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Coffee Talk
Business Observer Friday, Oct. 31, 2003 14 years ago

Coffee Talk (Tampa edition)

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This week's items: Fewer regioanl venture-capital dealsHow SMH is stopping the bleedingLongboat company disputes claim

Coffee Talk (Tampa edition)

Next-to-nothing ventured

A declining number of regional venture-capital deals in the third quarter provided a sobering backdrop for the Oct. 28 opening of the Tampa Bay Technology Forum's annual two-day entrepreneur boot camp.

In all of the Southeast, there were just 50 companies that received VC funding between July 1 and Sept. 30, according to data from the PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey. That was down from 68 deals for the second quarter of 2003.

Yet Michael J. Brennan, a Tampa partner in Ernst & Young LLP's business advisory practice, urged the campers to be happy. "There's a lot of money out there looking for a place to go," Brennan told a couple of dozen entrepreneurs, who were hosted by Raymond James Financial Inc. in St. Petersburg. (The MoneyTree Survey did indicate overall aggregate dollar amounts had increased in the Southeast, from $231.7 million in the second quarter to $294.8 million in the third.)

Brennan says the odds of getting funded are long. Underscoring his point was a chart showing four deals are funded for every 40,000 ideas to create a new company, product or service. But a start-up raises its chances immensely if sales are made sooner rather than later. "Cash is king," says Brennan. Coming in with just revenue projections in your business plan is not the way to a venture capitalist's heart - if there is such a thing.

Actually, investment partners are into sharing. They don't like to be just piggybanks. Brennan urged the entrepreneurs, when and if they are financed, to accept eagerly offers from VC partners to share industry knowledge, accounting and legal contacts, even referrals to second- and third-stage funders.

"These are not the type of people who are going to hand you the check and say, 'see you at the board meeting a year from now,'" says Brennan.

How SMH is stopping the bleeding

Facing what may be a $17 million deficit at the close of its fiscal year, G. Duncan Finlay, M.D., chief executive officer of Sarasota Memorial Hospital, said: "I probably should have left last year while people were still clapping."

In remarks at one of the Argus Foundation's Meeting of the Minds luncheons last week, Finlay bluntly explained why the hospital is on track to go from its best financial performance in history (a fiscal 2002 surplus of $27 million) to a deficit: "Our charity and bad debt write-off was $35 million last year. This year, it's going to be in the $60s (million)." Not only that, Sarasota Memorial's admissions for the first seven months of this year are down 9.5% from a year ago. And adding to the woes, Finlay says, are increasing numbers of patients without health insurance. That number, estimated to be about 55,000 in Sarasota County, increased 5% between January 2002 and January 2003, Finlay says.

"The percentage of people uninsured in our region is the same as in Miami," he says. "It's worse than in Tampa and Naples.

"Can we stop the bleeding? We're confident we can," Finlay says. He says one of the steps the hospital has taken to control expenses is eliminate the practice of hiring temporary or agency nurses, freelancers who are hired at premium pay scales to fill in when needed. He says the hospital also recently laid off 45 employees and eliminated 21 unfilled positions.

In addition, Sarasota Memorial hopes to cut its costs for pharmaceuticals by going into a purchasing partnership with Lee Memorial Hospital in Fort Myers. The two hospitals will begin buying their drugs directly from manufacturers instead of from wholesalers.

Worth noting: Finlay says Sarasota Memorial has a strategic objective to open a medical facility in North Port. "But right now we need to get our house in order" ¦ Mental illnesses are becoming an increasing concern. "Yesterday we had 12 Baker Act problems in the emergency room; today we had eight" ¦ On the plus side: Finlay was happy to report Money magazine's ranking of Sarasota Memorial as among the best hospitals in the nation for the treatment of congestive heart failure, heart attacks and interventional cardiology procedures.

Longboat company disputes claim

The timing of a federal civil lawsuit against Infinium Labs Corp. comes at a curious time - just weeks before the company expects to unveil a sleeker new version of its widely publicized Phantom game console. A few months ago, CNN.com called the console a possible competitor to Microsoft's Xbox game console.

Who's We Studios Inc., a Frisco, Texas, developer of interactive Internet Web sites, claims the Longboat Key-based entertainment-and-gaming company owes $1.8 million for development of Infinium's www.phantom.net. The Web site developer sought an injunction and declaratory relief against Infinium in a lawsuit filed Oct. 20 in U.S. District Court in Tampa.

But wait just a minute, says Timothy Roberts, Infinium's chief executive officer. "Anybody can sue somebody for seven bucks and put any amount they want in there," he says. "We had a dispute over the charge. Who's We is a work-for-hire company. They had 60 days with four or five employees on it. It you look at hourly rates for attorneys, I don't think the numbers add up."

An internal Infinium analysis estimated the Texas company's work at about $30,000, Roberts adds. "They have basically taken an ordinary amount they said we owed them and multiplied it by 20," he says. "It's a frivolous suit."

There may be another reason why the Texas company claims it's owed $1.8 million, Roberts says. "We have a high volume of traffic," he says. "We think this is a ploy to get traffic to their website. Traffic is worth money in free marketing."

On its Internet Web site (www.whoswestudios.com), Who's We claims the Infinium site captured more than a million unique viewers during the first 24 hours of its debut. "Who's We was able to launch not only a Web site, but the awareness of a new gaming platform," according to the firm's marketing material.

The Longboat Key startup retained Los Angeles-based Morrison Foerster LLP to defend against the claim, with Sarasota-based Merrill Cullis Timm Furen & Ginsburg PA serving as local counsel. Morrison attorney Allen Z. Sussman serves on Infinium's advisory board. The Texas company retained Miami attorney Thomas H. Buscaglia.

"We are doing phenomenal," Roberts says of Infinium's operations. "It's the most exciting time in our business. We're so close to leveraging the final product and service to the consumer. We've aligned all of our partnerships and closed on a tremendous amount of content with triple-A (software) titles."

Within the next few weeks, Roberts expects to unveil the latest version of the Phantom console. In turn, Roberts anticipates a considerable return on the millions of dollars (in the single digits) invested into Infinium. "We have term sheets for much larger investors to come into the company," he says. "We're trying to get the company as far as it can for the current shareholders."

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