Download - Attracting investors to startups
Cursos de Capacitação Avançada Atração de Investidores para Startups,
uma Visão Internacional
Erik SanderMaio/2016
CoordenaçãoFinanciamentoRealização Oferecimento
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Attracting Investors to Startups:International Vision
May 2016
Erik Sander
Executive Director, Florida Engineering Experiment Station
Director, UF Engineering Innovation Institute
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The information on these slides and in the accompanying presentation is for general educational and informationalpurposes only, and is not intended and should not be construed as legal advice to be applied to any specific facts or circumstances. Any party to an actual transaction should engage legal counsel toadvise them on suchtransaction.
Disclaimer
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Thursday
8:30 – 9:15 am Introduction to the Workshop,Participants,and Objectives;Discussion
of Tech Transfer inBrazil
9:15 – 10:15 am The University of Florida Technology Commercializationand
InvestmentEcosystem
10:45 – 12:00 pm What Do Investors Think and What Do They Look for in University
InvestmentOpportunities
12:00 – 1:30 pm Lunch
1:30 – 5:30 pm How do Investors Review University Investment Opportunities
Friday
8:30 – 8:45 am Start-off Questions andExpectations
8:45 – 10:00 am How Can a University Best Work withInvestors
10:00 – 11:00 am Structuring a Successful Investment - Doing the Deal
11:00 – 12:30 pm Wrap-up and FinalThoughts
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Introduction to the
Workshop, Participants,
and Objectives
Introduction to the workshop
What participants would like to learnand can expect to understand
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Walkaway Goals How do investors think about university spinoff companiesas
investmentopportunities?
What are the criticalchallenges?
What are some avenues and means to gather investorinterest?
How can universities best work withinvestors?
What are the realities of investor-academecollaborations?
What is needed to make this systemwork?
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The University of Florida
Tech Commercialization and
Investment EcosystemUniversity of Florida and State of Florida university technology
spinoff company investment strategies and programs.
The history of how the university technology commercialization office and programs were built to a Top 10 program in the US today
Public/private investment partnerships that support technology commercialization
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Why are Investors Interested?
University Technology Licensing
5,435 licenses executed (up 4.5% over prioryear)
1,461 options executed (up 7.7%)
549 executed licenses containing equity (up17%)
914 startup companies formed (up11.7%)
4,688 startups still operating as of the end of FY2014 (up 11.4%)
965 new commercial products created (up34.2%)
6,363 U.S. patents issued (up11%)
Source: AUTM 2014 Licensing Survey(www.autm.net)
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Source: Association of Technology Managers Infographic access April 2016 - http://www.autm.net/AUTMMain/media/Resources/Documents/AUTM_Infographic_FY2014.pdf
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Florida’s HeritageBut did youknow………
3rd largest state – 19.5M residents, of which 5M speak a foreign language, primarily Spanish
Florida would be the 21st largest economy in the world
1st for Innovation (Fast Company)
3rd for high-tech businesses and 5th in high-tech employment (TechAmerica Cyberstates)
Internationally recognized innovation clusters
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Fin. & Prof. Services
Manufacturing
Florida’s Future
Biotech
Life Sciences
Health Care
Pharma.
Biomed Eng
Med. Devices
Renewable Energy
Nanotech
Hydrogen
Agri-
business
IT & Software
Microelect.
