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14 Hot Startups-This year’s list includes five health-care companies, one biogenetics firm, and absolutely zero dot-coms. How does your model stack up?
You’ve almost got to pity the 14 entrepreneurs profiled in the following pages. Not long ago investors would have climbed over each other for the opportunity to fund these companies. But great ideas don’t wait around for a sympathetic economy, and neither do the visionaries you’re about to discover. World-changing concepts may be out of fashion, but who cares about fashion?
FORTUNE SMALL BUSINESS
By Jennifer Keeney, Beth Kwon, and Maggie Overfelt
That said, as we compiled this year’s hot startups list, we did not relax our standards. We pored over hundreds of candidates from dozens of sources–venture capital firms, angel networks, universities, competitions–to find the most exciting, innovative companies in the nation. Our criteria for inclusion: a truly Big Idea and some form of institutional backing, either reliable funding or strategic partnerships. The companies we came up with hail from across the country and tackle diverse problems, but they all suggest that while the economy may be stumbling, the state of entrepreneurship is healthy indeed.
Sun Dance Genetics
Corn that stands up to anything
http://www.betsyeble.com/dsc/sundance/
Mary Eubanks has created a genetically modified variety of corn that can resist just about anything: drought, insects, and even the PR headaches that have plagued Monsanto and other dabblers in "Frankenfoods." For the past decade Eubanks, a 55-year-old Duke University biology professor, has toiled in her Durham, N.C., lab. She hoped to create corn with increased resistance to drought and disease by importing some genes from a tall, strong variety of grass called gama grass. Did she succeed? That’s an understatement. During last summer’s drought she tested her technology in North Carolina; crop yields doubled.
Eubanks’s corn includes more air channels in its roots, which allow oxygen to filter through even in swampy areas. The hybrid is also resistant to rootworm, a beetle that causes 50% of corn death in Third World countries. "The insect she’s targeting is a serious pest all over the entire Cornbelt," says Dr. Walter Riedell, a plant physiologist at the Agricultural Research Service at the USDA. "So if this research came to fruition, it would have a direct economic impact." Realistically Eubanks could be looking at a $130 million market. What’s more, Eubanks is hoping to avoid the pitfalls that can waylay other companies that experiment with genetically modified foods. Sun Dance’s technology is such that it need not navigate the often cumbersome regulatory approval process. "Because the [hybrid] she is putting forth is from relatives of corn," says Dr. Walton Galinat, professor emeritus of plant and soil sciences at the University of Massachusetts, "it’s natural and can’t be objected to the way synthetic genes might be objected to." Translation: Don’t look for the European Union to explode in protests over Sun Dance corn.
Advanced Cerametrics
Vibration-free tennis
http://www.advancedcerametrics.com
A 56-year-old startup might sound like an oxymoron until you examine the case of Advanced Cerametrics. The Lambertville, N.J., company once manufactured ceramic parts for use in the electronics industry, but in the 1980s that business started moving overseas. Rather than close up shop, president Bud Cass looked at his company’s technology and tried to think of new markets. Armed with Small Business Innovative Research funding from the Small Business Administration and a team of employees willing to be trained, Cass transformed Advanced Cerametrics into a new business, or, as he calls it, "a brand-new company wrapped around the old one." Cass and his team created a microscopic, flexible ceramic fiber that conducts heat like any ceramic pot. Those qualities give the fiber so many uses that analyst Mark Sirangelo, senior vice president of investment research firm ASB, compares it to Intel’s chips. "Computer chips run everything from cars to airplanes," he says, "and Cass is building the same kind of core technology that could be used in many different industries."
Like the sporting goods industry, for one. Andre Agassi plays with a Head tennis racket with ceramic fibers that stiffen the frame and lessen its vibration after a hit, resulting in a more powerful stroke. The fibers are also making their way into skis, baseball bats, and hockey sticks. But why stop with sports? Cass says his fibers could reduce the vibration in the fan of an air conditioner, for instance, making it run more quietly. Research is also underway for military and law-enforcement applications. Right now Advanced Cerametrics pulls in $1.8 million in revenue annually, and no single market that it plans to enter is worth more than $15 million. But then, Intel started small too.
