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In this month’s Catalyst, we feature a Q&A with Brad Czernejewski, founder of the Federal Sleep Institute. Brad recently obtained financing for his one-year-old start-up, which is a major victory in the current lending climate! We also report that three of our Venture Track Companies were selected to present in the Early Stage Symposium held Nov. 10, 11 in Madison, WI. Check out our College Consortium Corner to learn about the new collaborative effort we formed with the Governor’s Business Plan, and read President John Torinus’ column on the need for an early stage funding resource.
Support and Working Capital Key to Startup Success
By John Torinus
 Advocates for entrepreneurship have learned from experience that there are two major requirements for creating an ecosystem that promotes high growth start-ups. They are a support system to get would-be entrepreneurs investors ready and a pool of early stage capital.
BizStarts Milwaukee has been working for more than two years to create a support structure for entrepreneurs, and it is now running full force. By the end of its Venture Track process, a new venture possesses a business plan that has been thoroughly vetted by experts in start-ups. It is as bullet-proof as possible.
On the money side, early stage capital is still in short supply. There are three angel funds in the M7 region, and that is a big improvement, because there were none 15 years ago. However, their capital is still inadequate for the region. There are more deals than can be funded.
In addition, the region is served by two venture capital funds. Baird Venture Capital has done a couple of deals in the state, and the new Capital Midwest Fund has raised $25 million. It has done two deals, one in Illinois and one in Minnesota.
What's missing is an early stage fund. Some business leaders in the M7 area are working to make that a reality. They could get some help from state government, if a recommendation from this year's Wisconsin Economic Summit is adopted by the new governor and legislature. The summits resulted in a document called the Wisconsin Prosperity Strategy, and it calls for several broad initiatives to propel an entrepreneurial culture across the state.
One major recommendation calls for a Wisconsin Idea Fund of $1 billion of bond money for investments in innovation and technology advancements. It follows the lead of the Ohio Third Frontier Fund, which was supported by that state's voters to the tune of more than $2 billion. That fund has helped greatly with job and business creation in Ohio.
If a similar fund were mounted in Wisconsin, it could be used to match an early stage fund in the M7 region. Strict controls would be needed on the investments in start-ups and technology. They need to be managed by private sector experts. A "lock box" would be needed to prevent political favoritism in making the investments. If run right, the returns on the investments would pay off the bonds. It has been proven beyond debate that young companies create all the net new jobs in our society. That newfound truth makes the fund a winning idea.
The work of BizStarts Milwaukee could be rapidly expanded through a bigger pool of early stage capital.
College Consortium Corner
Winners of the annual Mason Wells-BizStarts Milwaukee College Business Plan Competition will be picked for the final round of the Governors Annual Business Plan Contest under a new collaboration with the Wisconsin Technology Council.
Penny Scheuerman, director of BizStarts’ College Consortium, said that under the new arrangement, contest winners will be selected for the Governor’s plan without going through the application process.
“This gives participants access to intense coaching services and possibly additional cash prizes along with more exposure to angel investors from around the state,” Scheuerman said.
Entering its second year, the BizStarts competition involves students from a number of Milwaukee-area colleges and universities who write business plans with the aim of moving their ideas beyond the concept stage.
The BizStarts competition, which last year included $15,000 in total prize money, will join three other regional or collegiate contests in feeding into the statewide competition. Those are the G. Steven Burrill Business Plan Competition at the UW-Madison, the Marquette University Kohler Center for Entrepreneurship Business Plan Contest, and the Northeast Wisconsin Business Plan Contest.
“It’s important to build a network of regional and college contests that can augment the Governor’s Business Plan Contest (BPC), which remains one of the premier statewide competitions for entrepreneurs working in the tech-based economy,” said Tom Still, president of the Wisconsin Technology Council. The Tech Council produces the BPC, which is entering its eighth year.
“Like the Mark Zuckerbergs, the Michael Dells and Bill Gates who came before them, this generation of college students is serious about starting companies,” said Dan Steininger, a Milwaukee investor and vice president of the BizStarts board of directors. “Tapping into the brainpower of those students is just what Wisconsin needs.”