Telecomms
Modeling/Simulation/ Training
Photonics / Lasers / Optics
Aviation /Aerospace
Homeland Security
Defense
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The Innovation Economy
Ideas
People
Capital
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People
SD
CA NH
FL
MA
KS
AK
MS
AL
ID
GA
y = 1894,7x +20115
R² =0,8157
$30.000
$35.000
CO
$40.000
MD
NY
$45.000
VA
$50.000
17,0
GS
PP
er
Ca
pit
ab
yS
tate
GSP Per Capita vs.% w/ > Grad or Pro Degree40 States (w 10 Outlier States andDC Removed)
$55.000
5,0 7,0 9,0 11,0 13,0 15,0
% of the Population with Graduate or Professional Degrees by State
Source: The National Center for Education Statistics, NCES, 2005-2007©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
10.000
20.000
30.000
40.000
50.000
60.000
70.000
0
0,00% 5,00% 15,00% 20,00%
Ad
jus
ted
GS
PP
er
Ca
pit
a(N
oN
AIC
S2
1)
10,00%
% 18-64 Population w/ Degree
Bachelor, Graduate &PhD Degrees to Adj GSP Per Capita
% 18-64BachDeg
Linear (% 18-64Bach Deg)
% 18-64GradDeg
Linear (% 18-64 GradDeg)
Emp PhD %18-64
Linear (Emp PhD % 18-64)
ImpactTop10 PhD Top10 PhD Top1
Impact
2nd10 d102nd10
y =8,000,000
R² =0.9
x +24304
729 19X 21X2
n
3rd10
4th10
3rd10
4th10
3rd 10
4th10
Bottom10 Bottom10 Bottom10
y = 427746x +10061
R² =0,9196
y = 374050x -16324
R² =0,9694
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Ideas
Source: NSF Science and Engineering Indicators
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Grants &
Sponsored
Research
Venture Capital
& Public Equity
Basic
Research,
Discovery
Feasibility
Study
Engineering Model
Product Development/ Design
Commercialization
Market Roll-out
Distribution Channels
Manufacturing
Regulatory
Where we fit in a startup’s funding cycle
“Valley of Death”
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Risk Mitigation - Florida Corridor Matching Grants
Research Program
Partnership among 3 universities, 20 economic development orgs, and14 community colleges started in1996
$60M+ in state funds matched by $120M in company funds
$1B in federal follow-on grants
1,300 research projects
375 company partners
300 faculty; 2,600 students & research assistants
103 patents plus 146 patent applications projected to have resulted
Enable Corridor High Tech Companies to Conduct Applied Research with UCF, USF and UF Professors and Graduate and DoctoralStudents
Grants Range From $10,000 to$100,000
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Supports 26 universities and institutions
Leverages $2B statewide research infrastructure to build great companies and products that improve and savelives
Delivers company creation, building and fundingprograms
Mentoring and coaching to prepare for fundraising
Comprehensive due diligence process
Investor Advisory Board screens and provides feedback
CEO Council of individuals looking for “next opportunity”
Seed funds that require private investor match
Creation of statewide angel investornetworks
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Institute at a Glance
~100 applications received for support and funding
34 companiesfunded
$40 MM private capitalraised
~300 jobs YTD; projections exceed ‘000s
$74,000 average salary per job created
Global visibility for Florida and Florida companies; Media coveragein 34 countries
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Seed Capital Accelerator Program
Created in2011
$8.5M for loans ranging between $50,000 and $300,000 to bridge the gap
Requires recipients to match 1:1 with private investmentdollars
Results todate:
Funds 98% committed: 28 companies approved for funding; 25 funded
Funded companies have raised 3–5x private investment (>$25MM)
Avg. salary per job created = $74,000
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Florida Technology Seed Capital Fund
Created in 2013; launched Fall2013
$4.275M available in seed funds
Funding provided to spinout companies in the formofconvertible notes or equity – Fund will beevergreen
First funding up to $300,000; requires 1:1 match
Second funding for select companies up to $200,000; requires2:1 match
Applications exceed available funds 4:1; All funds committed by June2014 (est.)
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Florida Angel Nexus (FAN)
Capital attraction forFloridacompanies
FAN Chapters Groups of Angels +‘Side
Car’Funds
Geography | Expertise |University
Affiliation
Recruit & Coordinate Members
Cultivate Local Deal Flow
Host Chapter Meetings
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University of Florida Major, public, comprehensive, land-grant, research university
Annual economic impact $8.76B/year; 106,000 jobs.
4,000 faculty and 50,000 students in 16 colleges and 200+ research, service and education centers, bureaus andinstitutes
$700M in annual research expenditures; $100M from industry
5,000 proposals submitted and 2,400 new awards receivedannually
300-350 inventions; 80+ tech licenses; 15-20 spinoffs annually
Cross-campus entrepreneurship and innovation programs–15-20 student spinoff companiesannually
Trusopt®
Sentricon®
Gatorade®
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UF College of Engineering Comprehensive andlarge
2nd largest MS program
10th largest PhD program
14th largest undergrad prog.
Strong researchfunding
~$70M annual expenditures
~15% from industry
Over the last 5 years:
536 invention disclosures
896 US and Foreign patentapplications
254 US and Foreign patentsissued
185 executed license and option agreements
30 start-up companies from licensed technology
5-6 student startups annually
2X national average per research dollar in patents issued
4X national average per research dollar in the number of start-up companies
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Gainesville Technology Incubators Biotechnology DevelopmentInstitute
35,000 sq ft; 19 labs, 13 offices
Small and large animal facilities
Gainesville Tech Enterprise Center
30,000 sq ft; 3 labs; 15 offices
Mix of biotech and other
Center for Innovation & EconomicDev. Santa Fe College endeavor
Low to high tech
Florida Innovation Hub
48,000 sq ft; 24 labs; 40 offices
Substantial space for service providers & investors
24©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Hacker Space
Starter Space
26
Entrepreneurial Community Initiatives
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Entrepreneurship and innovation are happening at hyper-speed.