Cinema Latino
Bringing el cine to el barrio
Jared Polis, the entrepreneur best known for starting up e-greeting card site BlueMountain.com before he was 25 years old and selling it for about $750 million, is trying something new. Cinema Latino, his year-old Colorado startup, has nothing to do with the Internet. Instead, Polis is tapping into one of the nation’s quickest-growing markets–the Latin American demographic, which represents more than 12.5% of the nation’s population–and offering it something that hits closer to home: movies in Spanish.
"It’s meant to feel like going to a mainstream theater complex in Mexico," says Polis, who says that movies are a natural connection to an already huge market, marked by the success of Spanish-language radio (local stations) and television (Telemundo, Univision). So far Polis has opened three theaters–in Denver, Colorado Springs, and Las Vegas–with two more to come by the second quarter of 2003. Eventually he sees his company running 30 to 40 theaters nationwide.
Besides offering Mexican food, decor, and the occasional Spanish-to-English language class, the theaters, all old-but-renovated complexes, feature many types of movies: independent films from Latin American countries as well as Hollywood blockbusters–when the studios cooperate and actually make the effort to dub or provide Spanish subtitles. (Polis is still awaiting a dubbed version of Frida from Miramax; Cinema Latino’s box-office sales soared when it released Sony’s Spanish-dubbed Spider-Man last year.)
Although Cinema Latino is something of a departure for Polis, whose past success has come from building companies focused solely around the Internet, the new venture follows his typical if somewhat simplistic-sounding startup thought process: Take something that’s already out there and "do it better." BlueMountain.com was simply a timely extension of his parents’ 20-year-old greeting card and book company. ProFlowers.com, which ships flowers directly from grower to consumer, eliminates the middleman and sells bouquets and plants for less than its two competitors (1800Flowers.com and FTD.com). For Cinema Latino, which Polis largely funds himself, he seems to have taken a cue from Magic Johnson, who has opened up deluxe movie theaters in inner cities. "People have been running theaters for hundreds of years," says Polis. "We’re just adding a new twist."
Rubberworks International
Recycling the Michelin Man
Twenty-three percent of all tires end up in landfills. Another 40% are burned for fuel. But two entrepreneurs hope to make the Michelin Man fully recyclable.
Dan Lifton and Igor Reznik both immigrated to the U.S. from Russia in the late 1980s but didn’t meet until June 2002, when Lifton, then a Columbia University Business School student, was looking for someone to help develop his used-tire recycling technology. Lifton knew that ground rubber can be combined with asphalt to make running tracks and stadium turf, but most tires contain metal, which is inseparable from the rubber. Enter Reznik, a mechanical engineer Lifton met through a mentor at Columbia. Reznik helped design a process to strip the metal from the rubber and turn the rubber into a fine powder that could be reused in other industries. Rubberworks launched its first plant in Syracuse, N.Y., in January; it is making rubber powder, mulch, and crumbled rubber for use in playgrounds and turf and also recycling whole tires. That may not sound like exciting work, but it taps into a market worth $80 million, according to the Rubber Manufacturers Association.
Reznik and Lifton have received just $100,000 in funding–which they won from a Columbia investment fund. But the two aren’t looking for any more, hoping that the company’s twin revenue streams–charging businesses to take away old tires, then selling the rubber products they create–will be enough to carry it to profitability. So far they’ve talked with a tire-service company and a large Japanese automotive company about a financing partnership down the road. For now Lifton wants to see the Syracuse plant grow and take it from there. "That way," says Lifton, "when we go out to get more funding, we’ll be a growing concern with a proprietary technology and increasing revenues."