Story Behind the Startup Perseverance paid off for entrepreneur
Federal Sleep Institute Founder: Brad Czernejewski
The Federal Sleep Institute provides a home-based testing and treatment system for those affected with obstructive sleep apnea. Historically, testing has been done through an overnight lab or hospital. The company was founded to provide a comprehensive sleep apnea treatment system to patients that would normally be excluded from treatment because of cost and convenience issues. The company's 4-step system, originally designed for the commercial trucking industry, is now available to anyone that is at-risk for sleep apnea. For more information, visit www.federalsleepinstitute.com
After a 12-month search for funding, Brad Czernejewski, founder of the Federal Sleep Institute, was at a low point. He had been turned down for financing by 12 different banks and was thinking about selling his house.
“It was a scary time; everything I had was tied up in this, I believed it in so much,” he said. “I was broke and looking for a part-time job. Then the loan came through and simultaneously sales took off.”
With help from his SCORE counselor and his own perseverance, Czernejewski eventually secured $40,000 in financing from a combination of SBA loans and a line of credit from U.S. Bank.
Below is an interview we did with Brad for this month’s Story Behind the Startup.
Q. Please tell us about your search for financing.
A. I began the company in 2009. I bootstrapped it with $50,000 of my own money. I spent year or so doing a lot of research. However, for this current round of financing, I went to 12 banks. In this economic climate, nobody wants to touch a start up. Even though it’s a great idea, no one wanted to touch it. Finally, I convinced them of my concept by showing sales traction and regular customers. They, the lenders, could see that my idea was producing revenue. And finally U.S. Bank came through.
Q. Where did the idea for Federal Sleep originate?
A. Commercial drivers have to go through a physical every two years and obstructive sleep apnea (OSA) screening is becoming a routine part of that physical. About 30% of the American population has OSA, but it is largely undiagnosed due to lack of awareness and education. If the driver tests positive, they have to go on continuous positive airway pressure (CPAP) therapy, and provide the DOT examiner with a compliance report. Sleep Labs are expensive, costing roughly $3,000-4,000 for the test. In addition, the CPAP machine and mask can cost about $3,000-4,000, so the total gets up to $6,000-9,000, not to mention the time off from work. A lot of drivers and trucking companies pay out-of-pocket for health services. What we do is offer drivers a home-based testing kit for significantly less. We can ship the test to them so they can perform tests at home instead of going to a sleep lab.
Q. How does Federal Sleep Institute differentiate itself in the home-testing OSA market?
A. We offer the whole solution, from start to finish: screening and sleep assessment, testing, CPAP therapy, and ongoing compliance monitoring. Our solution is convenient and we’ve reduced the cost of testing and treatment by 80% to $1,400-1,500. Also, most insurance companies do reimburse for this. The technology we used was approved by Medicare in 2008.
Q. How will you use the capital?
A. We are rolling out a national ad campaign, starting with a billboard in northern Wisconsin this month. We chose the locale because it’s a big trucking market. We’re also using radio and quite a bit of online marketing strategies such as Facebook ads and Google. We will also use funding for working capital. The funding will help us get to the next level.
Q. Aside from obtaining financing, what has been one of you biggest challenges?
A. Being a business owner is very lonely. Having someone, a mentor, or place like Venture Track with people to share the ups and downs with was helpful. My SCORE counselor, Dick Boemer, has been a tremendous help. He’s my most trusted advisor and helped me get the loan. Venture Track has been a great help and advocate.
Q. What advice would you offer others starting out?
A. You must have an appetite for risk and surround yourself with people that love you and support you and your idea--that’s critical. You must believe in yourself and idea. I believed in my company. I stayed focused, even when the banks were turning me down kept selling the product and persevered.
The Federal Sleep Institute was featured in the October 29 BizTimes’ Innovations Column. Read more here.
http://www.biztimes.com/news/2010/10/29/innovations-system-collects-sleep-apnea-data-at-home
Notes from the Field: BizStarts Alumni update
Dave Brethauer attended the first Venture Track class in June of 2009. His idea at the time was to start an aquaponics venture raising yellow perch. Now, little more then a year later Dave revamped his business plan and is launching Better Life Farms, LLC, a soil-based farm and he plans to bootstrap himself into the aquaponics venture.
Dave has taken his 75-acre farm and is creating a farm from yesteryear.