Public policy must support this new innovation economy to be competitive.
Chart taken from“Grounded – The Price isWrong”,The Economist,September 28, 2013
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What Do Investors Think and What
Do They Look for in University
Investment OpportunitiesThe investor mentality in general, and investor opportunities and
concerns specific to university created technology.
How investors look at just-created vs. growing university spinoffcompanies.
Differing investor strategies for shorter term (e.g. IT) vs. longer term (e.g. bio) related companies in considering investment decisions.
Investment Structures and Investor Types
Parts of this presentation compliments of Bill Rossi, University of Florida. His
contributions are gratefullyacknowledged.
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The Biggest Challenge is Cultural
Open-Publish
Long Term Focus
Basic Research
Disciplinary Depts.
Edge of the Envelope
Collaboration
Organized Anarchy
Focus on Science
Closed-Proprietary
Shorter Term Focus
Applied R&D
Multi-disc. Programs
Risk Management
Primarily internal R&D
Project Management
Focus on $
Industry CultureUniversity Culture Small Tech Comp.
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Bridging the Valley of DeathF
un
din
g/
In
tere
st
Govt.Funding
Tech Push Market Pull
Industry
Product Development
University
Research Commercialization
Univ.Research
Valleyof Death
Industry Development
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Virtual companies
form to spin off a UF
technology
Develop an alphaproto. & product/
process docsDevelop BP,
mkt. study,
investor pres.
CEO
CBO
(faculty)
CTO
(faculty)
Inventor
(faculty)
Tech. Dev. Team
(IPPD)Bus. Dev. Team
(CEI)
Prior art,
freedomto
operate,
patentability
CLO
(faculty)
LegalTeam
(LCL)
Integrated Tech Ventures - Bridging the Valley
31
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Who Are Investors?
What are They Investing?
Financial investors -Money
Employees – Life; familytime
Board, advisors, mentors – Time;reputation
Strategic Allies – Time; reputation; theirops
Vendors – Contractterms
Customers – Reputation;reliability
Family and friends – Faith in you;money
All do a basic ROIanalysis
Can you succeed and what does it mean tothem
What’s your ValueProposition
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Founders
Friends, family, fools
Angels
Crowdfunding
Grants
Venturecapital
Retainedearnings
Debt instruments
The Investment Stack
Source: Wadhwa, Vivek, Aggarwal, Raj, Holly, Krisztina and Salkever, Alex, Making of A Successful
Entrepreneur: Anatomy of an Entrepreneur Part II (November 17, 2009). Kauffman Foundation Small
Research Projects Research Paper No. 2. Available at SSRN: http://ssrn.com/abstract=1507384
Charts by Alberto Mena and Dave Foster accessed at Businessweek.com
(http://images.businessweek.com/ss/09/11/1117_making_of_an_entrepreneur)
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Investor Mentality (The Upside)
What’s the ValueProposition
What are your products or services that can come from the tech;How does your tech integrate; Can an intellectual property fence be built
Who’s on the team and can they pull thisoff
What’s the market size, niche, growth rate, potentialpenetration, composition
Who are thecompetitors
What’s the marketing, sales, and distributionstrategies
What are the primary milestones and requirements to get there
What’s the financial plan and fundraisingstrategy
What’s myopportunity
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Investor Mentality (The Downside)
R&D risks, alpha, betatesting
Intellectual property infringement risks
Scale-up and packagingrisks
Market introduction risks – Initial acceptance, the first 5 customers, regulatory, competitor position, marketgrowth,
Customer acceptance / mindsharerisks
Production risks – Infrastructure, off-shoring, key materialsuppliersand costs/marketdrivers;
Financial risks - Fundraising, financial, price point, margincushion, market penetration, marketing, distribution channels, sales force, capitalexpenditure;
Personnel risks – Recruiting business and technical teams;Whathappens if a key playerleaves
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People are the Key
3 4 5
ReturnonInvestment
MarketSize
Proprietary, Unique
PotentialforGrowth
Recruit
experienced
CEO,40%
Assemble CEO-
type board;
15%
0 1
Business model
outweighsteam
deficiencies,
7%
2
Get CEO
beforeseeking
venture capital;
3%
ManagementQuality
Factors in VCinvestment
decision
Incomplete
management
team?Let VCrecruit
CEO; 35%
Profit Dynamics, Inc., VC Survey –2002
(www.capital-connection.com)
