John Deal (right)

How We Got the Money--LizardTech

April / May 2007 By: John R. Grizz Deal Volume 5 Number 2

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LizardTech was one of Los Alamos National Laboratory's first technology spinout firms. We started the company in Santa Fe in 1992, before there were any venture capitalists in New Mexico. LizardTech licensed two imaging patents from LANL and, like a lot of firms, started the firm as an "after hours" venture. We all worked nights and weekends on LizardTech's first product, essentially starting the company with a very small amount of capital from the founders (Sharon Tison, Jeff Segler, and myself).

Within a few months we received additional capital from local angel investors L Robert Libutti and his partner Marvin Pollock. We met the two angels at an investor/entrepreneur forum sponsored by the newly formed Technology Ventures Corp.

After releasing our first software product, Fast Eddie, to critical and commercial acclaim (it was used by the production team on Jurassic Park), our team developed a plan to leave the laboratory community and strike out on our own.

Everything had to be done from scratch: office space, computers, travel funds, insurance, corporation documents—€”as the firm had essentially been operating as a virtual corporation.

By the time LizardTech completed its next LANL license in 1995 (for the MrSID technology) it was apparent it was going to be very difficult to find the necessary capital and personnel within New Mexico's still-maturing tech community. I analyzed the nation's high-tech centers and settled on Seattle, which has a large technical workforce, abundant risk capital and the infrastructure necessary to grow a tech firm.

Moving the team, including several LANL personnel, required an additional two years of work. LizardTech's revenue was not sufficient to fund such an expansion, so we did what we knew best: became consultants.

LizardTech won a large contract to create a web-based training system for the Department of Agriculture. The revenue generated from that contract (with immediate cash needs supplied by factoring A/R and aggressively playing float with checks) allowed the firm to expand to a dozen or so people. The USDA work had nothing to do with imaging, so for over a year we spent eight hours a day working on that contract and an additional six to eight hours developing a commercial version of MrSID.

A new angel investor invested just under $1 million in the firm just as the USDA contract ended. The investor was involved in bringing the Library of Congress map collection to the internet, a key element being the MrSID technology and software donated by LizardTech.

This Series A investor took the entire round himself, sending us a hand-written check for nearly a million dollars via postal mail. Since the investor was a totally unassuming sort, we quietly deposited the check and waited to see if it would clear. About a week later we got a call form him saying I could work with his secretary to get him the documents and, oh by the way, how much of the firm had he bought.

I nearly fell out of my chair.

After about a millisecond of consideration, I told my new best friend we thought 25 percent of the firm sounded right. He agreed and even joined our board.

Our Series B hit a year before the Bubble started; series C, D, E and F were all during the Bubble so, at some level, didn't really contribute much to learning about how rational investors make their decisions.

We learned a lot during those first four lean years and got really good at making cash go a long way and, most of all, how to focus. If you ever want to get a bunch of people to focus, lock everyone in a room and set the place on fire (or point out they won't get paid unless we ship the next version of the product on time).

I've raised a ton of equity capital over the last ten years for my own firms and for my friends' projects, but I will never forget the hand-written check I found in the mail.

LizardTech was one of TVC's first clients, way back in 1993. founder and former LizardTech CEO John R (Grizz) Deal continues to work in technology commercialization, most recently as TVC entrepreneur in residence for the NNSA.