Financing New Technology Ventures

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Financing New Technology Ventures Tyndall
Institute May 24, 2006
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MOST NEW VENTURES DONT NEED OR DESERVE
SIGNIFICANT EXTERNAL INVESTMENT
No need for capital (eg consulting companies) Can
be bootstrapped (eg early revenues possible) Not
sufficient upside for investor Entrepreneur
doesnt want external shareholders Capital
needed for product and market development The
prize is big enough to give 10-20x return to
early investor
No
gt90
External investment
Yes
lt10
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STEPPING STONES GENERIC SOFTWARE COMPANY
Stepping stone 4
Trade Sale
Stepping stone 3

• Market size Xm
• 4-6 plausible acquirers

Market penetration

• Proven distribution economics
• Aggressive market rollout
• Internalisation

Seed the market
Stepping stone 2
Stepping stone 1

• Proven customer proposition
• Development partners
• First general release
• Early revenues
• Full team build-out

Platform for growth

• Strong commercial CEO
• Technology development team
• Beta product

Start up
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LINK TO FUNDING STRATEGY
Stepping stone 4
Trade Sale
Stepping stone 3
Market penetration
Series D investment
Seed the market
Stepping stone 2
Series C investment
Stepping stone 1
Platform for growth
Series B investment
Start up
Series A (seed) investment
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MILESTONE FUNDING THE IMPLICATIONS
Reached
Fund internally to next stepping-stone Bring 3rd
party in to fund jump to stepping-stone
2 Accelerate faster than previously
planned Abandon project fold
company Re-structure company shareholdings Brid
ge company to stepping stone 1 Fund company to
stepping-stone 2 with internal or 3rd party
investment
Stepping stone 1
Stepping stone 2
Not reached
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PLATFORM FOR GROWTH
Platform for Growth
Capable, ambitious, trustworthy management
Distinctive product or service
Potential for accelerated growth
Attractive investment economics

• Record of prior achievement
• Balanced team
• Team versus individual
• RD and sales/marketing
• Deep sectoral experience
• Common objectives with VC/compatibility

• Deep intellectual property or strong
  defensibility
• High gross margin
• Is of huge value to customers

• Big, but not too big, market
• Company growth to come from market growth rather
  than market share
• Capable of becoming 1 or 2
• Identifiable access route to customers

• Big potential prize 10-20x multiple
• Potential for independent existence via IPO
• Lots of possible acquirers

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PLATFORM FOR GROWTH
Platform for Growth
Capable, ambitious, trustworthy management
Distinctive product or service
Potential for accelerated growth
Attractive investment economics
This team with this product in this market can
attain and exploit MARKET POWER
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TYPICAL SHAPE OF OPPORTUNITIES WE MEET
Platform for Growth
Capable, ambitious, trustworthy management
Distinctive product or service
Potential for accelerated growth
Attractive investment economics

• Very interesting technology, BUT
• Limited time/capability for taking technology
  forward
• No senior commercial people
• Limited exposure to market

• Team up with an interested, relevant commercial
  person
• Talk to the market
• Design a feasibility test
• Get a financial partner interested (not
  necessarily committed)
• Leverage Enterprise Ireland

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TYPICAL SHAPE OF OPPORTUNITIES WE MEET
Platform for Growth
Capable, ambitious, trustworthy management
Distinctive product or service
Potential for accelerated growth
Attractive investment economics

• Great team/individual
• Deep knowledge of specific market
• BUT
• No specific product opportunity
• Formative stage of idea development

• Entrepreneur-in-residence
• Feasiblity study

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BASIC ECONOMIC QUESTIONS

• Is the prize big enough?
• How much money to try to raise initially?
• How much ownership for external investor,
  founders, professional management, employees etc.?

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IS THE PRIZE BIG ENOUGH

• Prize depends on size of market, likely market
  share and valuations
• Possible return to investors must be 5-10-20x
  capital invested

Prize
Year 1 Year 2 Year 3 Q1 Q2 Q3 Q4 Q1
Q2 Q3 Q4 Q1 Q2 Q3 Q4
Year X
Cash out (capital required) by quarter
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HOW MUCH FUNDING TO RAISE INITIALLY
Trade Sale
Stepping stone 4
Stepping stone 3
Market penetration
Series D investment
Seed the market
Stepping stone 2
Series C investment
Stepping stone 1
Platform for growth
Series B investment

• Enough to get to valuable milestones (eg.)
• Product proof prints
• Early lighthouse customers
• Highly credible team
• Etc.

Start up
Series A (seed) investment
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POSSIBLE OWNERSHIP STRUCTURES
Full platform for growth in place
Raw startup with gaps
Investors 15-25 20-40 Employee option
pool 10-12 12-15 College lt15 lt15 Fou
nders The Rest 20-40 Professional
Management 20-30
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DELTA STORY TO DATE
InishTech
Beta
Delta I
BIEF
Delta II

• TEAM
• Frank Kenny
• FUNDS
• 3m (1983)
• FOCUS
• Early stage tech
• IT
• Communications
• Healthcare

• Frank Kenny
• 11m (1987)
• Early stage tech
• IT
• Communications
• Healthcare

• Frank Kenny
• Shay Garvey
• Maurice Roche
• 29m (1994)
• Early stage tech
• IT
• Communications
• Healthcare

• Frank Kenny
• Shay Garvey
• Maurice Roche
• Dermot Berkery
• 13m (1997)
• Early stage tech
• IT
• Communications
• Healthcare

• Frank Kenny
• Shay Garvey
• Maurice Roche
• Dermot Berkery
• Dr. Joe Mason
• Rob Johnson
• John OSullivan
• 90m (2000)
• Early stage tech
• IT
• Communications
• Healthcare

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CORK INVESTMENTS

• Product Status
• Qumas Compliance software First institutional
  investors
• 96FM Radio station Sold to UTV
• Farran Millimeter-wave Sold to Smiths
  Industries
• people screening
• Neurocure Neuropsychiatric drugs Startup based on
  work of
• Prof Ted Dinan (UCC)
• SensL Low light sensors Spinout form Tyndall

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SUMMARY HOW TO MOVE TECHNOLOGY-LED PROJECTS
FORWARD

• Avoid major 3-month effort to write thick
  business plan
• Find an interested knowledgeable (not necessarily
  committed) commercial person
• Identify near term proof points
• - Technology performance breakthroughs
• - Specific customer feedback
• - Achievable price point
• Put together cheap, quick plan for gathering
  proof
• Work with Enterprise Ireland
• Identify early on if technology is market-ready
  or needs to be backed further in the college