The University Startup Company Law Firm California Massachusetts Florida

1. The University Startup Company Law Firm California Massachusetts Florida www.rothmanandcompany.com  steve@rothmanandcompany.com (310) 993-9664 Stephen P. Rothman, Esq. Assessing Business Feasibility - Outline for Panel at CNSI 1

2. Background Rothman and Company, P.A. . We spend most of our time working with university-based startups and their investors. Have seen a lot of them fail. 2

3. Why Feasibility Assessment Most startups fail. University based startups may have a somewhat better success ratio, but still a majority fail. Technology advantage. But also recurring pitfalls of academics who don’t have business experience. Think of a startup as like a mission to the moon; need many things to go right: Years of planning Money Precise measurements Persistence Good people And if one critical part fails, mission blows up. Your job in feasibility assessment is to identify all (not most, all) of the possible critical failures, in advance, so that you can: Figure a way around them; or Abort the mission before spending years of effort and large amounts of money on it, if it’s not viable. 3

4. Central Question 1. What might go wrong? Market – size, profitability, timing, trends, overall attractiveness, is the market there now or do you have to create it Competition – how do customers now solve problem; how will competitors respond to your market entry? Expected cost of your product relative to competing products. Competitive advantages and disadvantages. IP. Brand. Team – who would you need to recruit to succeed – industry background, skills or information that you lack; , knowledge of the market, personal contact with customers, time to devote to the venture, experience with startups; team that can work together harmoniously Financial resources - how much money needed; how much time needed (more than you think). Investor fit. 2. How do you fix, avoid the problem? 3. Go / No Go decision Keep going / give up decision 4

5. Paradox of the New Venture: Most fail In retrospect many of those were destined to fail from day one You want to avoid starting on a losing path You want to cut your losses if it becomes clear that you are not on the right course – change course or abandon ship. Yet . . . . Great successes come from: Doing what seemed at first to be impossible Refusing to admit defeat Not quitting upon apparent failure when you are actually on the verge of success Ford engine cast in a single block Edison light bulb – running out of ways that would not work 5

6. Pointers and Pitfalls for startups, especially academic startups Focus on the customer, not on the technology Not enough to be innovative, smart, cool Not enough to win government grants Not enough to be published in peer reviewed journal Will the dogs eat it? Talk to the potential customers: do they want it? At what price? With what features? Is it in their budget to buy it? What will it take to get them to switch from their current solution? How many such customers are there and what volume does each need? One sign of a good opportunity: The proposed business is exciting both to the potential customer and the potential investor. 6

7. Pitfall  1:  the better but more expensive mousetrap You have invented a better mousetrap.  It works more easily, reliably, and doesn’t require a supply of cheese.  The problem is – it is more expensive than a standard mousetrap.  People will still buy the $2.29 wooden plate with the metal trap on a spring trigger, because it works well enough and it’s cheaper.  7

8. Pitfall 2:  The cheaper, better mousetraptoo late 2001.  opto-electronic communications technology faster, smaller and less expensive than what is in the market.  Customers like it Problem:  In 2001 the communications infrastructure has been over-built; no one is building networks, and there is no demand even for a superior product.  It takes years for the market to rebound, and in the meantime your company runs out of money and its investors run out of patience and shut it down. 8

9. Pitfall 3:  The cheaper, better mousetraptoo early 2000. Software-based system for use in webcasts by radio stations Allows targeting advertisements to individual listeners based on their age, gender and location. Problem: in 2000, very few people listen to the radio through their computers, and selling advertising requires a very large audience.  This product will be successful seven or eight years later, but by that time your startup will have folded. 9

10. Pitfall 4:  Gaps in the team Need all of these: Industry specific experience Commercial setting experience Startup experience Why do people make the mistake of not bringing in the right team: Desire to maintain control Reluctance to share equity Ego 10

11. Questions? Stephen P. Rothman, ESQ. ROTHMAN AND COMPANY, P.A. www.rothmanandcompany.com E-MAIL:steve@rothmanandcompany.com (310) 993-9664 11