Fossa Medical
Opening the body for easier surgeries
In 1998 engineer Gloria Ro Kolb received an unwanted announcement from her employer, Johnson & Johnson: Her job was moving to Indiana. Kolb knew she had to pack her bags or come up with an idea that could keep her in Boston. The 30-year-old entrepreneur, with degrees from Babson, MIT, and Stanford, had plenty of expertise. And when talking to the urologist husband of a friend, she came up with a business idea that would let her stay put. The idea: a device that would gently widen small openings in the body to make it easier to remove kidney stones.
By 2001, Kolb had designed her device and founded a company around it: Fossa Medical. This August, Fossa got FDA approval for its initial product–called the Ureteral Stone Sweeper–and today surgeons throughout Massachusetts and New York have begun using Kolb’s device in marketing tests. After they’re complete–probably in the spring–Fossa will release its sweeper commercially.
And from there? Kolb sees Fossa moving into gallstone removal one day soon. In addition, Fossa makes a polyurethane stent that opens up veins that surgeons would normally have to flush out themselves before beginning surgery. If the company sticks to those three applications, it will tap into markets worth more than $500 million. So far Kolb has just angel funding backing her company, but with endorsements from potential investors, doctors, and the FDA, that could change very soon.
MeshNetworks
A flexible wireless Web
If you’re sick of having your cellphone’s calls dropped by overstuffed networks (i.e., if you own a cellphone), MeshNetworks of Maitland, Fla., hopes to make your life easier. In fact, if CEO Richard Licursi has his way, you’ll soon be able to use your phone in highway tunnels or to access a broadband connection from your car. His company is developing technology for a new breed of wireless devices–laptops, Bluetooth phones, Internet-capable PDAs, and so forth–that can act as routers for all of a network’s subscribers. So instead of depending on a static transmitter (such as a radio tower or the hub of a Wi-Fi network), signals can hop from device to device, ensuring a more flexible and stable connection.
The prospect may sound futuristic, but to some degree it’s already well underway. The military has begun using MeshNetworks’ technology. In fact it was Milcom Technologies, an incubator for military-based businesses, that first launched the company. And the potential uses are vast. For instance, Allen Nogee, senior wireless analyst at In-Stat/MDR, says the technology could also work well in an educational setting like a college campus, where a set number of people are plugged into the same network. And one of the company’s partners, a wireless broadband-services firm called Air Media Now, plans to roll it out to consumers in Orlando and other cities within the next three years.
MeshNetworks’ management team has a proven track record building multimillion-dollar companies from the ground up. Licursi and CTO Peter Stanforth recruited a team who developed wireless networks at companies like Phoenix Wireless Group, SkyTel, and Nortel. And talk about stable connections: MeshNetworks has landed partnerships with information technology companies and wireless Internet service providers such as Viasys, ITT, Fujitsu, and 3Com. Even if those partners don’t carry the company, there are plenty of others who believe in it. MeshNetworks is armed with $26 million in venture funding from the likes of BancBoston, Patricof, 3Com Ventures, and Redwood Ventures. The company has already passed the $1 million revenue mark, just a few months after shipping its product to customers.
CardioNet
24/7 heart monitoring
At age 15, James Sweeney distributed hospital supplies 36 hours a week–and "fell in love" with the health-care industry, he says. In college he was drafted and put in charge of a remote dispensary for a hospital in Germany, where his manual dexterity proved him a gifted suturer, even though he didn’t have a medical degree. "My dad was in the military, and I had gone to 13 grammar schools," Sweeney says. "As a consequence, my math and science skills were lacking." Luckily his entrepreneurial skills were not. Since 1979, Sweeney, now 60, has founded health-care companies Home Healthcare of America, CarePartners, CareGivers, CAPS, and Bridge–all of which are still in operation or have been acquired.
