With existing successful products and services, this next Mid-Stage company saw an opportunity to develop a new, innovative product and expand into a whole new market.
| Black Pearls / Kona Blue Water Farms |
 In 1992, Neil Anthony Sims and Dr. Dale Sarver formed Black Pearls Inc. at NELHA [Natural Energy Laboratory of Hawaii Authority] in Kailua-Kona with $4,800 invested and $50 in legal fees. They went on to win their first National Science Foundation SBIR Phase I award in 1993 to develop pearl oyster hatchery culture techniques. A $25,000 Hawaii SBIR matching grant from HTDC helped the company successfully compete for a subsequent Phase II award in 1994.
In 2001, they formed Kona Blue Water Farms to explore open-ocean aquaculture and address the world’s shrinking seafood supply. “Pearls are great, but they’re baubles,” says Sims. “We wanted to do something that had more substantive reward to it, something that people could sink their teeth into and feed them in the fullest sense of the word.”
They developed a hatchery and open-ocean fish cages underwater a half-mile offshore off Keahole Point. Similar to ancient Hawaiian fishponds, these cages provide a controlled environment for raising and harvesting fish.
 They came across a native fish known as kahala (or Hawaiian yellowtail) that local commercial fishermen would throw back in the ocean because it is prone to a reef toxin called ciguatera in the wild. “There were a lot of serendipitous discoveries about this fish that just blew us away,” says Sarver. “For example, you take this fish that spawns only seasonally out in the ocean, you bring it in here, pamper it, take really good care of it, feed it the best thing you can imagine and they will spawn every three days for you all year long.” The hatchlings are not exposed to ciguatera while growing up in Kona Blue’s open-ocean cages and are ready for harvest in about one year.
The cultivated kahala, trademarked as Kona Kampachi, is drawing raves from top chefs around the country. Chef Roy Yamaguchi is attracted by “its rich flavor and superb texture” as well as by the responsible manner it is grown. Chef Alan Wong simply declares, “The next big fish is Kona Kampachi.”
Over the years, the companies won six SBIR Phase I awards and four SBIR Phase II awards worth $1.3 million, plus $135,000 in Hawaii SBIR matching grants from HTDC, including $10,000 this year, to support their efforts and growth. Kona Blue now employs 35 biologists, marine scientists and divers who each understand the importance of ocean health and sustainability. “It’s very important to all of us at Kona Blue that we prove the model can be economically viable,” says Sims, “but more importantly, we passionately believe that what we are doing can make a difference.”
Black Pearls / Kona Blue Water Farms Q & A
Q: Can you tell us a bit about how you got into your industry?
A: As a fisheries biologist, the plight of the world’s fish stocks was immediately apparent to me, from my very first professional posting. As the Cook Island government Fisheries Biologist, I had a microcosmic window on the future of the oceans. I was charged with instituting rational management of the high-value fisheries in the lagoons of these isolated atolls. Trying to manage fisheries for pearl shell, giant clams, trochus (a pearly snail) or reef fish was, to flog an old metaphor, like rearranging the deck chairs on the Titanic; it was pretty discouraging stuff.
 The much-vaunted Polynesian conservation ethic held up well in subsistence fisheries, but as soon as a dollar value was ascribed to a resource, it lurched into the cycle of boom-and-bust, and often just went bust. I still remember a toothless old man on the shores of the lagoon, crying as we confiscated his pearl shell catch because the fishery had closed three days ago, and yet again there had been a quota overrun: “Why you close it?!” he demanded. “Why you stop? There’s still some left!”
That was an epiphany for me. I realized then that I had to do something else that was more proactive; something that had more of a future. We couldn’t just keep taking from the ocean … we had to start to give something back. At that point, I was converted to aquaculture.
Q: Please tell us briefly about your company and what it does?
A: Kona Blue is the first sustainable operation in the United States to grow fish in the open ocean from an integrated hatchery. Four years ago, the company began culturing Kona Kampachi™ (or Seriola rivoliana), a delicious Hawaiian yellowtail fish. This fish is nurtured from hatch-to-harvest, fed sustainable feed and grown in some of the cleanest water on Earth. Kona Kampachi™ is healthy, pure and rich in healthy omega-3 fatty acids with no detectable mercury. Kona Blue is committed to building an environmentally sustainable future through marine fish hatchery technology and deep-ocean mariculture.
Q: How has HTDC helped your business?
A: The SBIR matching program has been of huge assistance. The research funds from NSF or USDA SBIR grants are usually fully committed to do the essential research. The matching contribution from HTDC is of enormous value because it allows us to pursue additional research to excel in the Phase I. This, in turn, positions the company well, with a far better chance of obtaining a more lucrative Phase II SBIR grant. I can’t say enough of HTDC; they have been very helpful in facilitating meetings with other agencies, such as ATP [Advanced Technology Program]. Introductions to other agencies and individuals have contributed greatly to our company’s growth.
Q: What more could HTDC/the State do to help innovative businesses like yours?
A: For our company, it is critical to have HTDC and the State continue to assist us with identifying appropriate partners and funding. We also rely upon the State and HTDC to assist with regulatory challenges that come up.
Q: What’s your opinion on ACT 221 or 215?
