Wearable Tech World Feature Article
July 08, 2014

Attorney Joe Daniels Discusses Wearable Computing

TMC Donatella Giacometti: Hello everyone. I am Donatella Giacometti, contributing editor for TMC, the global media company. I cover the business of wearable computing, and today I'm happy to be speaking to Joseph Daniels, Partner at Loeb and Loeb LLP. Mr. Daniels represents startup to mature public companies, private equity and venture capital funds, and investment banks in a wide range of corporate, finance, MMA, and matters of securities law. Loeb and Loeb is a multi-service law firm with more than 350 attorneys and offices in Los Angeles, New York, Chicago, Nashville, Washington, D.C., Beijing, as well as an affiliate office in Hong Kong. So welcome Joe Daniels, Partner at Loeb and Loeb.

Joseph Daniels: Thank you Donatella.

DG: Thank you Joe. So we’ll get right into it. I’m excited to be talking with you today and I’ll hit the first question. What do you see as the key elements, what do you look for as the key elements in a business plan please?

JD: Okay, so when you say a business plan I assume you mean what investors evaluate for the purposes of deciding whether to meet with a startup or a company they’re thinking about financing. And to me this means one page executive summary and/or a 15 slide Powerpoint. In my opinion both of those documents (and obviously it’s harder to cram that in to a one pager) should have: number one a summary of the business meaning a description of the products and services offered and the cash flow model, a market assessment meaning an analysis of the size of the market in which your products and services will be offered and the likely portion that your company can capture, information on barriers to entry for potential competitors, your current traction including users or subscribers, actual sales and revenue, distribution partnerships and other evidence of adoption of your products and services, showing how the business is scalable, a discussion of proprietary intellectual property and patents, importantly a go-to-market strategy meaning a discussion of how you will sell and market products and services, a description of the team, some description of the competition and my favorite is the table that shows how the company has it all – all the boxes checked and how the competitors are lacking they only have 20 percent or 80 percent of the boxes checked, a summary of your anticipated exit strategy which usually involves listing potential buyers or acquirers, the amount that you’re trying to raise and the intended use of proceeds, and some financial information both historical (if you have anything going on in the past) and projections.

DG: That is so practical, that is really a thorough answer, thank you for that. I can almost picture slide by slide in that Powerpoint what you’re suggesting. That is very useful. So moving right along then, when should entrepreneurs in your opinion turn to the investment community for financing?

                                                                                               

JD: That’s an important question. So at the earliest stages in my opinion you should only begin to actively seek funding when you have a convincing CEO and CTO team, a good business plan that shows a very large addressable market, and a minimum viable product, like a beta version of software or a prototype. And, what I mean by minimum viable means, that the product is actually usable in whatever its market segment is and can already attract early adopters—at least if not go viral and have everybody use it. At later stages, I think you have to turn to the investment community whenever you need capital for operations, whenever you’re running out of money or where it can enable significant growth, on the other hand. Obviously, you want your recent performance to show significant growth as possible with the investment in either case and so offer investors a big return.

DG: So then if all of that is in place, where should entrepreneurs then go to raise capital?

JD: Sure, so in my humble opinion, in the United States the top four tech company centers are the Silicon Valley, New York City, Boston, and Los Angeles. Other people would disagree but I’m just going by total dollar volume invested by VCs. But obviously different cities are stronger in different sectors. For instance, as an example, Silicon Valley as you can tell by its name is obviously strongest in semiconductors, while New York City is arguably strongest in fintech, financial services technology.

As for the types of investors, you generally want to look for investors that are appropriate for your geography, for your stage of development, and your industry. The geography element has broken down over the decades as transportation and remote communication becomes easier, but still I think investors want to invest generally in their own backyard. For example, if you’re in New York City and you have an early stage IOE or a wearable’s startup, you could get someone to introduce you to the 6-10 major active angel groups, each of which have around 100+ angels. And if you’re at a growth stage or otherwise ready for VCs you think, you can contact VCs that you personally know and your advisors that know still other VCs that have made or want to make growth investments in companies like yours. And, at both the early stage and growth stage, I see strategic investors or the venture arms of large companies participating in the same rounds as angels and VCs, so I’d recommend trying to solicit their investments as well. The only difference with these strategic players is that you should try to avoid granting them any restricted commercial rights, and in some cases blocking rights on financing or acquisitions, which they could technically exercise just to eliminate potential competition from your company.

                                   

DG: Okay so I have a couple of follow up questions to that. Maybe we can take that last point about not blocking future growth to use my own words, from what I’m hearing you say. Is that really part of the legal documents that you would draw up in making an arrangement with an investor?

JD: Yeah, precisely. In other words, when you’re working the strategics, and even to a lesser extent with purely financial investors, you’re engaging in a balancing act of – obviously you want the money, and the money can really help you grow your business, but at the same time you could be giving rights that could harm your business down the road. That’s the most abstract way to look at it.

DG: Okay so there’s probably a lot of subliminal information in all of that that an entrepreneur might want to think of as they go forward in making a deal.

JD: Correct.