For more information, contact Dave at 262-227-1460.
Congratulations are in order for Venture Track companies Permit Path, iCura and Megatron Electromagnetic Systems*, all of which made the cut to present at the Early Stage Symposium!
Venture Track has been helping these startups prepare investor pitches for the annual conference, held Nov. 10, 11 at Monona Terrace in Madison, WI.
iCura is an online “medical device” that helps people take medication on time and in the correct dose. Megatron Electromagnetic Systems has developed a suite of patent-pending technologies designed to protect electronic devices, including PCs, mobile phones and data center servers against the threat of physical electromagnetic attack. Permit Path is a website for permit and permit-related information targeted to the building industry.
Audrey Boss, Permit Path co-founder, gave BizStarts and Venture Track high marks for helping her prepare for this high-profile pitch.
“I’ve had more great things happen to me in the past month working with BizStarts than in the past year,” Boss said. “They understand my struggles as an entrepreneur and have helped me meet the right people with the right attitudes at the right events. I don’t know what I would have done or where I would be without BizStarts.”
These are the first of what we are hope are many more Venture Track companies selected to participate in this annual event. Best of luck to all three!
Kurt Brandt
Founder, Megatron Electromagnetic Systems
*Read more about Megatron Electromagnetic Systems in a recent story on WisBusiness.com visit
http://www.wisbusiness.com/index.iml?Article=217036
 
Venture Track hosted several very lively Ugly Baby panels this month. Track Cost and iCura presented to a group of about 20 advisers in early October, while Megatron Electromagnetic Systems and Permit Path held their own in separate panels last week.
Track Cost is a middleware product that regains billable time from different applications and sources.
Venture Track is developing a TEK (technology, expertise and knowledge) database to enhance our advisors program. Experts listed in this database will be 'on call' when a company that matches their expertise has a need. We're looking for experts in a wide range of areas to be added to our database. Please contact Giuseppee Pappalardo for more information at gwp@bizstartsmilwaukee.com.
Start Up Accelerator 3, held September 25 at the Waukesha County Technical College, was a big success! Over 75 participants, aged 17-75, attended and participated in a wide range of sessions. About 50 pounds of food and $48 was collected for donation to the Waukesha Food Pantry. Startup Accelerator 4 will be held on January 22, 2011, at BucketWorks, 706 S. Fifth St., Milwaukee, WI 53204. Visit www.startupaccelerator.org and get involved in planning the event.
Incubator Space Available
The Milwaukee County Research Park’s Technology Innovation Center has a total of 20,400 square-feet of space available for qualified technology-based companies. The space includes:
• 4,400 sq. ft. of wet laboratory space • 10,500 sq. ft. of office and IT space.
• 5,500 sq. ft. of engineering and high-tech light assembly space.
• This space is suitable for bio-technology companies, software development, Internet applications, medical equipment design and assembly, and general office and administrative use. For more information, contact Bill Drew or Guy Mascari at 414-778-1440 or email gtm@mcrpc.org.
Mark Your Calendars!
The annual Wisconsin Early Stage Symposium will be held Nov. 10-11 at Monona Terrace in Madison, WI. For more information or to register, visit Wisconsin Early Stage Symposium.
BizStarts Milwaukee in the news! Read all about us in the following stories:
http://www.biztimes.com/news/2010/9/17/new-companies-create-new-jobs
http://www.biztimes.com/news/2010/8/6/10-people-who-are-changing-milwaukee
http://www.fox6now.com/news/witi-100707-bizstarts,0,7484694.story
For up-to-date information on BizStarts Milwaukee, be sure to visit the website:
http://www.bizstartsmilwaukee.com
http://twitter.com/MyBizStartsNow
BizStarts Milwaukee
http://www.facebook.com/home.php?#!/pages/Bizstarts-Milwaukee/129208813798104
Venture Track
http://www.facebook.com/profile.php?id=100001609343431
http://www.linkedin.com/groups?gid=1766387
Classes and events relating to business can be found on the BizStarts calendar at:
http://www.bizstartsmilwaukee.com/Calendar.htm
Pass The Catalyst newsletter on to your friend and associates! They can subscribe to our free newsletter on BizStarts Milwaukee’s Home Page under BizStarts Milwaukee Catalyst.
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