Cambridge Consultants and Angel News event for startups, 13/4/10, talk by Duncan Smith of Cambridge Consultants

1. Demonstrators – why, when, and…..
…how they can help you raise investment for your venture
Paste an
Paste an
image over the
image over the
circle and use ‘Send
circle and use ‘Send
Backward’ tool 3 times
Backward’ toolpicture
OR delete the 3 times
OR delete the picture
frame and the white
frame andno image
square if the white
square if no image
is required.
is required.
Bathtub to warehouse event, April 2010
Duncan Smith
20 April 2010 S3908-P-083 v1.0
Duncan Smith, Head of Consumer Products at CC.
50% of my part of the business is working with fast-growing startup
companies.
I’m going to talk about demonstrators and models, when and why to
build them, and how they can help you raise money and ultimately
get to market faster.
Page 1

2. Cambridge Consultants – 50 years of Innovation
2 20 April 2010 S3908-P-083 v1.0
We are a product design and development company
For 50 years we have been developing products for companies
across a wide variety of market sectors
We work with both large blue chips and dynamic, fast growth
startups, either developing innovative parts of products or the
whole product through to manufacturing handover.
Why are we doing this talk?
Many of the startups that come to us are facing the same issues,
whatever their market, and we always give similar advice to them
while we are finding out whether to work together.
So we wanted to try sharing some of this with a larger audience.
Also we wanted to give you the opportunity to hear both from an
investor and from another company that has been through the
same process.
Page 2

3. The investment ladder
3 20 April 2010 S3908-P-083 v1.0
The product development cycle maps onto the funding ladder
To raise more money, you need to credibly answer the tough
questions your investors will ask.
In other words, at each stage, you will need to demonstrate that you
have reduced the risks that are barriers to their investment.
The diagram shows three different generic stages, and the key
questions that characterise each stage.
There are lots of other detailed questions beneath these. Your
potential investors will do due diligence on you and will send a
junior analyst with a shiny new MBA to crawl all over your
business and technology, looking for weaknesses and putting
them in a spreadsheet. Your investors will use this to ask lots of
awkward questions.
Good demonstrators and models can help you answer these.
Also they can help reduce upfront spend by answering questions in
the right order.
We’ll be concentrating at the front end – seed and round a funding –
for this talk.
Page 3

4. Types of demonstrator
4 20 April 2010 S3908-P-083 v1.0
We’ll cover these in more detail but types of demonstrator include….
Sketches and storyboards
Looks-like models that don’t work but help communicate your
message
Works-like models that don’t look like the real thing but prove
aspects of your technology
Looks-like works-like models that both work and look the part and
Made like models that are ready to start commercialisation
Page 4

5. The investment ladder
5 20 April 2010 S3908-P-083 v1.0
Different demonstrators are very powerful at different stages to
answer different investor questions.
Questions are all covered in more detail in the booklet we are going
to give you at the end.
We aren’t going through all of it we have picked the ones directly
addressed by demonstrators.
Let’s talk through the different types of demonstrator……
Page 5

6. Types of demonstrator: works-like models
6 20 April 2010 S3908-P-083 v1.0
There are tough technical questions that were going to be asked
before the investment in the development stage would go ahead.
Works-like rigs demonstrate the technical principles. Works like rigs
don’t necessarily look anything like the product but answer the
difficult questions. You should be able to put them in front of
investors, but bear in mind they are good for a technical audience
NOT a marketing one – they may be off-putting to a marketing
audience. Tune your level of polish to the audience.
Ask yourself……. What are the tough technical questions you will be
asked?
Page 6

7. Risk assessment
Level of Effort/Cost of Action
risk mitigation
High Low These are risks you should address in the first
phase – easy wins that will build credibility
Low High These are risks that will tend to get answered in
the development phase and should be included
in the plans for that phase
Low Low Consider whether to mitigate or not – however if
they are not important they may be a
distraction at this stage
High High These are the risks you cannot afford to address
at this stage, but that you will need to have
credible plans to address early in development
7 20 April 2010 S3908-P-083 v1.0
There are several approaches to working out what the tough
questions will be.
One is to use a risk assessment. These are not just for health and
safety!
List all the risks you can think of and how you would ideally mitigate
them.
Try being devils advocate…… ask questions like:
how would your competitors dismiss your technology?
What will your investors disbelieve in your pitch? What will make
them raise their eyebrows?
You can then prioritise as shown here….
This will help you focus where you spend your precious budget to
get maximum value
Ask yourself……. What are your key risks?
Page 7

