SurClean Refreshes its Products, Markets and Investor Pitches

Since making its first presentation at last year’s Michigan Growth Capital Symposium, SurClean Inc. has hit the refresh button on its product offerings, target markets and investor pitches. “We feel our story has changed dramatically,” explains CEO Susan Sprentall, who spun out SurClean from her parent company, American Laser Enterprises, in Wixom, Michigan. “The last time we pitched to investors, we were still just an idea, working with the Air Force Research Lab to develop our technology for one of their aircraft applications.”

Fast forward 12 months, and SurClean has come a long way toward advancing its disruptive laser-based technology for removing paint and other coatings from multiple surfaces. Market research conducted by the Michigan Manufacturing Technology Center for SurClean showed the U.S. market for coating removal approaches $10 billion and spans many large sectors well-suited to laser-based systems.

“We have ground-breaking technology, and this is a huge, worldwide market,” Sprentall reports. “Many traditional chemical-based removal methods cannot be used because they destroy composites and alloys while producing large amounts of hazardous waste. Our system offers an environmentally safe way to precisely remove coatings on any material without generating any hazardous waste. It also reduces the time spent on maintenance, producing a high ROI and short payback for our customers.”

To realize the company’s market potential, Sprentall invested additional founder’s capital, now totaling $1 million, to build and test a robotic version of SurClean’s laser-based coating removal system at KUKA Robotics in Sterling Heights, Michigan. “We’re exploring new uses for our system in the manufacture of products as well as the maintenance of existing equipment,” she explains. “We’ve already sold one unit of our proprietary components to a company in Russia for their cleaning application.” In recent months, SurClean has entered into nondisclosure agreements with different aviation companies to discuss possible commercial uses for its system. It also is pursuing a potential joint project with the U.S. Navy.

At the 2013 MGCS, Sprentall was assisted in revamping and retargeting her investor presentation by the symposium’s coaches. In addition, she met and started conversations with angel investors from Michigan, Indiana and Illinois and two private-equity investors. Her initial networking efforts have paid off. “We’re looking to complete a $1.5 million round, allowing us to hire more employees, start building equipment and ramp up sales,” says Sprentall, who is holding a demonstration day at Kuka Robotics in May to show off the laser system’s coating-removal capabilities and ignite investors’ interest in a proven technology.

“People who have engineering and technical backgrounds are in love with the technology and don’t think like investors do,” she says. “I’ve found that angels are wary of investing in new technology because they see a high risk in it. That’s why I would advise entrepreneurs to complete working prototypes before they start pitching.”

Michigan’s Greatest Challenge is to Build, Finance and Retain Innovative Companies, Says UM’s Brophy

This year’s record number of initial public offerings and the lofty valuations assigned to a handful of high-profile technology start-ups in Silicon Valley have created a stir in the entrepreneurial and venture-capital communities. “When we look at the markets, the explosion of IT and social-networking IPOs and valuations is remarkable,” says David Brophy, professor of finance and director of the University of Michigan Center for Venture Capital and Private Equity Finance, or CVP. “I don’t think we’ll reach those levels here in the Michigan market in the immediate future, but we do look forward to seeing the value of our companies increase over time.”

Brophy’s optimism is based on what he sees as several promising trends. The first is the emergence of an IT sector that can drive new synergies with the state’s well-established medical device and pharmaceutical industry. “The marriage between IT and health care has taken a while to develop, but it is progressing and creating opportunities for entrepreneurial companies in our local market,” Brophy observes. “The combined efforts of medical schools and hospitals, universities with technology-transfer programs and the entrepreneurial community will be needed to continue this progress.”

A second trend revolves around the distribution of early stage finance. “I see a lot of high net worth individuals entering the angel market, providing funding for the venture-fund market and taking part in the direct formation of companies,” Brophy says. “After last year’s lull, I think we will see quite a substantial investment in these areas in 2014.”

Michigan’s reputation for capital efficiency, e.g., reasonable valuations and lower costs of doing business, also works in its favor. “Investors look for great companies with attractive valuations,” Brophy explains. “VCs from either coast are coming to Michigan because they see excellent science and technology, and want to combine those assets with strong entrepreneurial managers and good companies they can buy at better valuations. In many instances, reasonable valuations improve the likelihood that any given project or start-up will be financially attractive to an investor, either locally or at a distance.”

On the flip side, low valuations work against entrepreneurs who must offer a bigger piece of the pie in exchange for angel or venture capital ─ e.g., pay out more shares of stock in their companies for the investment dollars needed to fund growth. “One of the most important things an entrepreneur can do is to maximize the company’s pre-money value, which is gauged by the brain power, resources and tools he or she can assemble and put into play,” Brophy says. “These building blocks include human resources, intellectual property, an impressive management team, prototypes and identified end users who want the product or service. The higher the company’s pre-money value, the better positioned it is to raise investment dollars and keep a bigger piece of the pie for the founders and employees.”

Michigan’s greatest challenge is to build solid science and technology companies and provide the financing that enables them to grow in place, according to Brophy. “Our research institutions and universities need to be proactive in encouraging the development of cutting-edge applications based on pure research, and entrepreneurs need to become involved in launching companies that commercialize advanced manufacturing processes, electronic tools and energy-saving devices,” he says. “We are making great strides both in accomplishing this as well as putting in place programs to attract capital from local sources and other markets. If we continue to build our community of successful innovators, those investors will participate.”