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VC reasons to decline investment Lack of experienced management team(40%)
Didn’t fit investment criteria, industries, geographic area (17%)
Insufficient market size or need (13%)
No competitive advantage, non-compelling technology (13%)
No clear execution strategy (10%)
Company too small, will not grow large enough(10%)
Company too early stage (8%)
No industry barriers to entry for competitors (6%)
Risk to projected return too high(6%)
Low margins, industry is facing margin pressure (4%)
Valuation too high(4%)
Company isn’t profitable; entrenched competitors; not referred to VC ;poor job presenting; viewed VCs only as funding source(4%)
Source: Profit Dynamics, Inc., VC Survey – 2002 (www.capital-connection.com/vcsurvey.html)
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Evolutionary vs. Revolutionary
Better-Faster-Cheaper
Incremental improvement
Value proposition tied to level of perceivedimprovement
Typically lower risk / lower return
Brave NewWorld
Gamechanger
High risk – Technology,Manufacturability, Market acceptance, Regulatory
Highreturn
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Customer Wants vs. Needs
Value is contextuallydriven
Value is in the eye of thecustomer
What are the alternatesolutions
Is this a new need or an ongoingheadache
Many times the customer’s solutionis current SOP – it’s thecompetition
Sometimes the customer isn’t theuser
Understand what your technology means to the customer or user
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Roadmapping Clear Expectations
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Perceived Risk & Perceived Value
are Inversely Related
Risk Spectrum – Science, technology, commercialization,production, market,management
Success reduces risk and increases business’ perception oftech. valuation
Risk reduced at keymilestones
Technology – Precursors, prototype, alpha, beta, scale-up
Business – IP freedom to operate, patent issue, external fundraise, market intro, customers, scale-up, competition
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Roadmapping – Risk Reduction
ValuationEvaluation
AcademicCorp. R&D
LitigationVC Biotech Invest. Banker
PharmCo.
Technology Risk
Information available at time of valuationTherapeutic target Competitive profile Patent position
Spec. disease Reg strategy
Indication Toxicology Man. costs
Actual sales Actual profits
Highest Least
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Roadmapping - Key Milestones/Requirements
Key business, technology, partnership, etc. milestones
Isolate key decisions and issues that need immediate, near-term, or long-term resolution
Stage Gating the Process Mitigates Risk
Key Requirements – Technology, personnel, regulatory, financial, distributionchannels, external purchases/licenses, etc.
Patent Filing
Company
Acquireslicense
Tech / Product
Development
1Q2016Business
Development
1st install
ProjectInitiation
2nd install
Go-No Go on
FundingTranche
R&DMilestone
Building Pipeline
--XX
-- XX
3Q2016 4Q2012Q2016
Go-No Go on
FundingTranche
R&DMilestone
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Debt
Loans
Guarantees
Debt-equity arrangements
Equity
CommonStock
Preferred Stock
Options andWarrants
Investment Structure
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Seed Start-up Series A (1st Round) Series B(2nd Round) Late
Stage(Mezzanine)
Founder Money
Friends and Family
Angels
Vent
ure Capital
Strategic Partners
Public Equilty
Mezzanine/Late Stage Funds
Supplier and Trade Credit
Commercial Loans
Asset-Based Lenders
Public Debt
Commercial PaperRequired rates of returnper annum
100-80% 80-50% 50-35% 35-25% 25-10%Financing ecotypes bystage of development
Source:
Professor
KimbleByrd,
Rowan
University
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Financing Resources MapSOURCE OF FINANCING VC ANGELS F&F ASSET LOANS TRADE CREDIT
RelativeScore low-high low-high low-high low-high low-high
COST OF MONEY 8-10 6-8 5-8 1-3 0-2
FUND-RAISING EXPENSES 0-2 4-6 3-6 3-5 0-2
DEPTH OF POCKET 7-9 5-7 3-5 1-4 0-3
COLLATERAL REQUIREMENTS 0-2 1-3 1-3 7-10 2-5
RISK BEARING ABILITIES 7-10 6-8 3--6 0-3 0-2
REPUTATION AND SIGNALING 8-10 5-7 0-3 0-3 0-3
MANAGEMENT SKILLS 7-10 5-7 0-4 0-3 0-2
SPEED OF DECISION 7-9 5-7 3-5 7-10 6-9
INDUSTRY/PRODUCT KNOW 7-9 5-7 1-5 5-8 0-3
FLEXIBILITY 7-9 6-8 5-8 0-3 0-3
CONTROL TENDENCIES 7-9 5-7 3-6 0-2 0-2
Source:Professor Kimble Byrd,RowanUniversity
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Business Angels
Means
High Net Worth Individuals
Extensive Business Experience
Invest $20k-$2M range
Modes
Financial
Operational
Entrepreneurial
Guardian
Motives
Psychological“Income”
Interest in Tech
SocialUtility
