Director for MCED, “Every year we draw an amazing group of companies who continually raise the bar in Maine.”

Top Gun is supported by Camden National Bank, Bangor Target Area Development Corporation and the Maine Technology Institute. Other corporate sponsors, local businesses, partner organizations, program advisors and mentors also contribute to the success of the program. Planning for the 2016 Top Gun Program was made possible by the U.S. Small Business Administration (SBA) through its Growth Accelerator Fund Competition awarded to MCED in August of 2015.

MCED was also awarded an i6 Challenge Award through the U.S. Economic Development Administration’s (EDA) 2015 Regional Innovation Strategies (RIS) Program, which is managed by EDA’s Office of Innovation and Entrepreneurship. The EDA award will continue to expand the Top Gun Rural Accelerator Network, which includes programs both before and after Top Gun. Next year, MCED plans to expand Top Gun to Lewiston-Auburn.

The following entrepreneurs have been selected to participate in each location:

Portland Class:

Ben Davis- True Course Yachting
Mike Mwenedata- Rawanda Bean Company
Kurt Shisler- FoodHEALTH
Joe Walsh- Green Clean Maine
Amanda O’Brien, Pete Dubuc- Eighteen Twenty
Alexandra Johnson, Dan Johnson- RoboJoe
Troy Locke, Rick Hollen- Spring Point Solutions
The Clothesline Club
Ryan Beaumont- Mobility Technologies
David Higham- Red Door Network
Mark Hews- Total Crowd Solutions

Bangor Class:

Ailish Keating- Botanical Brews & Happy Kids
Kasey Smith- Eternav
Elena Metzger- Print Bangor
Kelly McClymer- Kelly McClymer Books
Feras Elyounis- Half Auto
Simin Khosravani- Revolution Research Inc.
John Rasanen- Tips
Niles Parker- Science Around ME
Dan Steinke,Ted Morgan, Dave Pier- Dental Health Advantage Plan
Mandy Fountaine- Bar Harbor Catering Company

Rockland Class:

Sarah Baldwin- Bella Luna Toys
Juliana Hoffman- Tic Tac Taco
Claire Weinberg- Dulse & Rugosa
Jacinda Martinez- Grounded Local
Chuck Benton- TeamAR
Eric Jacobssen- Maine Classic Boats
Rhonda Nordstrom- Rheal Skin Care
Judy Bernier- Podzooks


The selected companies will meet in high-impact sessions in Portland, Bangor and Rockland. The classes convene weekly for networking, workshopping and mentor meetings over dinner. Sessions can include opportunities for pitch practice, presentations by experienced entrepreneurs, workshopping and lively discussions about such diverse topics as salesmanship, bootstrapping, hiring, firing and legal issues.

The program culminates with a showcase event in May. The event will feature a tradeshow in which all Top Gun companies will have a chance to showcase their business and 2 companies selected from each region will present before a panel of judges and an audience of 300 potential investors, business leaders, and the press.

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What Investors Wish Founders Knew or Understood

The relationship between the founder of a business and investors who back the founder in the early stages is complicated and can easily veer off course. While at first glance, one might expect that unforeseen setbacks for the business would be the most likely source of friction, that is not always the case. Most early-stage investors recognize that there are many factors outside the founder’s control and that there is always a material risk of failure.   Investors know this going in and generally size their investment accordingly. The worst that can happen is that they will lose their entire investment, and they are prepared for this eventuality.

Surprisingly, a more frequent source of friction derives from a degree of success.  Specifically, founders and investors sometimes fail to delineate in very clear terms the compensation that is being awarded to the founder as a result of their work, and what is deemed to be a return on investment. As a result, when the business begins to produce profits, the founder may seek to increase their compensation and the investors can feel like the founder is trying to “retrade” the original deal. An example may make this clearer.

Jim is desperate to launch a new business, but lacks the $300,000 necessary to buy equipment and fund necessary working capital. Jane agrees to make a $300,000 investment that must be repaid and will also receive a 33% interest in the equity of the business.   Jim’s salary is set at $75,000 and he gets to work.  Business is pretty good, and Jim finds that, after paying himself $75,000, he has a remaining profit of another $75,000. He begins repaying Jane’s $300,000 investment and after two years, he has paid it down to approximately $150,000. But Jim is straining to support his family on $75,000 and so he proposes increasing his salary to $100,000, reasoning that he will still be able to pay back Jane over time. 

In this case, Jim obviously felt that his $75,000 salary was a starting wage that he hoped would increase substantially if the business succeeded. In contrast, Jane may have expected Jim to increase his salary only with inflation, earning any additional compensation through his equity, in which of course she would share 33%. 

To complete the example, if Jim maintains his $75,000 salary, Jane will be paid off in two more years and then the $75,000 profit will be distributed $50,000 to Jim and $25,000 to Jane. In contrast, if Jim’s salary is increased to $100,000, it will take three more years to pay off Jane’s investment and, once it is repaid, there will only be $50,000 of remaining profit, which will be distributed $33,300 to Jim and $16,700 to Jane. The value of Jane’s long term equity interest is reduced by 33%.

The lesson is not that Jim’s request is unreasonable, it is that the full nature of Jim’s compensation for his work needs to be set out at the beginning so that the terms of the equity investment can fully reflect compensation costs over a range of expected outcomes. A more fully developed compensation plan might have included a base salary, specific guidance as to when and how much the salary would increase, and a bonus that related to profits, for example 10% of profits. This would have provided Jim a $75,000 salary that might have increased with inflation, and he would have earned a bonus of approximately $7,500 in each of the succeeding years.  Most importantly, Jim and Jane need to agree that this compensation package is reasonable and that, if necessary, another executive with similar skills could be attracted by this package to come perform the job at a similar level.