Sweeney’s latest project is CardioNet, a remote heart-monitoring service he founded in San Diego in 1999. A patient wears a four-inch round sensor that tracks heart-rhythm data and transmits any arrhythmias or other irregularities to CardioNet’s 24/7 monitoring center in Philadelphia. Within minutes technicians respond to events per the doctor’s orders. Industry experts say CardioNet’s business is unique; it is the only service that offers real-time outpatient monitoring.
Since CardioNet went live last August, about 30 doctors have registered, monitoring more than 100 patients (four of whose lives may have been saved by the service, according to Cardio-Net). But it’s not just doctor’s offices that have signed on. Hambrecht & Quist Capital Management, Sanderling, and BioFrontier Partners, among others, have put up $26 million, hoping for payback in an estimated $500 million market.
2ndPoint
Checking the oil and saving millions
Americans can’t ignore it: We need to cut down on our use of oil. To help, George Dzyacky, founder of 2ndPoint, has developed a patented technology that lets refineries conserve fuel themselves. Drawing on his 25 years of experience in the petroleum-refining industry as a production supervisor for Amoco and BP, he developed software that monitors oil levels in refineries. The technology predicts when oil levels will surge and cause flooding. For a moderately sized refinery, that could mean recovering more than 90,000 gallons of oil every year. And that could result in cheaper gas at the pump.
2ndPoint’s technology is still in the testing stage–Dzyacky has a pilot plant at the University of Texas at Austin that serves as a prototype to show potential customers. Shell Global Solutions (U.S.) has invested $240,000 in his research. Combine that with other investments, as well as university and government grants, and 2ndPoint is working with $860,000 in funding. That may not sound like a lot of money, but it has taken the company far enough to attract attention from several potential customers.
Dzyacky has already started adapting his technology to other industries. Next up: using 2ndPoint to monitor blood-glucose levels and combat diabetes. Dzyacky, the father of a diabetic son, has presented the technology to doctors in Chicago. If he succeeds, 2ndPoint could prove to be a gusher.
IOMAI
Needle-less vaccinations
IOMAI founder gregory glenn has probably never read Robert Louis Stevenson’s Dr. Jekyll and Mr. Hyde. Or if he has, its main message–don’t conduct scientific experiments on yourself–must have eluded him. In 1995, as a researcher at the government-run Walter Reed Army Institute of Research, Glenn developed a vaccine that could be applied through a patch on the skin rather than with a needle. Lacking funds, he gathered up scrap rodents–leftover lab mice that were "old or vaccinated with another vaccine"–and ran a renegade test. It worked. "A good inventor recognizes something important," recalls Glenn. "I knew right away it was hot." So hot, Glenn says, that he tested a patch on himself. When he found antibodies in his own bloodstream, he declared his experiment a success. Glenn’s method may be unorthodox, but his (patented) idea is the basis of IOMAI, a company he founded in 1997. So far he’s raised $80 million from funders, including angel investments, money from New Enterprise Associates, National Institutes of Health grants, and corporate financing from companies like Mitsubishi. IOMAI also has R&D alliances with Swiss vaccine manufacturer Berna Biotech and pharmaceutical company Elan.
IOMAI’s road to success has been a bit long, but its future looks quite promising. If IOMAI succeeds, it could end needle vaccinations as we know them; patch vaccines don’t need to be refrigerated, could potentially be applied at home, and would reduce needle injuries and contaminations. IOMAI’s influenza patch vaccine is in Phase II of human clinical trials, the next-to-last step before FDA approval. CEO Stanley Erck, a biotech and pharmaceutical industry veteran whom Glenn pulled onto his team in 2000, hopes physicians will start using IOMAI’s influenza patch by 2005. IOMAI is also researching and developing patches to prevent traveler’s diarrhea, H. pylori (the bacteria associated with peptic ulcers), anthrax, and cancer recurrence.