Economic DevelopmentSource:Professor Kimble Byrd,RowanUniversity
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Options and Warrants
Source:Professor Kimble Byrd,RowanUniversity
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IRR “Pocket” Table
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Equity Ownership and Dilution Pre-money Valuation = Current Valuation; Example $1M
Share Price = Pre-money valuation / Pre-money issued shares Example: $1M/1M shares issued = $1.00 per share
Issued Shares (in investment round) = Investment $ / SharePrice Example: $200k / $1.00/share = 200,000 shares
Post-money Valuation = Pre-money valuation + Investment$ Example: $1M + $200k = $1,200,000
Post Investment Equity Positions
Investor = Issued shares / Post-money shares Example: 200,000 shares / 1,200,000 shares = 16.7%
Original Shareholders = Pre-money shares / Post-money shares Example: 1,000,000 / 1,200,000 = 83.3%
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Capital Raise Valuation Example
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FINANCINGROUND
SEEDSTARTUP SERIESA SERIESB EXIT
TIMES
RETURN
POSTMONEY
VALUATION $1,000,000 $5,000,000 $15,000,000 $75,000,000 75X
FOUNDERS
Investment Sweat 28X
%Equity 90% 72% 40% 40%
Value $900,000 $3,600,000 $5,950,000 $28,000,000 28X
FAMILY ANDFRIENDS
Investment $100,000 35X
%Equity 10% 8% 5% 5%
Value $100,000 $400,000 $733,333 $3,500,000 35X
ANGELS
Investment $1,000,000 $500,000 10X
%Equity 20% 22% 22%
Value $1,000,000 $3,260,000 $15,400,000 10X
VCs
Investment $5,000,000 6X
%Equity 33% 33%
Value $5,000,000 $28,100,000 6X
The Cap Table
Source:Professor Kimble Byrd,RowanUniversity
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
How do Investors Review
and Vet University
Investment OpportunitiesModels that illustrate how investors review very early stage
opportunities, such as those coming from universities.
These models can serve to inform university technology commercialization professionals on vetting their university research outcomes in light of how investors may view them as opportunities
for spin-off companies.
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
The Value Proposition –
The Simplest AssessmentModel
What Economically
Substantial Problem
Can You
Uniquely Solve
and Make Money
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Simple Opportunity Analysis Model
English BizSpeak
Who are you Management Team; StrategicAllies;
Partners; Boards; Vendors
What are youdoing Product / Service Offering;
Core Technology; ProductLines
Why can you do it better than anyoneelse Competitive Advantage;Distribution
Channel; Marketing Plan; Key Resources
Who cares, why do they care, and how
much do they care
Market; Market Needs Analysis;Revenue
Model; Customer Profile
What do you need to get itdone Investment Sought, Partnership,
Technology, Distribution Channels
How will you benefit Financial Plan, Revenue Model and
Streams, Profitability
How can others benefit Investment / Partner Opportunity
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
A More In-Depth
Entrepreneurial
Opportunity Feasibility
Analysis
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Pro
fit
/L
oss
What Can We Learn?
Time to Profitability Product Life Cycle
Market
Penetration
Rate
MarketShare
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Global Opportunity Analysis
Define the Value Proposition – Better-Faster-Cheaper orBrave New World
Determine if attractive to entrepreneur,customers,investors, employees, & partners
Identify strategy to maximize upside & mitigate risk Leverage relationships, Establish options, Incrementalfunding;
Borrowed resources; StrategicPartners
Technology – The means to the business end If based on technology alone, need a significant increase in product
quality or reduction incosts
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Global Opportunity Analysis
Dimension Window ofOpportunity
Large Market Size - Investors typically want to see sales of $50 million in 5 years (share along with size)
Rapid Market Growth - Rapid sales/income growth justifies investmentrisk; Easier to enter; Less stable market shares
Timing – Selling SUV’s during an energy shortage
Estimate key elements and magnitude of effort andpayback(cost/benefit analysis)
What do you have to do to accomplishobjective
What resources do I need and how do I get them
What do you get back – what’s the payout
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Market Analysis
Market structure
Fragmented - niches of under-servedcustomers
Monopolistic – have to take on the big gun
Perfectly competitive - commodity, low margin business
Market size - $100 million minimum; Toolarge may mean mature; toosmall may mean not enoughgrowth
