Hybrid Capital

Florida's venture capital well hasn't completely dried up. One Gulf Coast startup with big plans is hoping to tap into some funds soon.

If Jaclyn Toale and Steve Smith were seeking $15 million or even $20 million for their startup energy company, they are pretty sure they would get it — recession or no.

They say the real funding problem is in getting merely $2 million to fund a national pilot program for the renewable energy system they created for cell phone towers. The big-ticket investors out there, Toale has learned, want to put in a lot of money up front so they can reap the rewards if and when the company succeeds.

But Toale and Smith aren't yet willing to give up a large control of their business, which they founded in January. Instead, they are holding out hope they will reel in a $2 million investor in the next few months.

The stakes are high. Toale and Smith, who met each other while working for another cell phone tower company in Sarasota, have invested more than $100,000 of their own savings and family money into their company, HybridNRG.

They quit their high paying jobs to start the business, which promises to provide the cell phone industry with alternative energy sources, including wind and solar power.

“It's scary,” says Toale, 29. “As the months go by you see your bank account going down.”

And the pilot-program funding they are going after, Toale and Smith say, is especially crucial. It will allow the company to test its systems in six markets, from Orlando to Montana, so it can get going on its ambitious five-year growth plan. That plan includes surpassing $80 million in annual revenues and installing alternative energy sources in at least 12,000 communications towers by 2013.

'An industry niche'
Time isn't an ally, either, as Toale doesn't want a competitor to pass them by while they sit waiting for funds. In an effort to secure funding, Toale and Smith are currently on the venture capital circuit tour. Recent stops include presentations with executives from Startec in Largo and at the Florida Venture Forum's early stage venture capital conference in Orlando.

“We're not hearing 'we are ready to give you money today,' but it has been going pretty good,” says Toale. “We are getting some second and third meetings.”

HybridNRG, a play on the words hybrid and energy, is designed to replace, or at least supplement, the power sources in cell phone towers with renewable energy. It hopes to do that through its proprietary system that uses a combination of wind and solar power to augment the existing towers.

The core of the company's business model lies in designing, installing and then leasing its system — called WIRES, for Wireless Integrated Renewable Energy System — to customers who will pay HyrbidNRG on a recurring basis for using the power. “Our business model removes many of the barriers to entry for customers, while providing our company with a high yield, long-term recurring revenue stream,” the company states in an investment prospectus.

Adds Toale: “We are really excited about this. It's really a niche in the industry.”

Toale and her business partners in the venture are also counting on the current green-is-great trend sweeping the country for additional revenue. That includes gaining additional revenue from federal tax credits, grants and
Renewable Energy Credits (RECs.) “There are natural applications for this product in several government arenas,” says Smith, the company's chief operating officer.

So far, the company's only fulltime employees are Toale and Smith. But they are working closely with Michael Robinson and Keith Paglusch, a pair of longtime cell phone industry executives based in Kansas City.

Robinson, an executive vice president for HybridNRG, has spent most of his career with Sprint. His previous roles with the company include running its international division and leading the engineering and operations units that created the Sprint 3G phone and network. Paglusch has worked in several startup ventures with Robinson and will serve as chairman of HybridNRG's advisory board.

Idea exploration
Toale and Smith, meanwhile, first began working together five years ago under David Grain, who is considered something of a guru in the cell phone tower industry. Back then, Grain was running Sarasota-based Global Signal and has been credited with leading the giant wireless tower company through bankruptcy and a $5.7 billon sale to Crown Castle International.

Grain became a mentor to Toale and Smith. In fact, in 2007 Toale and Smith joined Grain in his new venture, Grain Communications.

Sarasota-based Grain buys, builds and leases communication towers to government entities. Toale and Smith worked in Grain's finance department, with a focus on raising capital for the company's acquisition team. They raised about $56 million over three years, says Toale.

It was while working for Grain that Toale and Smith came up with the idea for HybridNRG. The pair was chatting with some other cell phone tower industry folks at a seminar in Washington D.C. when they realized no one else had done something like this before.

“We just had an idea and it felt like something to explore,” says Toale. “And then it just grew from there.”

Toale is part of the family that runs the self-named funeral home operation in Sarasota and Manatee counties. Her cousins, Jason and Jeff Toale, took over the family business a few years ago from the older Toale generation, which included Jaclyn Toale's father.

Toale worked at the funeral home occasionally while growing up in Sarasota, but her real interest was in finance. She graduated from USF with a degree in accounting and later earned her CPA license.

Smith, meanwhile, grew up in the clandestine side of the communications industry. Smith was born in England and recently became a U.S. citizen.

But back in the U.K., Smith was trained in high-tech communications with the British Royal Navy. He later worked for several global oil companies, installing communications systems in the Middle East. One of Smith's first assignments took him to Libya in April 1986, when U.S. forces were bombing areas of the country in response to Muammar Gaddafi-led terrorist activity.

Smith also ran a small hotel in Scotland before relocating to the U.S. and going to work for Grain at Global Signal. Even though Smith is officially an American citizen, he has retained some of the dry, to-the-point approach to life that Brits are so fond of.

“We have all this traction,” says Smith. “Now all we need is to raise the capital.”

It's possible
This environment makes raising capital tough.

But Sean Lux, a visiting instructor at the University of South Florida's Center for Entrepreneurship in Tampa, analyzed HybridNRG's business plan at the request of the Review.

Lux, a former U.S. Army paratrooper, has a Ph.D. in management from Florida State University, where he taught business strategy classes. Lux has also worked for several technology companies, from entrepreneurial startups to Fortune 500 firms.

And he sees real potential in HybridNRG's plan.

“I like the concept of replacing existing grid sources of power for communications towers with renewable sources,” he wrote of the plan. “I believe the founders have found themselves a nice niche within the tower industry.”

Lux also sees some challenges for the company in making it all work in a complex industry. But he wrote that with the right maneuvering, it can be successful.

He even predicted that the most likely exit for the company, once it is built and in full operation, is for a utility company in the right position with the right needs to purchase HybridNRG.

That might seem like a long way off, but that is part of the reason for developing business plans and getting investors to risk money upfront.