At $800,000 in sales, Kuperstein allows, "we're breaking even." He adds that in this first year of sales, Neurogen's major cost -- engineering and manufacturing -- will amount to only between 12% and 15% of gross sales. As time goes on, competition will doubtless intensify and margins will come down.
* * *
Hiring a CEO will allow Michael Kuperstein to assume a role, along with the chairmanship, that he's more comfortable with, that of chief technologist. Much of his time will be spent doing research -- in order to assure his company a future. Kuperstein envisions the research side of the business, Neurogen Labs, growing to about 10 researchers and forging a symbiotic relationship with Neurogen Inc. Neurogen Labs has already received seven grants totaling $400,000 from government agencies to further its work on neural network robots. Kuperstein sees licensing its inventions to Neurogen Inc., which will then reciprocate with royalty payments -- which, in turn, will contribute to the funding of further research.
Kuperstein doesn't worry about falling behind on the technology -- so vital to keeping the company from being a one-product phenomenon. He is an editor of the two best-known journals on neural network technology. "I know the field. I'm at the pulse of the community."
"Michael's famous," says Arthur Gingrande. "He's one of the top people in his field. We have drawers full of résumés from people all over the country who want to work with him."
Kuperstein projects an assurance that borders on arrogance. While he knows of perhaps 30 to 40 small companies in neural network technology, he is not worried. He says, in fact, they are off the mark. Almost all, he claims, are providing "tools" -- neural network technology. Neurogen, by contrast, says Kuperstein, offers "solutions" -- the harnessing of neural network technology to resolve specific problems.
As for the goliaths, Kuperstein isn't worried about them, either. He plans to get far enough ahead of them that they will be moved to forge strategic alliances with Neurogen, not squash it. At the moment, Neurogen seems to have that edge. At a recent imaging trade show -- the largest one of the year -- Neurogen shared a booth with Citicorp. Both Kuperstein and Gingrande found it mildly embarrassing to find people flocking to their display booth, oftentimes leaving representatives of Citicorp with little to do but twiddle their thumbs and stare into space.
That kind of attention leaves Michael Kuperstein, an academic with no prior business experience, brimming with confidence -- something he doesn't lack to begin with. "When people see our demonstration they're blown away," he says. He believes he has something the world wants. Does that mean someday soon he sees himself presiding over a company in a large, gleaming building with hundreds of employees?
Kuperstein answers that one without a moment's hesitation: "Yup."
Stay tuned.
-- Research assistance was provided by Leslie Brokaw.
EXECUTIVE SUMMARY
THE COMPANY:
Neurogen Inc., Brookline, Mass.
Concept:
Develop and market a technology that enables computers to read handwritten numbers
Projections:
Sales of $800,000 in 1990, $20 million in 1992. Breakeven in first year, aftertax profit of 11% in 1992.
Hurdles:
Establishing a presence in the product's large, bureaucratic markets, among them banking, credit-card companies, and the U.S. Postal Service; lack of market research
THE FOUNDER:
Michael Kuperstein
Age: 36
Last job: Academic research
Equity: More than 50%
Salary: $45,600
Personal funds invested: More than $50,000
Goals: Take Neurogen public in about five years. Reach $130 million in sales after five years.
Why started the company: "To escape the political and practical constraints of academia and find a more creative outlet for my talents. Commercializing research is the only way the tremendous potential of this technology will be realized and people will fully benefit."
FINANCIALS:
Neurogen Inc. Projected Operating Statement
($ thousands)* 1990 1992
SALES $800 $20,000
Cost of sales 280 7,000
Research and development 160 2,400
Selling and general & admin. 200 3,000
Customer support 160 4,000
TOTAL EXPENSES 800 16,400
OPERATING PROFIT 0 3,600
Taxes 0 1,400
PROFIT AFTER TAXES 0 2,200
% profit after taxes 0 11%
* Inc. estimates based on Neurogen forecasts and market information
WHAT THE EXPERTS SAY
FINANCIER
PATRICK J. SANSONETTI
Managing partner, Advent International, a Boston venture capital firm managing $1.3 billion worldwide, with early-stage investments in high-tech companies
Looking at this deal is like evaluating a balance sheet: there's always some good news and some bad news.
Kuperstein seems to be approaching the organization of the company the right way. He's hired key operating people, and he's putting together a nucleus of development people that can attack more markets with this product line. He's smart to recognize that he is a technologist and hire a CEO to run the company.
But these guys are clearly chasing too many markets. What's happened -- and this is not atypical -- is they're being driven by the technology. They've got to get this down to one or two, maybe three markets, not six. They're trying to be too big too soon.
