Moving Early Stage Technologies


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Moving Early Stage Technologies

  1. 1. Phyl Speser, J.D., Ph.D. Foresight Science & Technology Incorporated www.ForesightST. Com ~ 401.273.4844, ext.35 LES Strategic Alliance Committee 2009 Seminar Series Foresight Science & Technology 1
  2. 2. Deals Have to Pencil Process Contribution to Total Project Cost (excl. Investments) 0.4 0.35 0.3 The substantive process drives the cost Cost in % of Total 0.25 0.2 0.15 calculation 0.1 0.05 0 Log & Disp Financing Design Impl & Eng Test Mgt Prc & Equip Dist & Srvc Mfg Pl & Ctrl Research Management The cost calculation, Net Operating Income/Loss and Cummulated Cashflows with Breakeven Net Operating Income/(Losses) together with the revenue projections, Net Difference of Cummulated Cashflows 400000000 350000000 300000000 250000000 200000000 150000000 drives the net value 100000000 50000000 0 36525 37256 37986 38717 39447 40178 40908 41639 42369 43100 43830 44561 -50000000 Foresight Science & Technology 2 2
  3. 3. Risk Reduces the Value of a Deal Cost vs. Delays for all Risks along Value Chain Technical and firm specific risk 30% are the basis for the discount 25% Resulting Cost Increases rate. 20% 15% 10% Market risk is a probability distribution for outcomes. 5% 0% 0% 5% 10% 15% 20% Resulting Delays Foresight Science & Technology 3 3
  4. 4. Discount Rates Risk Level Approximate DR(%) Description Risk Free 10-18 Existing product, high demand, building more of the same Very Low Risk 15-20 New well understood technology for an existing product Low Risk 20-30 New features, well understood technology into an existing market Moderate Risk 25-35 New product, well understood technology into market with competition High Risk 30-40 New product, not well understood technology into an existing market. Very High Risk 35-45 New product, new technology, new market Extremely High Risk 50-70 New company, unproven technology, new market Source: Richard Razgaitis, Early Stage Technology Foresight Science & Technology 4 4
  5. 5. Identify Risks that Defer Income  or Raise Costs Focus on the Significant Risks 5 Foresight Science & Technology 5
  6. 6. Mitigating or Avoiding the Risks  Increases Value Targets and Means Matrix Objective 1 (Reduce/Increase) Objectives Action Plan Objective 5 Objective 3 Objective 4 Objective 2 Measure Time Line Resources Required Who? JFMAMJJASOND Task 1 Task 2 Task 3 Task 4 Task 5 Progress 6 Foresight Science & Technology 6
  7. 7. Value Contribution­ Royalty Rates Any numbers in green found in the following fields can be changed and will be reflected in the tables below Factor Rate Weight Impact Industry Norm 0.0% 0.0 0% Significance (Breakthrough add 5-10%, Major add 0-5%%, Minor subtract 0-3% 0.0% 3.0 0% Refinement/Maturity of Technology (High add, Low subtract) 0.0% 2.0 0% Breadth and Strength of IP Protection (Yes add, No subtract) 0.0% 2.0 0% Portfolio, Not Single Patent Being Licensed (Yes add, No subtract) 0.0% 2.0 0% Exclusive Market Position in Field of Use Gained (Yes add, No subtract) 0.0% 3.0 0% Immediate Utility in Market (Yes add, No subtract) 0.0% 2.0 0% Commercially Successful (Already Successful in Market add, Not Yet Proven in Market subtract) 0.0% 3.0 0% Competition Exists which Will Inhibit Ability to Exploit (Yes subtract, No add) 0.0% 1.0 0% Foreign Rights (Yes add, No subtract) 0.0% 3.0 0% Sales Conveyed or Highly Likely (Yes add, No subtract) 0.0% 2.0 0% Duration (Over Ten Years add, Under Three Years subtract) 0.0% 1.0 0% Upfront Payment Required (Yes subtract, No