Small Talks Chuck

Chuck Eesley [email_address] http://www.mit.edu/~eesley Success Factors for Technology-Based Entrepreneurs Entrepreneurship Club July 17 th , 2007 Small Talks July 18 th , 2007

Innovation = Invention + Commercialization

MIT 2 inventions/day, 4 patents/week, 20 start-ups/year, but only a fraction survive, grow, get acquired, or IPO

Entrepreneurial success is not about heroism or luck, there is a formula!

Want to move towards a more specific formula than:

Great tech. + big market + great people = success

Ph.D. Student at the MIT Sloan School of Management While a student at MIT

Analyst at Lux Capital – recruited senior scientists and identified Scientific Advisory Board for Genocea Biosciences; worked on deal flow; building database of area material/life sciences serial entrepreneurs.

Carlyle Group – due diligence

Acting CEO for Learning Friends, software start-up, finalist in Hong Kong University of Science and Technology International Business Plan Competition

Mentor - materials science start-up Hydrophen, an MIT Enterprise Forum ICE finalist in 2006; Altagenix and Hemetrics (semifinalists) in the MIT 100K

NeuroCog Trials, Inc. consulting - Pfizer, Johnson & Johnson, and GlaxoSmithKline on clinical trials for schizophrenia

While an undergraduate, in 2002 first prize ($50,000) in the Duke Startup Challenge - Sun Dance Genetics, Forbes Small Business top 14 startups in 2003

Success Factors for Tech.-Based Start-ups:

Bigger founding teams

Prior founding experience

Work experience / social network

Connections to VCs, personal savings

Patents

Persistence

Bigger Founding Teams Cox (1972) Hazard Rate Regression Dependent Variable = IPO (subjects start being at risk at year of firm founding) Note: coefficients are hazard ratios – numbers >1 represent higher likelihood of IPO Idea from graduate thesis 1.15 (0.66) Idea from MIT class 5.42 (4.50)* Idea from MIT UROP 3.77 (2.45)* Prior IPO 1.68 (0.39)* Venture Capital 1.69 (0.43)* Angel Investors 1.52 (0.51) Patent 1.73 (0.32)** # Cofounders 1.27 (0.09)*** Number of observations 1509

Founding teams can be a lot of fun! Chuck Eesley First Place in Duke Startup Challenge, May 2002

Early Hiring and Co-founder Mistakes Can Be Deadly!

Prior Founding Experience Panel A –Revenues (in constant 2001 dollars) Firm Rank 1 st firms (N=556) 2 nd firms (N=182) 3 rd firms (N=84) 4 th firms (N=21) 5 th firms and higher (N=36) Median Revenues (‘000’s) 836 1,784 924 1,181 7,274 Standard Dev. (‘000’s) 153,000 117,000 130,000 10,800 21,200 Panel B – Lag (from graduation and from the prior firm founding) Firm Rank 1 st firms (N=761) 2 nd firms (N=241) 3 rd firms (N=150) 4 th firms (N=71) 5 th firms and higher (N=31) Lag Between Subsequent Firms (years) 14.02 7.95 7.38 6.99 6.71 Lag St. Dev. 9.78 6.90 6.73 5.42 6.37

Prior Founding Experience Revenues are in dollars and divide by the age of the firm and then take the natural log to adjust for skew.

Work Experience

Sources of Product/Service Ideas # Responses % of Founders MIT-Doing outside-funded research 33 2.1 MIT-Graduate thesis 45 2.87 MIT-In class 10 0.64 MIT-Informal discussion with students 27 1.72 MIT-Other 32 2.04 MIT-Other research 16 1.02 MIT-Professional literature 6 0.38 MIT-Undergraduate Research Opportunity 8 0.51 MIT-Visiting scientists, engineers, or entrepreneurs 6 0.38 MIT-Working with an outside company 30 1.91 Other Sources-Discussions with social or professional acquaintances 193 12.3 Other Sources-Other 102 6.5 Other Sources-Research conference 10 0.64 Other Sources-Working in the industry 915 58.32 Other Sources-Working in the military 46 2.93

Work Experience and Teams

Work Experience and Ideas

Initial Funding – Savings and VC

Persistence! (in ‘000’s of $)

Famous MIT Entrepreneurs Mr. d'Arbeloff co-founded Teradyne, now the world's largest producer of automatic test equipment with MIT classmate Nicholas DeWolf in 1960. In 1965, Ray Stata founded Analog Devices, Inc. with his former MIT roommate, Matthew Lorber '56 EE and Richard Burwen (a Harvard alumnus). Edward Roberts co-founded Pugh-Roberts Associates, Medical Information Technology, Inc., Sohu.com, Inc., Advanced Magnetics, Pegasystems, PR Restaurants, Interactive Super Computers, and Visible Measures. Patrick McGovern Phil Sharp Noubar Afeyan Bob Langer

Current/Next Generation MIT Entrepreneurs

Joel Moxley, Chris Loose – Stericoat

Josh Lake, David Kaufman – Hemetrics

David Miller

Micah Sze

Helen Chuang – MAD Nanolayers

Joe Jacobsen – Codon Devices

Prof. Angela Belcher – Cambrios

Prof. Yet-Ming Chiang – A123

Roanna Padre - Altagenix

Zeid Barakat

Albert Park

Forrest Liau

Andy Peterson, Tracy Mathews, Curt Fischer – C3 Bioenergy

You?!?

MIT Factors in Venture Founding Panel A – Proportion of Founders Choosing MIT for the Entrepreneurial Environment Graduation Decade 1960s (N=313) 1970s (N=373) 1980s (N=315) 1990s (N=214) 12% 19% 26% 42% Panel B – Factors as Important in Venture Founding* Graduation Decade 1960s (N=111) 1970s (N=147) 1980s (N=144) 1990s (N=145) Students 24% 38% 50% 66% Faculty 42% 37% 28% 37% Research 32% 30% 26% 33% Entrepreneurial network 25% 32% 40% 50% MIT Entrepreneurship Center 1% 2% 1% 12% MIT Business Plan Competition 1% 0% 3% 30%

Why Are So Many Entrepreneurs Drawn to MIT?

Focused on de novo, seed and early stage investments in

the physical and life sciences

Companies created by Lux Partners have cumulative market

cap in excess of $20B

Built 20 companies – 15 exits via IPO or acquisition

Lux Research – provides strategic advice and intelligence for

emerging technologies

ETF w/ Powershares w/ assets ~$150M

First to found political industry association on nanotechnology,

The NanoBusiness Alliance

First to launch nanotech investment publication with Forbes

Currently investing $100 million fund, 6 investments so far

About Lux Capital

In Summary:

These team/organizational factors likely

apply to non-tech-based start-ups as well.

With technical risks and long R&D cycles, they

become more important.

Cool tech. and a big market are not sufficient:

Bigger founding teams

Prior founding experience

Work experience / social network

Connections to VCs, personal savings

Patents

Persistence

Chuck Eesley [email_address] Thank you! As one survey respondent stated: “I look at the MIT experience as training in problem solving. Business is a series of ‘problem sets’ that must be solved, so MIT is a key training ground.” * Thanks to Adam Kalish (Lux Capital) who provided extensive comments/edits/encouragement for this presentation.

Extra slides

Proportion of Entrepreneurs by School