Regale
Reinventing paper
When Greg Gale was shopping around for investors during the dot-com boom, the venture capitalists he approached didn’t have much use for an entrepreneur with no college degree and a new idea for paper-packaging design. Those investors are probably regretting that now. Gale, a self-taught designer, has developed molded paper packaging that has caught the attention of several large retailers and even a government agency. Gale founded his company, Regale, in 1995, but the technology that now drives it was not developed until 1999 and 2000. The company makes a cardboard-like paper fiber that is cheap to produce, shock absorbent, and customized to protect many shapes. For California winery Chalone, Regale created paper crates that hold both the neck and the bottom of the bottle in place, which prevents the scuffing of wine labels. And Regale’s form-fitting boxes aren’t just more secure; they save their clients money. "It decreases the size of the container, so it saves on freight," says Willie Purvis, a plant manager at Libbey Glass who has been working on packaging design with Regale.
Regale’s containers, made from recycled paper and cardboard, are also environment-friendly. Hewlett-Packard is working with Regale to create a plastic-free alternative to bubble wrap and foam filler. Even the USDA has come knocking. The agency encouraged Regale to create paper packaging that incorporates leftover rice husks, chicken feathers, and even a "hay byproduct" better known as horse manure. "We think we can mold that into nursery pots," says Gale. Taking manure and turning it into flowerpots? Sounds like a born entrepreneur.
Canesta
Stylus-less PDAs
We might be getting fatter, but PDAs, cellphones, and pagers are only getting smaller. So how to meet the challenge of entering text on a tiny device? Stylus technology is clunky, and toting around a keyboard is a pain. That’s why Canesta, a San Jose startup, says its "electronic-perception technology" is the solution. Chips embedded in a handheld device send a beam of infrared light to a flat surface, projecting a full-sized keyboard. When the user "types" on it, another chip records the way the light is reflected back.
Founded in 1999 by president and CEO Nazim Kareemi, Canesta released its product in September to companies such as NEC, which will integrate the chips into consumer products that should be released in the first half of this year.
Canesta’s a first-mover in projection keyboards, although it does have some competition from Israel-based VKB, founded in 2000. Still, "Canesta is the only company with low-cost electronic-perception technology that has multiple applications across a wide variety of markets," says Chris Shipley, technology product analyst and executive producer of the DEMO Conference. And Canesta has earned the confidence of the
Carlyle Group in San Francisco and J.P. Morgan, raising a tidy $20 million. Allan Thygesen, managing director of Carlyle, projects Canesta’s chip could be in millions of mobile units by 2004 (as of now, Canesta is in talks with PDA, smart-phone, and keyboard companies). Just one request: Please don’t project those lasers onto any movie screens, all right?
MedMined
Keeping hospital infections at bay
Most people admitted to hospitals expect to come out feeling better. But hospital-borne infections–sicknesses caused by super-resilient bacteria that stick to hospital staff and medical utensils–kill more than 90,000 people in the U.S. each year, according to the Centers for Disease Control and Prevention. Birmingham’s MedMined, a two-year-old upstart founded by three reunited high school friends, is looking to reduce those numbers with its first-of-a-kind technology designed to detect potentially fatal infections.
MedMined’s 31-year-old president, Dr. Stephen Brossette, developed the technology in the late 1980s when he was looking for a graduate project at the University of Alabama at Birmingham. He wanted to combine his undergraduate physics background with computer science, and hospital-patient safety was becoming a prominent medical issue. "The methods being used by epidemiologists were not as good as they could have been," says Brossette. (Indeed, most staff members kept track of infections with computer printouts and highlighters.) Brossette’s application used data-mining techniques to identify potential outbreaks. Before receiving support from the university’s incubator, Brossette recruited two old friends–a lawyer and a second doctor–to help form a company around his research. The company’s flagship service, dubbed Virtual Surveillance, was launched in 2001.
