AT A briefing in Singapore last Friday, Trendlines CEO Steve Rhodes provided insights into how its incubator business (which listed on the SGX in Nov 2015) differentiates itself by reducing start-up risks.

Steve Rhodes 26.11.2015"It is better to invest in a business with great people and a mediocre product or business plan than in a business with a great business plan or product but with mediocre people," said Trendlines Co-CEO Steve Rhodes. Photo: Company“We have developed a business model to give investors access to returns of early stage investing without the risks. We know that our business model is unusual, but we are confident that this is the best way to early stage investing.

“Because our goal is to improve the human condition, we only invest in two areas: medical technologies and agricultural technologies. In both areas, there is enormous potential for making a lot of money as well as doing a lot of good along the way.

“There is more medical device innovation coming out of Israel than any other country in the world except the US. Israel is also considered the world leader in agricultural technologies. For Trendlines, being headquartered in Israel is being in a wonderful playground for making investments.

“We have 3 incubators currently. Two are government franchised, and focused on starting and building companies with product technology brought in from entrepreneurs and universities. There are 18 government technology incubation franchises and Trendlines owns two of them. The government doesn't intend to issue more franchises.

For details on the government technology incubation franchise, click here.

"Our third incubator, Trendlines Labs, has a different business model from the government franchisee incubators. It is a business model focused on internal innovation.

Todd Dollinger 26.11.2015Co-CEO Todd Dollinger. Photo: Company

Know-how to run start-ups

“Several of our start-ups have been awarded Best / Outstanding Start-up in Israel in the last few years. A good reputation is important for attracting deal flow. We are the first guys an inventor will go to in Israel.

“My partner (Co-CEO Todd Dollinger) and I started working together in 1991 in a medical device company. In 1993, we started a practice that over 15 years, provided consultancy services to between 150 and 200 start-ups in Israel.

"Most of them were life-sciences start-ups. We saw a repeating pattern: Young companies with great technology addressing real unmet market needs would consistently fail. We concluded that even though these guys had great technology and a big market, they failed because they had never run a company before.

“When we had the opportunity to invest in these start-ups, we told ourselves that we were going to create an organization that knows how to run these young companies.


The Trendlines philosophy

"Our philosophy is to be very involved in our incubator companies. We have two facilities where we house all our start-ups for the first two or three years. Their offices are in our offices.

"We have full-time staff of 35 people. No one else in Israel has such a large staff dedicated to working for so many small companies. We have so many people because we are doing everything for the start-ups, from market research to business development and technology consulting; from financial consulting to investment banking.

"If we did not provide these support services, we would have to put more money into the start-ups as they would need to outsource those services. This money would be capitalized instead of expensed on our accounts, but it is less efficient.

"We see our start-ups on a daily basis, unlike in the case with a venture capital company or a business angel, that typically meets the start-up once a month followed by a phone call every week. The problem with the venture capital or business angel model is that start-ups do not like to talk about their problems. Our goal is to see their problems very early and fix them before they get big.

"A second difference that we have from the venture capital firm is we do not impose carried interest nor management fees on the start-up.

"Many entrepreneurs come from a technology background while we have a business development background. We are very focused on the markets - the due diligence of asking: Who needs this? Who is going to pay for it? Why will anyone buy this? What are the other solutions out there?

"Only after these questions are answered do we look at the technology. 
Technology is almost never the problem. The problem is always the market."

Incubators outside Israel

"The number of companies that we evaluate for investment every year has been growing. Every year, we evaluate 450 to 500 investment opportunities and invest in 8 to 10 start-ups.

"We plan to set up our 4th incubator in Singapore next year.

"We also signed an MOU with B Braun, a German medical device company, look at our start-ups, to co-operate with Trendlines Labs and to start incubators around the world. The first one will probably be in Germany. B Braun is a 175-year-old family-owned business with revenue of about US$5.5 billion. It invested S$7.1 million in Trendlines’ IPO as a cornerstone investor.

"As we set up more incubators outside Israel, we will see more companies and the number of exits we make each year will increase."

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  • Lionel Lim