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Today

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What s Next???? Today Funding your venture (45 ) Work Session- Financing proposal, overall plan preparation (60 ) Mon- 3/2 Work Session- Preparation of ... – PowerPoint PPT presentation

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Title: Today


1
Whats Next????
  • Today
  • Funding your venture (45)
  • Work Session- Financing proposal, overall plan
    preparation (60)
  • Mon- 3/2
  • Work Session- Preparation of Commercialization
    Plan Presentation (60)
  • Paul Gulick Lessons Learned from Serial
    Entrepreneur (60)
  • Reminders
  • 1) Review your plan with mentor and inventor
  • 2) Invite your mentor and inventor to class
    presentations- next Wed 3/5

2
The home stretch
  • Wed- 3/4
  • In class presentations of Commercialization Plans
    ( 12 min each questions)
  • Mentors and Inventors Invited
  • Mon- 3/9
  • Work Session- Revision of Commercialization Plan
    based on Feedback
  • Wed- 3/11 (500-700 pm)
  • Judged Competition- Portland Business Roundtable

3
Where do I find money?
You need to know where to look!
You need to pick the right source for your point
in the funding life cycle.
4
Capital Sources for Formation and Growth From
Bill Newman, NTV
Commercialization Grants - SBIR/STTR, SBA
- OSU venture fund - NEC
5
Startup Capital Sources
Obvious
  • Government Incentive
  • SBIR/STTR, OSU venture fund, ONAMI gap, etc
  • The 3 Fs (friends, family, fools)
  • Angel Investors
  • early and often
  • Individuals, unorganized, limited follow-on
  • Venture Capital funds
  • Home run mentality
  • Significant investment governance and
    oversight

6
Often Overlooked Sources
  • Organic growth (bootstrap)
  • Consulting-based funding
  • Customer deals (NRE)
  • Strategic partner deals

7
Government SBIR and STTR
  • The Small Business Innovative Research Grants
    (SBIR) and Small Business Technology Transfer
    (STTR) can be good sources of start up funds
  • SBIR created in 1982
  • Requires 2.5 of all extra-mural research funds
    must be set aside for small business development
    (2B in 2005)
  • Many government agencies participate DOD, NIH,
    NASA, DOE, NSF, DOC, DoAg, EPA, DOE, DOT. Each
    agency has structured their program differently
  • There are some differences in SBIR and STTR with
    respect to required partnerships and percentage
    of total funds allocated
  • This a grant, NOT a loan. The small business is
    not required to repay. Also, the company can
    allocate up to 7 of the grant to profit.

8
SBIR/STTR Funding
  • Structured around a 3 phase process
  • Phase 1- feasibility (50K-100K, 6 mo)
  • Phase 2- prototype (500K-750K, 2 yr)
  • Phase 3- commercialization (not funded by
    government directly)
  • Can be either a grant or contract
  • Grant- no expectation of a product that funding
    agency will buy
  • Contract- expectation that in Phase 3 that agency
    will be a customer

9
SBIR/STTR Funding
  • Success rates vary among agencies
  • NIH Funds 1 out of 3 proposals
  • NSF Funds 1 out of 13 proposals
  • Most require a PI (principal investigator) with a
    good academic track record
  • 41 of SBIR awardees are 2-9 employees
  • 33 of SBIR awardees are new
  • More information is available at the website
    http//www.sbirworld.com,

10
OSU Venture Fund
  • The State of Oregon passed a bill in 2005 for the
    purpose of facilitating the commercialization of
    university RD
  • This fund is to provide
  • Capital for university entrepreneurial programs
  • Opportunities for students to gain experience in
    applying research to commercial activities
  • Proof-of-concept funding
  • Entrepreneurial opportunities for those wishing
    to convert research into commercial enterprises
  • It is funded by credits applied to state income
    taxes on a voluntary basis-
  • OSU received 5.3M last year

11
Other OSU Specific Funding
  • OSU Venture Fund (5.3M last years total)
    http//campaignforosu.org/venturefund/
  • ONAMI Gap Funding (individual grants up to 250K)
  • New Enterprise Challenge (AEP- 17 K total)
  • OSU Foundation Grants (College of Science- 5K
    each)

12
Funding Cycles and Timing
  • Investor funding typically occurs in rounds of
    increasing amount
  • First, second, mezzanine, etc
  • Subsequent rounds of funding can dilute the value
    of initial investors
  • Tie funding to specific milestones-
  • e.g. Prototype complete, beta testing complete
  • investors like to feel privy to new information
    to maximize their benefit and minimize risk

13
Typical Investment and Valuation, by Stage
Stage Objective Revenue Valuation Investment
Seed Proof of concept 0 Below 5M 1M or less
Early Product validation lt1M 5 10M 5M
Growth Business validation lt10M 10 15M 5 10M
Later Expansion 10M up 15M up 10M up
14
(No Transcript)
15
Raising Money From Angels
  • Characteristics of a Likely Angel
  • High Net Worth
  • Recent Liquidity Event
  • Industry Knowledge
  • Relationship Oriented
  • Lead Versus Followers
  • Target and Negotiate the Investment with a Few
    Lead Investors
  • Angel Networks (OEN, WIN, WVN)
  • Only Take Money from Accredited Investors
  • Current Climate