DG: And then you also mentioned about the idea of introductions and different markets and different segments, and that really leads me into the question about capturing the attention of potential investors. So how can entrepreneurs best do that, so how do they get those introductions, and in the absence of those introductions, in the sense of a cold call how do they make an impact so an investor may be interested in speaking with them?

JD: Well, just very practically, without getting into what you can put into your deck that really gets people’s checks writing, to me the best way to attract investors is by achieving success and generating media coverage of that success. Investors of all levels and all their analysts and associates are constantly scouring publicly available information at all times to find potential investments. My best clients or the ones that the investors perceive to be the strongest businesses are often getting cold calls from investors. But if they’re not calling you daily, then you have to reach out and often vigorously over a period of 6-9 months. And if you’re an early stage company, you just apply to pitch those numerous angel groups that I mentioned that are in each city, and at later stages you have to try to set up meetings with VCs. The principal way that you get those meetings is by creating that 15 page slide deck and sending it around. It’s always best to tap your business networks, especially service providers like accountants, lawyers, financial advisers. I see a trend of a lot of independent wealth managers at the bulge bracket banks and even boutiques trying to help startup entrepreneurs find potential investors because they basically want to create someone whose money they can manage down the road when there’s an exit, insurance brokers and really anyone you might outsource to, as well as importantly other company founders for introductions to investors. And almost all the startups I represent will ask me for an introduction to an investor at some point, and I usually have a good number that make sense to introduce them to. Particularly after you

have at least one anchor investor for your round, you can often find potential additional investors by using the crowdfunding platforms that are popular in your area, such as Angel List, Seed Invest, and Return on Change.

DG: Okay very practical. So now a more abstract perspective. Are there any current events particularly in the technology sector that you feel are particularly notable these days?

JD: If you mean trends in developing technologies, I’d say that a few of them just off the top of my head – probably Internet of Everything is something I see all over the place these days. By everything I mean everything having an IP address and sensing, analyzing, and transmitting information in a network and that includes everything from field equipment like glasses. For instance my client Augmate which focuses on delivering enterprise application to digital glasses like a pick and pack solution in a big warehouse, to consumer items like smart TVs, watches, cars, and household appliances, and the consumer items that are worn close to the body, what are usually called wearables.

Also I think 3D printing is exploding as everybody’s probably noticing. It’s really emerging as a real viable and cost effective way to reduce product development and even manufacturing costs through improving your designs more readily, streamlining prototyping and on the manufacturing side short-run manufacturing.

And, also the rise of the smart machines. I think you can expect a proliferation of contextually aware, intelligent machines with significant learning capabilities, from smart advisors like the IBM Watson machines to autonomous vehicles on land, sea, and air, to personal assistants which was recently explored for public consumption by the recent film Her, but also covered as early as 1999 by cyberpunk author William Gibson in this book called Idoru, and even personal companions like the Pepper robot in Japan.

DG: Do you see, before we move on to the last question, any convergence of some of the things you mentioned, where there may be a common thread that we could look for where we’re keeping our eye on the technology sector?

JD: Wow, I’ve never tried to come up with a common thread for the whole thing. But there are so many incredible new technological developments that run through all of this like software defined networking, big data, things like that.

DG: Very good. So finally, looking ahead, how do you imagine wearable technologies enhancing our lives?

JD: Well to me, wearables, the main thing about them is they allow for convenient real time collection of information about ourselves and our environment. So like everybody I see a large number of potential healthcare or lifestyle improving applications. They’re really already on the market like activity and vital signs monitoring for purposes of tracking behavior, diet and exercise, triggers for different types of healthcare like alerts to take your medicine or get some sleep or calling the paramedics, notifying healthcare providers when you have a health emergency of any kind, and there’s even some diagnoses that can happen remotely. You can actually identify some illnesses just by the modulation of your voice when someone’s talking to you on a mobile device. Smartwatches and glasses I think will make it easier to collect and obtain useful information in the field. Watches seem to be a great way to get information on your vital signs and notifications and media. And smart glasses allow for augmented reality applications, like convenient real time analysis of whatever imagery you’re looking for at the moment, allowing for identification of what you’re looking at and tracking and delivery of information about what is being seen. For instance, even some instructions about what to do with an item on the assembly line, or telling you where you can buy that dress, whatever’s in your field of vision. Or just inserting imagery or video as an overlay consistent with your field of vision like the Heads Up display of the Terminator. Of course you can envision a lot of potential gaming applications for watches and glasses or even virtual reality headsets like Oculus Rift which was recently acquired by Facebook for 2 billion dollars.

DG: So there’s a lot to look forward to. Joe I want to thank you so much. Joe Daniels, Partner of Loeb and Loeb. Once again, this is Donatella Giacometti, contributing editor for TMC, covering the Business of Wearable Computing. So thanks again.

JD: Thank you.

Want to learn more about the latest in wearable technology? Be sure to attend Wearable Tech Expo, July 23 & 24 at the Javits Convention Center in New York City.  Stay in touch with everything happening at the event -- follow us on Twitter.




Edited by Maurice Nagle




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