or Conditional add, Standard neutral) 0.0% 2.0 0% Minimum Royalties (Yes subtract, no add, Standard neutral) 0.0% 2.0 0% Know-How Included in Deal (Yes add, No subtract, Standard neutral) 0.0% 3.0 0% Support/Training Provided After Initial Transfer (Yes add, No subtract, Standard neutral) 0.0% 2.0 0% Maintenance and Enforcement Burden (Licensee subtract, Licensor add, Standard neutral) 0.0% 2.0 0% Exposure to Liability (Yes subtract, No add, Standard neutral) 0.0% 2.0 0% Total 0% Add to Industry Norm 0.00% RATE 0.000% Foresight Science & Technology 7
  8. 8. Licensing/Spin­Out & TRL Social Networking – Monitoring and Collaboration Foresight Science & Technology 8
  9. 9. Energy Storage for Electric &  Hybrid Vehicles HEV Batteries Foresight Science & Technology 9
  10. 10. Li-ion Battery Functional Decomposition (B) Product Risks B-1.0 Lithium Ion Battery B-001 Available Energy B-002 Calendar Life B-003 Cold Cranking Power B-004 Cost B-005 Cycle Life B-006 Efficiency B-007 Equivalent Electric Range B-008 Max. System Weight B-009 Operating Temperature Range B-010 Peak Pulse Discharge Power B-011 Production Price B-012 Regenerative Pulse Power Green indicates a goal with B-013 Self Discharge specific numerical values B-175 Safety B-014 System Recharge Rate Red indicates a risk or B-015 System Volume B-016 Thermal Runaway common design hurdle B-1.1 Cathode without a quantified goal B-017 Cost B-018 Electrochemical Capacity Yellow indicates a goal or a B-019 Ionic Conductivity characteristic without a specific value Foresight Science & Technology 10
  11. 11. Economic Paradigms and  Dominant Designs Product Innovation Stage Bundle of Features Standard User Interface Process Innovation Stage Eliminate Steps Improve Reliability Improve Efficiency of Resource Use Foresight Science & Technology 11
  12. 12. Paradigms for the Economy­ Control  Over Power & Communication Revolutionary War: Local Markets, Water/Wind Power, Mail, Batch/Power Tool Assisted Production, Yankee (Knowhow) Innovation Civil War: Regional Markets, Steam Power, Mail, Mass/Semi- Mechanized Production, Tinkerer Innovation (Systematic Trial and Error) World War I: National Markets, Fossil Fuel Power, Phone, Automated/Mechanized Production, Engineered Innovation (Structured Trial and Error) World War II: Global Markets, Fossil Fuel Power, Radio Communications, Continuous Production, Seed Corn Innovation (R&D Driven) Vietnam: Global Segmented Markets, Fossil Fuel Power, Digital Communications, Distributed Production, Managed Innovation (Open Innovation) Climate Change: Electric Power, Digital Communications, Asynchronous Production, Network-Centric Innovation (“Floating Networks”™) Foresight Science & Technology 12
  13. 13. Open Innovation Presumes a  Stable Paradigm Source: Wayne Johnson Vice President, HP University Relations, “Globalization: Implications for ERCs,” Worldwide, November 17, 2005 Foresight Science & Technology 13
  14. 14. A Product’s Utility is Constrained  by the Dominant Design Bohn Knowledge Level Utility ≈ Value Skills/Know-how Extension Extension Enabling Core Strategic Extension Competing Enabling Time Foresight Science & Technology 14 14
  15. 15. Impact of an Economic Crisis Climate Change: Electric Power CUMULATIVE REVENUES 0$ Idea Basic Applied Product Process Market Research Research Development Engineering Introduction TIME Foresight Science & Technology 15
  16. 16. Recessions Reduce the Ability to  Cross the Valley of Death Foresight Science & Technology 16