8. Types of demonstrator: concept sketches and storyboards
8 20 April 2010 S3908-P-083 v1.0
You don’t necessarily have to use works-like models for all the risks
– story boards or sketches can also help communicate the answer
….. One of the tough questions is often “what is the user
experience?” and in this case a story board was used to show that
that question had been answered.
Ask yourself whether you need a storyboard to explain how your
technology is going to work for your target customer in a real-
world situation
Page 8

9. Types of demonstrator: looks-like model
9 20 April 2010 S3908-P-083 v1.0
Looks-like models are not just “smoke and mirrors”
Answering the question “what will it look like”?
They communicate your value proposition AND it is very powerful
being able to put it in the hands of a stakeholder.
In some cases you make something look DIFFERENT to get your
message across. In the case of our radio being portable instantly
communicated that this technology was low power and small
compared to the competition.
In other cases it may be important that the appearance is familiar-
the customer might reject something that looked out of the
ordinary.
Ask yourself what you need to communicate with your model.
Beware of making them look to real as your investors might think it
is finished!
Page 9

10. Types of demonstrator: assembly sketches
10 20 April 2010 S3908-P-083 v1.0
Assembly sketches –
If you are going to make a looks like model it’s important it fits in the
box!
Ask yourself how much effort you need to go to to show how it is
going to integrate into the final product
Page 10

11. 11 20 April 2010 S3908-P-083 v1.0
If you are starting to work our what all the bits are, you can start to
work out how much is it going to cost
You might be thinking it is far too early, we don’t know what all the
parts are yet.
It is never too early to do a back of an envelope costing
You can ask yourself how much the market can afford it to cost,
given the competition.
If nothing else you will find out where there are gaps in your
knowledge that need to be filled in the next stage.
This will help support your business case as well as the product
development
Ask yourself what your market can afford it to cost
Page 11

12. The investment ladder
12 20 April 2010 S3908-P-083 v1.0
All these questions are at the front end concept stage….
Page 12

13. Types of demonstrator: looks-like works-like models
13 20 April 2010 S3908-P-083 v1.0
By the end of that first stage you might even have made a looks-like
works like demonstrator, to help answer the critical question:
Can you show me it working?
It may not be beautiful, not ready for mass manufacture, not even
complete, but we’ve reduced the risk in the key areas, both
business case and technical for an investor to see that this can be
a real product….
Ask your self what do you need to show working? It’s not going to
be complete but remember the risk assessment and try to show
that you’ve reduced the KEY risks with this demo. It may even need
to be different from a final product for you to do the market testing
you need.
You might want an all singing all dancing machine but it wasn’t the
right thing to do with your budget.
Page 13

14. It works!
14 20 April 2010 S3908-P-083 v1.0
And the investment was received to develop it into CSR’s RadioPro
platform. It works!
Page 14

15. Summary
15 20 April 2010 S3908-P-083 v1.0
So to summarise the product development cycle maps onto the
funding cycle
To raise more money, you need to credibly answer the tough
questions your investors will ask
(or at least anticipate them and explain when and how they are going
to be answered)
This means demonstrating that you have reduced the risks that are
barriers to their investment
Smart use of good demonstrators and models can help you be
successful
Every single one of our startup clients has had to address these
questions – think about how you are going to answer them.
Page 15

16. Who we are
16 20 April 2010 S3908-P-083 v1.0
- Questions
Page 16

17. Contact details:
Cambridge Consultants Ltd Cambridge Consultants Inc
Science Park, Milton Road 101 Main Street
Cambridge, CB4 0DW Cambridge MA 02142
England USA
Tel: +44(0)1223 420024 Tel: +1 617 532 4700
Fax: +44(0)1223 423373 Fax: +1 617 737 9889
Registered No. 1036298 England
info@CambridgeConsultants.com
www.CambridgeConsultants.com
© 2010 Cambridge Consultants Ltd, Cambridge Consultants Inc. All rights reserved.
17 20 April 2010 S3908-P-083 v1.0
Page 17