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Launching a High Technology Venture

s. Launching a High Technology Venture. Patterns of Entrepreneurship Chapter 13. Framework for Launching a Technology. Screen Technologies for New Ideas Prepare the Strategy, Product Positioning and Alliance Plan Determine Capital and Resources Talent and Management team

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Launching a High Technology Venture

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  1. s Launching a High Technology Venture Patterns of Entrepreneurship Chapter 13

  2. Framework for Launching a Technology • Screen Technologies for New Ideas • Prepare the Strategy, Product Positioning and Alliance Plan • Determine Capital and Resources • Talent and Management team • Implementation

  3. Framework for Launching a Technology • Screen Technologies • Identify systems and technology • Investigate environment for technological and market conditions • Plan the technology project • Perform feasibility analysis • Execute market forecasts and benchmarking

  4. Technology Trends • Internet is changing the model of computing • Software architecture of the internet will become the software architecture for the enterprise • Computing infrastructure (datacenter) will be the next surprise; fueled by “ASP Services”, outsourced “compute tone”, and internet “geoscale” • The “real-time enterprise” will drive carrier demand at increasing rates of growth & create Oracle/SAP scale companies • Operations systems to reduce operating cost & total cost of ownership will be a major issue/opportunity • Evernet – everyplace, every time, every device thru “mobile IP” (but not a lot of money for new ventures)

  5. The New IPInfrastructure Network Issues & Trends • Everything over IP • Two layer network • Value added services • Internet based SW architecture • Skills shortage • Mission critical technology • Rapid, unpredictable growth • Legacy encapsulation

  6. Prepare Strategy and Positioning • Prepare Pilot testing of new technology product • Beta site testing in a few selected locations • Develop a marketing plan to roll out the product • Consider how the product will be positioned and determine pricing plan • Use alliances for cost sharing and efficiency • Be proactive in locating companies to network • Leverage resources.

  7. Determine Capital and Resource Requirements • Determine Sources of Financial Needs • Leverage Intellectual Properties • Develop Exit strategy

  8. Private Equity/VC Firms • Kleiner Perkins • Oak Investment Partners • Advent International Captive Corporate Firms • GE Capital • Intel • Nestle Venture Capital Buy-Out Firms • KKR • Hicks Muse • Forstmann Little Players In Private Equity

  9. Funding Milestones – The Right Way TechnologyWorks A Customer Buys Idea isFeasible P(success) = 80% Req’d IRR = 30% Valuation P(success) = 50% Req’d IRR = 50% P(success) = 40% Req’d IRR = 70% P(success) = 30% Req’d IRR = 100% Risk (ß) Capital Seed Funding R&DCapital Go-to-MarketCaptial ExpansionCaptial

  10. The VC “LANDSCAPE” in 2000 2000 693 8368 164 497 105.05 211.4 1980 87 1035 24 57 2.08 36.5 1990 375 3794 14 82 3.20 39.0 # of VC Firms in Existence # of Professionals # of First Time VC Funds Raised # of VC Funds Raised This Year VC Capital Raised This Year ($B) Avg VC Fund Size Raised This Year ($M) Source: NVCA Yearbook 2001; Venture Economics

  11. The Committed Capital Bubble Years Accumulated Capital Over-commitments ($B) Source: VentureOne

  12. The Illiquid Bulge From 1995-2000: Companies funded Went public Were acquired Went out of business Remaining 14,463 978 1,529 1,180 10,776 - - - Source: Venture Economics; Venture Source

  13. Round Type Date Amount Raised (MM) Pre-Money Valuation (MM) IRR Multiple 1 Seed Jan-97 $ 5 $ 35 79% 18.37 2 1st Jan-98 $ 10 $ 100 65% 7.35 3 2nd Jan-99 $ 25 $ 200 59% 4.04 4 3rd Jan-00 $ 60 $ 600 52% 1.52 5 IPO Jan-01 $ 1000 $ 100 A Generic Late 90’s Model Million

  14. Round Type Date Amount Raised (MM) Pre-Money Valuation (MM) IRR Multiple 1 Seed Jan-90 $ 0.50 $ 2 101% 32.53 2 1st Jan-91 $ 3.00 $ 10 70% 8.13 3 2nd Jan-92 $ 8.00 $ 32 50% 3.30 4 3rd Jan-94 $ 13.50 $ 100 32% 1.32 5 IPO Jan-95 $ 150 $ 25 A Generic Early 90’s Model Million

  15. Why It’s Great To Be An Entrepreneur - TODAY US Venture Capital Partnership ReturnsVersus Public Market ReturnsFunds Formed 1969-1999 (quarterly returns) Source: Venture Economics/NVCA

  16. The HALF-EMPTY view • Technology led slowdown • Consumer Reaction pile-on • Sept 11 • The WAR • 2002 is history! • Financings Unavailable • Stay afloat, tread water, hunker down

  17. The HALF-FULL view • Less competition • Time to develop technology • Focus: sustainable advantage, value-add • Better critique, Better ventures, Higher Bar • Longer Term View/Horizon • Lower Funding => Lower Risk

  18. Venture Investment Criteria • Market Exists today, high growth, addressable • Management Industry experience, operating track record, vision and guts, trust/ethics • Business Case Convincing value proposition, product vs. service, strategy (chasm!), profitability “in sight” • Technology Defensible, scalable, open, “breeder vs. broker” • Liquidity Cash management & fund raising • Clear Exit Based on market share not “raw” technology value • Self Discipline Don’t get creative; expectation pact and process

  19. Investment Process FirstMeeting InitialInformationPack Sent ConfidentialityAgreement 2nd Info Pack/More Meetings IndicationOf Interest InitialDue Diligence EarlyRead ProposedTermsheet Full DueDiligence Closing

  20. Carry out Recruitment and Selection Build the Best Team Consider Outsourcing Attract Talent and Build the Management team

  21. The New World of Partnerships - Building Strategic Alliances • Technology - Transfer Partnerships • A computer hardware company and software company can combine to benefit each other • Setting up joint licensing arrangements • Equity Investment Partnerships • Global Partnerships • A technology company received needed cash, and a European company received stock and access to cutting-edge software

  22. Acquisition Joint Venture Minority Equity • Control • Synergy • Goodwill • Capital • Starting Point • Complex • Short-Term • Simple • Committed • Insider • Pre-Acquisition A B A B A B A+ C Consider Minority Equity As Strategic Alternative

  23. The New World of Partnerships - Building Strategic Alliances • Marketing Partnerships • Combining value added services between two companies. • Supplier Partnerships • Customer-vendor relationships where one can perform a specialized service more effectively than its partner.

  24. Partnership Criteria Evaluation • Evaluate potential partners carefully • Most partnerships fail • Perform due diligence • Select number 2 or 3 in the market as a partner • Assess possible mutual benefits critically • Strengthen the partnership through “skin in the game” • Strive for open communication

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