I zoomed to downtown San Diego yesterday to hear a few young action sports companies pitch their ideas to a room of investors at the first Connect S.I. Capital Forum. Connect is a non-profit that puts San Diego-area investors together with start-ups in technology, life sciences – and now sports.
Four of the six companies that made half-hour presentations operate in the action sports world, and I’ve recapped their presentations here in the order they spoke: Malama Composites, FrostByte Video, Loop’d Network and Rhythm.
No one appeared to get a deal on the spot, but they all fielded the kind of probing questions that indicated interest from investors among the audience of about 80 at the Hard Rock Hotel.
Malama Composites
Malama makes plant-based composites used in rigid foam. PT Townend introduced the company, saying its application for surfboard blanks is cool – but its broader applications were even more intriguing.
Malama’s info table displayed two prototype boards.
Company CFO Ned McMahon took the room through a quick primer in the toxic stew that produces polyurethane foam, which is the standard now used for most board blanks.
“This foam is harmful to the people working with it,” McMahon said. “It releases volatile organic compounds and it doesn’t degrade” when it’s dumped in landfills.
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After the closure of Clark Foam in 2005 threw board shaping into chaos, nine friends got together to form Malama and find a way to produce a less-toxic foam for blanks, McMahon said. Malama uses different plant sources to create the foam, including soy, hemp, bamboo and silk, and replaces much of the resin with lint seed oil.
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“We developed a better foam” that is stronger than polyurethane, and lighter, McMahon said. “And, it comes with no ‘green premium.’ It’s basically the same price as poly.”
McMahon said the same qualities that make Malama’s foam good for boards also make it excellent for a variety of industrial applications, from wind turbine blades to shipping containers to insulation in homes and airplanes. The U.S. market for polyurethane foam applications is $41 billion a year, he said.
Malama blanks are being shaped and soon to be sold by Gerry Lopez and Jack Shipley’s Lightning Bolt Maui, CEO Leif Christofferson told me later in the day. McMahon told the room that surf boards would generate about 15 percent of the company’s revenues.
The company is seeking $500,000 now and up to $5 million later to fund production and growth.
FrostByte Video
FrostByte developed software that produces customized videos of your day on the ski and snowboard runs.
Frost Byte founders Rick Korfin and Mike Sandler.
FrostByte sought capital to mount fixed cameras around snow resorts. Company software tracks boarders and skiers who rent a GPS armband for $30 a day. The company’s software uses the GPS data to parse all the video shot during the day, then the software edits it to produce individual shows for each renter, burned on a DVD and set to music.
The company also thinks the software has applications for security and for insurance.
I later asked co-founders Rick Korfin and Mike Sandler if the idea would work for surf or skate.
Not really, they said. Surfing is too “straight line,” they thought. And getting GPS armbands on a surfer? Then getting him to pay $30?
The all-over action of a skate park might work better, but skating is low-cost at its core, and being able to charge $30 a head seemed unlikely, the founders told me.
Loop’d Network
Tom Nelms, Loop’d Networks‘ VP for business development, walked the crowd through a pretty powerful sales pitch.
Loop’d Networks Tom Nelms and Scott Tilton fielding questions from Pascal Pakter, managing director
of WinGlobal, an apparel company and exporter.
Loop’d is positioned as a “Facebook of action sports,” he said, with a core audience of boys 13-24 – “the most valuable demographic to most any advertiser in the U.S.” It has 500,000 members.
Loop’d has four channels:
• It creates online communities for brands, which pay $20,000 to $600,000 a year. Users upload stories and photos and videos and read about brand team riders. The Monster energy drink “army’ has 150,000 members, Nelms said.
• It builds ‘brand profile’ marketing pages, and charges up to $3,600 a year for the service. So far, 400 brands are up.
• It runs advertising, sold through the third-party network Sportgenic, which guarantees Loop’d a $2 CPM.
• Its fastest-growing and highest potential leg is e-commerce. “The economy has really helped us here,” Nelms said. “Where before, brands would worry about selling direct, now they don’t care, they need to move product. We have 25 new stores, and 20 in the pipeline.”
A little more about that e-commerce channel. The setup allows users to buy items directly out of each other’s ‘gearbags,’ rather than having to click through pages of product shots like you now find at ecommerce sites. So one friend can click on the other’s sunglasses and jeans, and those items go to his shopping cart, which is powered by third-party provider Shopatron.
This “social merchandising” will yield $4 million in transactions this year – and Loop’d will take about a 10 percent commission. The average transaction is $130, “and the brands love that,” Nelms said.
Loop’d is building its audience with media partnerships – a recent deal with Transworld Media’s enthusiast titles gave it a lift of new members, and deals are pending with two large media companies.
It earned $1.9 million in 2008 and expects revenues of $2.7 million in 2009. It is looking for $60,000 now to complete a round of financing, and $3 million in a next round to finance mobile applications and international expansion.
A good sign: the toughest question was from an investor who wanted to know why Loop’d doesn’t charge more.
Rhythm North America
PT and his son Jye, who is Rhythm‘s U.S. brand manager, pitched the brand on its roots.
Rhythm’s product on display. The hot-yellow trunks drew a lot of interest for their two-seam construction
and four-way stretch.
PT talked about Rhythm’s Australian heritage, and how the brand was rooted in the same culture that launched him. He even broke out his hot-pink original Quiksilver trunks, which he joked, “wouldn’t fit on one leg now.”
Great surf apparel brands are based on great surf trunks, he said.
The Rhythm name and story are helping the brand get shelf space – and window space – in core stores, which as a distribution channel seem to be giving precious little room to young brands, PT said.
“Everybody wants ‘Rhythm'” he said. “That name itself is selling the shirts, even to non-surfers.”
Jye walked the room through Rhythm’s current product – a two-seam, high performance board short, printed walk shorts and Ts. And he walked them through what they see as Rhythm’s growth vehicle: fall, winter and cool-weather apparel, which the Australian mother brand doesn’t produce.
Rhythm is looking for $300,000 – $500,000 to develop, manufacture and market a fall line of hoodies, sweaters, jackets and jeans, and thus grow the business to $5 million by 2012.