Market growth - Growth rates of 30-50% attractive
Market capacity - Can existing competitors meetdemand
Market share attainable - Potential to be a leader; 20%+ share
Market Players - Identifying & reaching key customers (Key Companies, Motivation of decisionmakers)
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Profit Potential Analysis
Steady and rapid sales growth first 5-7years
Attain critical mass for market control and economies of scale
Tipping Point – slow initial growth, but then extremely fast
Recurring revenue - Lowers cost & increases barriers toentry
Growing debt capacity supported by hard assets orearnings
Investable - Can create value in 3-5 years; Convert equity with30-40%IRR
Time to breakeven and positive cash flow less than 3 years
Margins
Gross Margin over 40% provides cushion for fixed costs
Net Operating Margin of less than 10-20% can be risky in many industries
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Durability Analysis
Imitative competitors (Starbucks & new entrants; Restaurant Row)andProduct substitutions (E-mail vs paper mail; Steak vschicken)
Changing technology - Lower costs or better productsforcompetitors
Shifts in customer preferences - Juice to water
Personnel turnover - Lose key people
Supplierleverage
Buyerleverage
Purchasing power - Wal-Mart dictates what they will pay and on what terms
Price - If costs increase, Wal-Mart may not allow price increase
Quality standard - Wal-Mart dictates quality standard
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Skills, Resources Analysis
What skills are brought to the table
Inventory of founders
Who supplies missing skill resources
Skill outsourcing vs in-house(control)
Advisory boards
Strategicpartners
Capital – a necessary resource, but having capital no guarantee of success
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Regulatory Compliance Analysis
Licenses
Can you get them and holdthem
Operating procedure
Can you comply with the rules
Product approvals andtesting
FDA, EPA, OSHA, meeting standards
Insurance and bonding
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Scalability Analysis
Product vs.service
Costs scale with production (Gross Marginanalysis)
Product / service deliverymechanisms
Bigger facility oroutsourcing
Replicate concept in anothergeography
Franchise
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
AQuantification-Based
Tech Assessment Model
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
V2RTechnologyCommercialAssessment
TechnologyName/ Source
Weight
(0-1)
Rating
(1-5)
Weighted
Score
Weight
(0-1)
Rating
(1-5)
Weighted
Score
IPAssessment CommercialAssessment
1 IPisDefensible 5 5 0.8 Resultsof SignificantSponsored Research 2 1.6
1 IP Position(Patented,Copyrighted,Pending,Search) 5 5 0.8 Conformsto RelevantStandards 4 3.2
0.8 NoPrior Claimsto the Technology 5 4 0.6 ImprovementorCostReduction> 20% 4 2.4
0.3 InventionRemainsConfidential 5 1.5 0.5 LowProductionRisk 3 1.5
0.3 NoNearTermPublicationsPending 5 1.5 0.5 SustainableCompetitiveAdvantage 3 1.5
0.25 Lit SearchCompleteand Clean 5 1.25 3.2 Total 16 10.2
3.65 Total 40 18.25
ResearcherAssessment
TechnologyAssessment 1 Expert is TechnologyChampion 5 5
1 Foundational Technology for MultipleProducts 4 4 0.8 Expert has RealisticExpectations 3 2.4
1 IdentifiableandSignificantBenefits/ Breakthrough 5 5 0.8 Expert is EntrepreneuriallyMinded 2 1.6
1 Tech. Dev.Stage(PaperStudy,LabDemo, Prototype) 3 3 0.8 Expert ready to Workwith Company 4 3.2
0.8 ScalableProducts 4 3.2 0.5 Expert has Dealt in Commercialization 1 0.5
0.8 ShortDevelopmentTime Frame 4 3.2 3.9 Total 15 12.2
0.8 LimitedandDefinableCapEx 4 3.2
0.6 TechnologyStateof the Art 4 2.4 TotalCumulativeScore 139
0.6 EasilyDemonstrable 3 1.8 Total CumulativeWeightedScore 91.35
0.5 Additionto ExistingV2R Portfolio 3 1.5 V2RTechnologyCommercialAssessment
General CommentsandConcerns0.4 LongProductLifeCycle 3 1.2
7.5 Total 37 28.5
MarketAssessment
1 Fills Identifiable andMarketable Need 4 4
0.9 MarketSizable 5 4.5
0.7 Market GrowingSubstantially 5 3.5
0.7 DefinableNiche 3 2.1
0.7 Large PotentialMarket Share 3 2.1
0.6 MarketAccessible 5 3
0.5 Absenceof Direct CompetitiveProducts 3 1.5
0.5 LowBarriersfor V2RMarket Entry 3 1.5
5.6 Total 31 22.2
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Investor Financial
Analysis of Startups
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Source:Professor Kimble Byrd,RowanUniversity
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Income Statement – A snapshot over a time period, typically a year showing how a company got to its current state. Indicates theefficiency and profitability of the business.