A: These were key to attracting investors with an understanding of Hawaii’s economy and the opportunities that Hawaii can offer. The Hawai`i State Legislature enacted Act 221 in 2001 with the goal of increasing investment in local technology companies. By any measure, this goal has been well met.
Qualifying as a high technology business under the statute, Kona Blue caught the eye of local investors, who could see the potential competitive advantage that we had to offer. The initial investment was led by Thomas McCloskey, a part-time Kauai resident, and owner of Cornerstone Holdings, an Aspen, Colorado-based private equity investment firm. Tom, his partners, and other mainland investors were able to reduce the risk to their investment through the Act 221-215 structures. This meant that Kona Blue was able to assemble a group of experienced, business-savvy investors, who helped we founders see the bigger picture of the mammoth growth potential, and the marketing and branding opportunity.
U.S. consumers spent an estimated $52 billion on seafood products in 1999 alone. National seafood imports are growing at 12 percent annually, contributing to an annual U.S. seafood export deficit of $8 billion. Capitalizing on steadily increasing demand, Kona Blue could pioneer the growth of a sustainable, ecologically sound offshore aquaculture industry in the U.S. Hawai`i is the logical place for responsible growth in aquaculture: seafood consumption is three to four times the national average and open ocean cage culture research was pioneered in the Islands.
Q: What are the three biggest mistakes people make when starting their own business and what do you suggest for them to overcome these mistakes?
A: People don’t realize the tremendous resources that are available within the state government that can be utilized. There are considerable resources in the state bureaucracy which can be tapped, such as HTDC. We also found DOA’s [Department of Agriculture] Aquaculture Development Program to be incredibly helpful every step of the way. These resources can spur and guide growth for companies.
 Another challenge for companies that seek to be pioneers in a new untested industry is the community. We found that once we involved the community and opened a sincere and ongoing dialogue, there was great receptiveness. We are very grateful to have the community so soundly supportive; without this, Kona Blue could not achieve the leadership that it has reached in the industry.
Perseverance is also important and those who set about starting a business must expect setbacks and work through them. In the end, it is all worth the effort.
Q: What was your biggest business challenge and how did you overcome it?
A: There were numerous challenges. Initially developing the hatchery technology was the primary hurdle, so that we could stock the farm without relying on wild fingerlings. Secondly obtaining the lease for an offshore aquaculture operation required close work with the community (as noted) and government agencies. Thirdly, finding the right partners to fund the operation, market the company and brand the product.
Q: Are entrepreneurs made or born?
A: I would say, a bit of both. Seizing opportunity is important. For Kona Blue, we were in the right time at the right place. When the technology for offshore aquaculture along with the state’s Act 221, and the ATP grant from DOC [Department of Commerce] came through. All of the synergy made it possible to move forward very quickly. Certainly the $1.5 million grant from ATP that came about because of HTDC’s work was a key factor.
Q: How did you obtain financing?
A: The initial financing of the research was through Advanced Technology Program of DOC. The introduction to ATP was facilitated by HTDC. It was at an HTDC-sponsored seminar that I was first introduced to ATP staff and was able to pitch my research plan to them.
For the commercial financing of Kona Blue, we must give most of the credit to the UH angel investor network in Hawaii. Once again, it was through the efforts of HTDC that we got in contact with the UH angel group, and this then led to our assembling the team of investors.
Q: Any advice for today’s young business person?
A: Call HTDC.
Q: Were you always an entrepreneur?
A: No. My first position was as a volunteer teacher on an outer island of the Cook Islands. I then worked for the Cook Islands government heading their fisheries research division. When I first moved to Kona, I worked as a Research Director for another aquaculture company. It was there that I saw the commercial potential for sustainable aquaculture, and formed my first company with my co-founder.
Q: How many companies have you started?
A: My cofounder and I started Black Pearls Inc. in 1992, and for about a decade we led developments in hatchery technology and pearl farm growth throughout the Pacific and Southeast Asia. Kona Blue was originally a separate research division of Black Pearls Inc. but when we were ready to go commercial with the offshore operation, we spun Kona Blue off as a separate LLC, to better focus on the fish farming opportunities.
Q: How did you move into a business from your job?
A: I saw the need for more sustainable use of ocean resources than just commercial fisheries exploitation and I saw that private industry was the perfect vehicle to marry economic incentives with environmental imperatives. It was natural to evolve from pearl farming development to pioneering fish farming; in the fish farming we find the same marriage of commercial potential meeting conservation goals.
Q: Who was your mentor(s)?
A: Tom McCloskey, as chairman and lead investor of the company, has helped us see the tremendous potential for open ocean aquaculture on a global scale, and to understand the power of marketing and building a brand.
Q: Are you teaching your kids to be entrepreneurs?
A: I am teaching my kids to look at the world differently; we have a world map on our dining room wall. We turned it upside down for a time so that they could see our planet from an inverted perspective. We don’t have television, because they need to learn to think for themselves. I do try to teach them integrity. They are free to choose their life path but obviously these are skills and values that are needed by entrepreneurs.
Q: How did you develop your business skills?
A: The “immersion” method; I found the best way to learn about running a business is to jump in the deep end, and just do it.
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