Here’s how it works: All patient data, which hospital workers input as part of their routine, are automatically transmitted from the hospital lab database to MedMined via a secure computer connection. MedMined then aggregates the patient data and uses the information to analyze unusual patterns of infections to decide where there might be a quality-control problem. "We offer hospitals the ability to find the right answer without knowing what question to ask," says Brossette, who claims that MedMined can save a hospital millions of dollars, both in treatment costs (on average, one infection can cost up to $14,000 to treat) and in workflow costs (deploying the service reduces the amount of hours staff has to be paid).
MedMined, which raised over $2.25 million from local venture capitalists and health-care companies when it sought funding last March, is currently used by 25 hospitals across the nation, including the Children’s Hospital of Alabama, which credits MedMined for helping to identify previously unknown outbreaks of two bacteria (nosocomial Acinetobacter and Yersinia, which can cause meningitis and the bubonic plague, respectively). But MedMined has an even greater goal in mind–installation in all 6,000 hospitals in the nation, a $400 million market opportunity, according to Brossette.
Transmolecular
Using scorpions to save lives
Scorpions are generally regarded as deadly, but this Birmingham company thinks they could become lifesavers. Gliomas, tumors in the brain, are largely resistant to traditional treatments, but Dr. Harald Sontheimer of the University of Alabama at Birmingham discovered that a protein from the venom of the giant yellow Israeli scorpion could target tumor cells, but not normal cells, thus sparing healthy tissue. "It’s like a smart missile. The protein carries a radioactive payload that takes out tumor cells and leaves normal cells alone," says Transmolecular Inc.’s CEO, Dr. Matthew Gonda, a seasoned researcher and biotech executive who was brought on in 1999, three years after Sontheimer founded the company.
TMI has raised almost $10 million from Tullis-Dickerson, a biotech venture capital fund, President Life Sciences, and Techno Venture Management. TMI is trying to secure FDA approval–it’s currently in Phase I and II of clinical trials, where safety and efficacy are tested–but since gliomas affect only 17,000 people annually and constitute an unmet medical need, the FDA has designated TMI’s product an orphan drug, and Gonda is hopeful it could see FDA approval in just three years, as opposed to the typical decade-long process. And if TMI is able to secure that approval, investors will be sitting on a payload of their own. Next, Gonda says, TMI will try to develop treatments for more common diseases, like breast, lung, and colon cancers.
Pixim
Clear low-light imaging
Digital imagery is moving faster than the speed of light, but an age-old challenge remains: seeing in the dark. Burglars often shine flashlights into surveillance cameras to make it nearly impossible for guards to make out criminals as they dart about in shadow. That’s where imaging specialist Abbas El Gamal comes in. El Gamal immigrated to the U.S. from Egypt in 1974 to study electrical engineering at Stanford. Two and a half decades later he founded Pixim in Mountain View, Calif. Here’s how Pixim works: Most digital cameras capture an entire image and convert it to a digital format. That can be problematic if one side of a picture is notably darker than another because the exposure setting is uniform for the entire image. But Pixim’s chipsets insert an analog-to-digital converter in each pixel, so that every tiny component of the image will be adjusted for its optimal light level. The result: much clearer images in extreme light and dark conditions.
Right now Pixim has its lens leveled at the security market, and it has already signed up some security-camera makers as clients. Sony and Panasonic are the Goliaths in imaging chips, but Pixim is confident it’ll be the David that can topple them. "We’ve filed 68 patents," says executive vice president Robert Siegel, an entrepreneur who founded Weave Technologies, an imaging company he sold to Eastman Kodak, and who was brought on in 2001 shortly after Pixim recruited CEO Bob Weinschenk, a former Lucent executive. "We’re selling to the same camera manufacturers as Sony and Panasonic are selling to, and we’ve got the purchase orders to prove it," says Siegel. Camera manufacturers will start introducing products with Pixim’s chips as early as the second quarter of 2003. So far, investors Mohr Davidow Ventures, Mayfield Fund, and Mitsubishi are banking on Pixim, having ponied up a total of $36 million.
http://www.fortune.com/fortune/print/0,15935,417664,00.html?
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