  17. 17. Obama is Embracing Disruptions  of Dominant Designs Electric Power, Digital Communications, High Sales Asynchronous Production Low Labor Skill Embryonic/ Growth Maturity Decline/ Emerging Disruption Pioneering products Dominant design Generic products New functionalities High product More process High process High product innovation innovation innovation innovation Growing demand Stabilizing demand Stable demand New demand Low volume Higher volume Very high volume Market convergence Proprietary focus Standards focus Cost focus New markets Many new entrants Many failures Stable players New competition Standards wars Acquisitions Consolidation Barriers to entry drop Scale wars and divestitures New business models Supplier wars Foresight Science & Technology 17
  18. 18. Obama Agenda is Accelerating the  Rate of Change in Dominant Designs VarietyRate of Slow or “One Rapid or “Faster- Change Time” Paced “ Many Segment Driven Dynamic Needs Needs (Fishing Tackle) (Screwdrivers) Batteries Renewable Clean Energy Generators Few Infrastructure Social Network Driven Needs Driven Needs (Hoes) (Cell Phones) Smart Grid Hybrid and Electric Vehicles Based on Sanderson and Uzumeri, Managing Product Families, (Iwin, 1997) Foresight Science & Technology 18
  19. 19. Paradigm Shifts Affect Freedom to  Operate Ease of Use Foresight Science & Technology 19
  20. 20. Disruption Creates Windows of  Opportunity Trajectory Technology 2 Requirement S 2c Yield Trajectory S Requirement S 1c Technology 1 S 2b 1b S 1a S 2a Time Foresight Science & Technology 20
  21. 21. Historical Example: The Zipper Button C lothing Manufacturer Manufacturer Button C lothing Manufacturer Manufacturer Market Force Foresight Science & Technology 21
  22. 22. Energy Storage Foresight Advanced Energy Storage Portal Foresight Science & Technology 22
  23. 23. Strategic Alliances are a Way to  Hedge Your IP Portfolio Extension Enabling Extension Extension Enabling Li-Ion Li-Air Extension Enabling Lead Acid Time Network-Centric Innovation Foresight Science & Technology 23
  24. 24. Sweet Spot for Alliances Expands  in Periods of Disruption Market Familiarity STRATEGY Control: Internal Development Divest or Acquisitions Paradigm Monitor In-License Shift Partner: Joint Ventures Reduces Market Development Alliances Familiarity Network- Internal Ventures Out-License Centric Divest: Partner Innovation Assignments Sales Control Monitor: Technology Venture Capital Development Educational Acquisitions CORE Adapted from Roberts and Berry, SMR 1988. Technology Familiarity Dominant Design Shift Reduces Familiarity Foresight Science & Technology 24
  25. 25. Real Options Provides management investment options Invest Wait Abandon Useful where a progression (stage gate®) based on risk elimination can resolve return on investment Market or technical uncertainties affect value of IP NPV is difficult to estimate or near zero Foresight Science & Technology 25
  26. 26. In Periods of Uncertainty the  Value of Hedging Increases Low Likelihood of receiving new information High High Uncertainty Managerial Flexibility Moderate High Flexibility Value Flexibility Value Ability to respond Room for Low Moderate Flexibility Value Flexibility Value Marco Antonio Guimarães Dias, Petrobras and PUC-Rio, Low Brazil, 2003, Foresight Science & Technology 26
  27. 27. Traditional Relationship Models Six Sigma – Licensing Joint Venture, or Equity possibly leading to Farm Teaming – Cooperative R&D acquisition Contracts with Right of First Refusal Or Equity Investment Foresight Science & Technology 27