Balance Sheet – A snapshot in time showing Assets, Liabilities,andresultant Shareholder Wealth. Indicates financial health - today.
Cash Flow Statement – An ongoing analysis focusing on liquid assets andliabilities to assess the financial resources to pay the bills and short termcashneeds.
Pro-forma – Financial projections showing projected business growth
Key Financial Ratios – Means to assess company health based on financialindicators
Basic Accounting Statements
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Income StatementABC Tech,Inc.
Income Statement (in 000’s)
Fiscal Year2015
Revenue:Gross Sales(Revenue
Stream1) $3,000
Gross Sales (Revenue
Stream2) $5,000
Gross Sales $8,000
Cost of Goods SoldDirectLabor $1,100
DirectMaterials $30
Cost ofSales $30
Cost of Goods Sold $1,160
Gross Margin $6,840
Gross Margin (%) 61.3%
Fixed Expenses:R&D $400
Office Expenses $100
OperatingSupplies $15
Rent $36
VehicleExpenses $20
Etc. $1,000
Total Fixed Expenses $671
EBIDTA $5,269
Net Margin (%) 65.9%
• Distinguish RevenueStreams
• Cost of Goods Sold – Costs that vary with production andsales
• Gross Margin - Percentage ofsales to cover fixed expensesand EBIDTA
• Fixed expenses (The Nut) need to be covered regardless of sales
• Understand industrystandards and deviations
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
THE critical statement for most startups - CASH ISKING
Many forms, but follows the premise of the income statement (Revenue less expenses), but on a “cash”basis
Managed monthly or morefrequently
Critical bridge between management and operations (Salesterms; Employee compensation; Vendor payments;etc.)
Cash Flow Statement
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Pro-forma Revenue Model –Prioritize
revenue streams (multiple products, sales, licenses, warranties, upgrades, etc.)
Assumptions are critical –clearly explain the context
Market penetration in relationto competition
Market structure and growth
Understand industrystandards; justify deviations– especially in marginsand sales &marketing
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Key Financial Ratios Profitability
Gross Margins
Operating Margins
NetMargin
Return on Assets(ROA)
Return on Equity (ROE)
Liquidity
Current
Quick / Acid Test
Risk
Debt
Debt toEquity
Efficiency
Inventory
DSO
Investment TurnoverSource:Professor Kimble Byrd,RowanUniversity
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
How Can a University
Best Work with InvestorsWays to engage with and present opportunities to investors ranging
from Technology Opportunity Spotlights to Academic/Investor Hybrid PresentationModels.
Types of investment terms that attract investors and the reasoning behind theseterms.
The session will also include a review of a typical investment due diligence package as well as a typical investment term sheet.
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Technology
Marketing /
Opportunity
Sheets for
Investors
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Technology
Marketing /
Opportunity
Sheets for
Investors
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
A Process for Project Scoping, ProjectManagement
and Reporting Out
A Hybrid of an Academic and Industry Presentation
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
UF Engineering Innovation Institute
www.eng.ufl.edu/innovation
Project Title
PI’s andAffiliations
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Value Proposition
• The one slide “Executive Summary” -Establishes audience receptivity to youropportunity
• Summarize key products / services whichyour technology will enable
• Describe:1. The economically substantial problem
2. That products / services coming from your technology uniquely solves
3. And how that can be best brought to market
UF Engineering Innovation Institute
www.eng.ufl.edu/innovation
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
UF Engineering Innovation Institute
www.eng.ufl.edu/innovation
Research Team
• Provide a brief introduction of the research team and any outside partners in the project
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Research Project Overview
• Overview research activities– Summarize accomplishments to date vs.
objectives set at the beginning of theproject
– Identify objectives still to bemet
• Provide a brief overview of resultant
technologies
• Summarize key technology features on
which a product / service would be basedUF Engineering Innovation Institute
www.eng.ufl.edu/innovation
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Products / Services Overview
• Outline products and services enabled byyour technology emphasizing product features, functions, and customer benefits
• Is this an evolutionary or revolutionaryoffering– Better-Faster-Cheaper - Ability to build market share with
higher quality / performance or lowerprices
– Brave New World – Strategy to attract earlyadopters
and penetrate market with newproduct
• Include an overview of the revenue streamsthat might be generated by the products / services enabled by your technology
UF Engineering Innovation Institute
www.eng.ufl.edu/innovation
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Intellectual Property• Outline intellectual property position
– Invention disclosures and patent
applications submitted
– Invention disclosures and patent
applications planned for the near term
• Outline relevant known intellectual
property of others, either within UF
(complimentary) or outside of UF
(competitive)
UF Engineering Innovation Institute
www.eng.ufl.edu/innovation
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
UF Engineering Innovation Institute
www.eng.ufl.edu/innovation
Competitive Analysis• Summarize competitive products & technologies
and define your competitive advantages
• Consider a Competitive Matrix comparing your technology against competitive products / technologies for key user features such as cost, performance, ease of use, etc.