16
Local Angel Networks
  • There are MANY local groups of investors and
    forums who would like to hear about your ideas
  • SWOT (monthly Corvallis group of business
    leaders)
  • Willamette Valley Investors Network (WVIN)- May
    14th conference (150K) at CH2M Hill Alumni
    center
  • Oregon Entrepreneurs Network- March 15th Annual
    Meeting in Portland (250K)
  • http//www.oen.org/events_ao.aspx
  • Portland Angel Network (PAN)
  • Womens Investment Network (WIN)

17
Venture Capital
  • What is a Venture Capital Fund?
  • Mutual fund for private, illiquid securities
    with 10 year life (in general) generally
    unproven businesses
  • Who are investors in a VC partnership?
  • Who has a 10-year investment horizon and can lose
    100 of capital?
  • Pension funds, foundations, endowments, trusts,
    banks, insurance companies, some high net worth
    individuals, corporations
  • Venture Capital
  • Specialized lt2 of businesses formed (SBA)
  • Geographic concentration 33 Silicon Valley, 50
    California, 67 California and New England (role
    of research institution)
  • VC metro99.2 non-metro0.8 rural0
    (infrastructure)
  • Home run mentality 10 10x, 30-50 write-off
  • Investment characteristics high growth
    potential, capital efficiency, exit potential
  • Significant investment governance and
    oversight

18
Good and Bad Venture Deals
  • faster, better, cheaper
  • if so, look for 10X move to the next curve
  • brave new world
  • not just new, but necessary
  • are the dogs eating the dog food
  • do customers want your product?
  • science projects (also known as ratholes)
  • is there a product and market in the foreseeable
    future?
  • putting lipstick on the pig
  • no, really, this is a great deal!

19
Industry Structure Matrix
Switching Costs
High
Low


High
Barriers to Entry
Low
20
Industry Structure Matrix
Switching Costs
High
Low
Monopoly / oligopoly Excess profits Operating systems, Jet Engines, Life Sciences

High
Barriers to Entry
Low
21
Industry Structure Matrix
Switching Costs
High
Low
Monopoly / oligopoly Excess profits Intense competition Concentrated industry Low profitability / collusion Commodity items Airlines, auto, resource

High
Barriers to Entry
Low
22
Industry Structure Matrix
Switching Costs
High
Low
Monopoly / oligopoly Excess profits Intense competition Concentrated industry Low profitability / collusion Commodity items
Fragmented industry Growth via consolidation Services
High
Barriers to Entry
Low
23
Industry Structure Matrix
Switching Costs
High
Low
Monopoly / oligopoly Excess profits Intense competition Concentrated industry Low profitability / collusion Commodity items
Fragmented industry Growth via consolidation Price parity Intense competition Margin pressure Internet
High
Barriers to Entry
Low
24
Raising Institutional Capital Overview of the
Process
  • Preparing the business plan
  • A business plan or a plan for the business?
  • Presenting the business plan
  • Initial screening/filtering status and fit
  • Due diligence process
  • Validation based on interviews, research, expert
    opinion
  • Market, need, defensibility, management
  • Valuation
  • A negotiation
  • Term sheet
  • Ongoing relationship
  • Board of Directors, introductions, strategic
    advice
  • Exit strategy

25
Investment Evaluation Key Issues
  • Filtering process
  • 100101
  • invention product business platform
    investment
  • Validation
  • Attractive Market Opportunity
  • size growth competition
  • Compelling Need
  • breakthrough solution
  • Proprietary Position
  • technology product market
  • Management
  • visionary, committed, market-oriented

26
TOP 10 What VCs Dont Want to Hear
  1. Our projections are conservative
  2. Our market is billion and we only need
    0.00001 of it to succeed
  3. We are in final negotiations with a large partner
  4. We will sell only common stock to investors
  5. We have no competition
  6. Our technology cannot be duplicated
  7. XYZ Co. (a Fortune 100) is too slow moving
  8. We are creating / changing the market and our
    product will become the standard
  9. We have first mover advantage
  10. Our goal is to attain 2 market share

27
New Markets are Hard to Gauge
  • "This 'telephone' has too many shortcomings to be
    seriously considered as a means of communication.
    The device is, inherently, of no value."
  • Western Union internal memo, 1876.
  • "The wireless music box has no imaginable
    commercial value. Who would pay for a message
    sent to nobody in particular?"
  • RCA David Sarnoff's associates in response to
    his urgings for investment in the radio in the
    1920s

28
New Markets are Hard to Gauge
  • "I think there is a world market for, maybe,
    five computers."
  • Thomas Watson, chairman of IBM, 1943
  • "There is no reason anyone would want a computer
    in their home."
  • Ken Olson, Digital Equipment Corp.,1977
  • "640K ought to be enough memory for anybody."
  • Bill Gates, 1981

29
The Second Mouse Gets the Cheese
30
Selling is What Its All About
  • Don't worry about people stealing your ideas.
    If your ideas are any good, you'll have to ram
    them down people's throats.

Howard Aiken Computer Pioneer
31
OSU Ideas on their way
  • Nuke in a box (recently received VC investment-
    06 MBA project)
  • Nanobits, Inc (received 2007 ONAMI gap
    funding-evolved from 06 undergrad class)
  • I5 Logic, Inc (recently received large VC
    investment- from 06 undergrad class)
  • Printable electronics (received 2008 OSU Venture
    Grant- from 07 undergrad class)
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