There will undoubtedly be some cases where the business simply doesn’t have the cash flow to pay the founder the full wage that would be required to pay a qualified outsider in the early years.  In such a case, the founder may decide that they are prepared to work for lower pay but should advise his or her investment partners of the compensation that should be provided once it is feasible. That way the investors can factor the higher pay into any investment return analysis that they may prepare.

Failure to establish a clear understanding of both short and longer term compensation expectations can be a point of friction between investors and founders. Open communication and reference to the standard of what would it take to attract a qualified third party to do the job can help provide clarity and lead to better alignment for all parties.

- Bob Gould, Executive Vice President, Principal and Vice Chairman of Spinnaker Trust

Spinnaker Trust is a Maine bank chartered as a non-depository trust company. Spinnaker specializes in investment planning, management, tax & estate planning, tax preparation, trustee services, and ESOP trustee services. 

MCED Sponsors understand the important role that our organization plays in supporting Maine entrepreneurs, providing ready access to the resources needed to launch and run successful companies in Maine. MCED thanks Spinnaker Trust for their support and sponsorship.

 

 

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5 Minutes with David Perloff
Q. In what ways do you think being an entrepreneur has influenced you as an investor?
 
A. I was fortunate to be able to found two successful venture backed Silicon Valley companies which, long after they became a part of larger companies, have continued to provide equipment for use in manufacturing the integrated circuit chips that are so pervasive in our lives. These tiny silicon chips provide the memory, logic and communications capability that we rely on in our cars, computers and televisions.
 
Both of my startups required a blend of individuals with technical, sales, marketing and manufacturing expertise working as a close knit team to successfully operate in a fast changing global customer environment. As an investor, I look for companies that not only have a great idea and potential for market success, but which are capable of developing and supplying products to a market that typically extends far beyond their place of business.
 
Q. What is something you wish all founders understood about the way investors look at deals?
 
A. I focus on early stage companies that have or will soon have substantial market traction and whose founders have an innate sense of how to build and manage their business. In today’s world, startups must quickly scale their businesses, which means the startup team referenced earlier has to have a focus on products and services which solve customer needs.
 
It is critical that founders be market driven, spend much of their time meeting customers and understanding their needs, enjoy working in a competitive environment and above all are capable of closing orders.  In addition, founders must be able to rapidly pivot and refine their business model in the face of both known and unanticipated competitors. That said, frequent pivots can be costly and time consuming, and are likely to cause investors to lose confidence in the founding team’s ability to achieve success. 
 
Q. What could Maine learn from Silicon Valley and what could Silicon Valley learn from Maine?
 
A. My wife and I maintain homes in the San Francisco Bay Area and Southern Maine. Both regions have a commitment to innovation and building companies that address customer needs. Silicon Valley startups typically draw on people with prior business experience or who have worked for larger companies where they’ve had experience developing and bringing one or more products to market. Maine startups typically involve first time entrepreneurs who are not experienced in the demands of building a company and, in particular, the necessity of being “all-in” and working incredibly long hours. That said, Mainers have a greater sense of fairness, are excellent at building lasting relationships and have a strong commitment to personally supporting their customers.
 
Q. Your foundation, The Perloff Family Foundation, funds many STEM and STEAM initiatives, why is this so important to you? 
 
A. My wife and I were extremely fortunate to be able to attend public schools that “worked” and to have access to higher education opportunities that launched our careers without the burden of the student debt that is so prevalent today. After a successful merger of our first company, we decided to direct our philanthropic efforts into K-12 education, which led to our establishing the Perloff Family Foundation. We explored grant making options in California, Philadelphia and Maine, and quickly concluded that it was far easier and more rewarding to pursue these efforts in Maine.
 
Since the inception of our grant making in 1999, we’ve awarded more than $1.5M to schools small and large across the state of Maine. Along the way we’ve developed an approach that I like to think of as venture philanthropy in which teachers identify exceptional learning opportunities for their students, and address those needs by meeting clearly defined objectives. In addition to the funding we provide, we visit every one of our grant recipients at least twice during the school year, doing everything possible to encourage successful outcomes.
 
Our grants have been directed to all areas of education, from archery to theater residencies to Orff instruments. That said, STEM and STEAM grants have become an area of increasing focus for us because of the critical need for scientists, engineers and technicians to grow Maine’s economy and assure future career opportunities for its students. We have major initiatives in the area of classroom maker spaces that incorporate robotics and 3D printers, and this year we will be awarding up to five scholarship grants to graduating high school female students who have exceptional career potential in the areas of STEM and STEAM.
 
Q. What led you to study Physics and would you do it all over again?
 
A. I found physics of interest because of its emphasis on using mathematics and modeling to understand and address phenomena whose commercial value may not yet be fully known or understood. I quickly discovered that I really liked to solve problems that were cross cutting and blended science, technology, engineering and math in a creative way, but with an emphasis on shorter term R&D that could be carried out by small teams without government funding or support. Eventually, that interest led to developing methodologies and techniques which are now widely used in the semiconductor industry for maximizing production output and assuring optimal chip performance. So yes, I would definitely choose Physics again and am pleased that our granddaughter has chosen to study Astrophysics at Harvey Mudd College, but of course I cannot claim credit for her decision to do so. 
 
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