Key User
Feature 1
Key User
Feature 2
Key User
Feature 3
Key User
Feature 4
YourTech
Competitive
Tech1
Competitive
Tech2
Competitive
Tech3
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Market Overview• Market Opportunity – Key market problems /
needs being addressed
• Market Identification – Your plan to identify the highest potential customer base; Whomight be the early adopters
• Market Structural Characteristics– Market size (annual revenue) and growth rate
(historical and predicted annual percentagegrowth)
– Is this a niche of a largermarket– What major drivers or trends have or willimpact
your market
– Technology changerate
UF Engineering Innovation Institute
www.eng.ufl.edu/innovation
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
UF Engineering Innovation Institute
www.eng.ufl.edu/innovation
Regulatory Environment
• Summarize the regulatory requirements
that a company will have to address to
bring your technology / product to
market
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Next Steps and
Resource Requirements
• Summarize key technology development and funding requirements and use of funds
• Isolate key decisions and issues that need near-term vs. long term resolution
• Summarize who would be the highest potential commercialization partners and why they are key to commercialization
• Planned next steps in development / commercialization process
UF Engineering Innovation Institute
www.eng.ufl.edu/innovation
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Structuring a Successful
Investment
Also KnownAs
Doing the Deal
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
University Tech Transfer and Investors
A Shared Philosophy Enables Success
Creating Value forOne
Creates Value forAll
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
The Deal
An economic agreement that allocates upside andrisk
What each party brings to the deal and how badly they want it drives deal structure andnegotiation
Systemic Problem - Projections involve subjective differences of perception of upside and risk (market penetration, pricingeconomy, market, cash flows,competition)
No Deal is Perfect – Strive for satisfaction, notperfection
The Devil is in theDetails
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Key Deal Terms
Basic terms governing distribution of value /equity
Key Milestones and performance incentives and penalties
Additional rights andobligations
Mechanisms to provideinformation
Default and Remedial ActionClauses
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
A Good Deal Simple yet robust—works in manyscenarios
Each party’s incentives taken intoaccount
Allows for constructivecommunication
Based ontrust
Notunfair
Does not trapcompany
Improves chances for venturesuccess©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Key Drivers of Negotiations
Cash andTime
“Burn rate” and “Runway”
Key element affecting the entrepreneur’s bargaining power
Risk
Typically assessed differently by the investor than by the entrepreneur
Investor needs tailored to investment instrument
Debt – lowest risk / return
Preferred stock - Less risk than lower classes
Common stock - shared risk
Staged equity investment – options to abandon or reduce valuation
Valuation – A product of theabove
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Some Principals of Valuation
Value is subjective and in the eye of thebeholder
Entrepreneurial finance rather than corporate perspective - Long term value vs. quarterly earnings
Most tenets of corporate finance near useless in valuing high-risk entrepreneurial companies
Entrepreneurial valuation features cash, time, risk, andvalue
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Some Valuation Methods
Historical = Sunk Costs +“Appreciation”
Comparables
Valuation/terms of “similar” deals (company maturity, space, market penetration, etc.)
Discounted multiples of P/E or free cash flow
Present value of future earnings streams andcosts
Predetermined investor ownership requirement based on risk/return perception
Horse Trading - Negotiating
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Review of an Investment Term
Sheet and Due Diligence Package
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Final Thoughts
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Some Keys to Investment Collaborations
Investing in university spinoff companies takes a very longterm approach.
Peer review add credibility to the research.
Multidisciplinary, collaborative team research produces uniqueresults– a key for universityspinoffs
The license and forget model typically doesn’twork
Recognize different motivation/reward systems
University - sponsored research, understanding science, publishing (peer recognition), education
Industry - time/cost to market, proprietary position
Doing more deals is usually better than driving a deal intotheground
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Final issues discussion
Lessons learned
Go-forward actions
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Florida Engineering Experiment Stationwww.eng.ufl.edu/FLEXStation
Erik Sander, Executive Director
352-392-6000
©2016 - Rede Inova São Paulo e Erik Sander.Todos os direitos reservados. Proibida a reprodução integral ou parcial sem o consentimento dos autores por escrito.
Quer saber mais sobre a Rede Inova SP?
Acesse:
E-mail: [email protected]
Facebook: facebook.com/redeinovasaopaulo
Site: www.inovasaopaulo.org.br
Tel: 19 3521 2556
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