  28. 28. Deals Make Sense When They  Increase Payoff Partnr Partner Partner Wants Deal Walks SME SME Wants $10m, $0.0m, Deal $0.5m -$0.05m SME Walks $0.1m, -$0m, -$0.05m -$0m Foresight Science & Technology 28
  29. 29. Network­Centric Innovations Make  Sense Where They Increase Payoffs Partnr Partner Partner Partner Moves Steps Abandons SME Forward TTO Moves >$15m, $5m, $0, Forward >$10m $0.05m, +-$0.03m TTO Steps $5m, +-$0.03m, $0, $0.05m +-$0.03m +-$0.1m TTO +-$0.03, +-$0.01m $0, Abandons $0 $0 $0 Foresight Science & Technology 29
  30. 30. Rate of NPV Capture is Related to  the Quality of the IP Portfolio NPV (million $) NPV = PV of Total Revenues – Costs NPV as a function of P Linear Equation for the NPV (“Business Model”): spreadsheet value NPV = q (P)-C P (forecasted price of the portfolio, P = Σ 1…nIP xx p) • The quality of IP (q) affects the NPV line slope. • q measures the value of: −C portfolio average technology value at current TRL/ forecasted fair market value of current products • q is a measure of potential utility that in the inverse of the discount rate Foresight Science & Technology 30
  31. 31. If NPV = q (IP xp) − C = (0.2 x 500 x $18) – $1750 = + $50 million, do you develop the portfolio now if the Discount Rate is 10%? t=1 E[P+] = $19 ⇒ NPV+ = + $150 million Wait 50% t=0 Abandon 50% E[P] = $18 / technology E[P−] = $17 ⇒ NPV − = − $150 million NPV(t=0) = − 50 million $ Rational manager will not exercise this option ⇒ Max (NPV−, 0) = zero At t = 1, the portfolio NPV is: (50% x 150) + (50% x 0) = + $75 million The present value is: NPVwait(t=0) = 75/1.1 = 68.2 > 50 so wait Foresight Science & Technology 31
  32. 32. Suppose the same case but with a higher NPV. NPV = q (IP x p) − C = (0.22 x 500 x $18) – $1750 = + $230 million t=1 E[P+] = $19 ⇒ NPV+ = $340 million 50% Move Forward t=0 E[P] = $18 / technology 50% Wait E[P−] = $17 ⇒ NPV − = $120 million NPV(t=0) = $230 million At t = 1, the portfolio NPV is: (50% x 340) + (50% x 120) = $230 million The present value is: NPVwait(t=0) = 230/1.1 = $209.1 < $230. Deep-in-the-money (high NPV) means exercise the option Foresight Science & Technology 32
  33. 33. University/Industry Centers RLDPs/LLC Hedge Funds Foresight Science & Technology 33
  34. 34. Govt. or Foundation Subsidy BUYER SELLER Foresight Science & Technology 34
  35. 35. High Past Present Future Long-Term Sustainable Competitive Advantage of Strength of Short and Mid-Term Intellectual Asset Competitive Advantage Portfolio Revenue From Entry Market Application Low © Foresight Science and Technology Foresight Science & Technology 35
  36. 36. Take: • Call Options for non-exclusive or exclusive licenses Aggregate Technologies •Option fee funds from TTOs, maturing the Mature with SMES with: technology • R&D Awards • Other Subsidies • If technology takes • Sales or Other off, option is Commercialization exercised. Success • Can sell option prior exercise date with approval to improve Foresight Science & Technology vale of option 36
  37. 37. Early Stage Exit Horizontal Alliances 1. Spin-Out Joint Venture, RDLP or RDLLC License to LLC Member, 2. License to Small Business Vertical Alliances 3. Sell Option Joint R&D Venture 4. Abandon and Write Off Foresight Science & Technology 37
  38. 38. Foresight Science & Technology 38
  39. 39. • Nothing happens without a sale. David Speser • If opportunity doesn’t knock, build a door. Milton Berle • A well-defined imagination is the source of great deeds. Chinese Fortune Cookie Thanks. Phyl Speser Chair, Strategic Alliance Committee and CEO, Foresight Science & Technology Foresight Science & Technology 39
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