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  • 1. Introduction to EntrepreneurshipFrom Startups to Venture Financing ALBERTO ONETTI Chairman, Mind the Bridge Foundation Firenze, May 13th Pavia, June 17th Genova, June 22nd
  • 2. AGENDA Entrepreneurship in Italy: key issues & opportunities The Startup world Business Planning The Venture Capital Market The Silicon Valley Mind the Bridge 2  
  • 3. AGENDA Entrepreneurship in Italy: key issues & opportunities The Startup world Business Planning The Venture Capital Market The Silicon Valley Mind the Bridge 3  
  • 4. The Problem we have (1)}  Italy has grown slowly during the past decade – slower than Germany, France or the UK (0.27%/yr. since 2001)}  Its competitiveness – its rising unit labor costs – has slipped, as wages rose but productivity stagnated}  Source: “Italy. Europe’s Investment Opportunity”, White Paper by Vietor, Onetti & Napolitano, New York, 2011 5,0 4,0 Real GDP growth (Percent) 3,0 2,0 1,0 0,0 ITA 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -1,0 EEA -2,0 -3,0 -4,0 -5,0 -6,0 Source: OECD Economic Outlook 88 database 4  
  • 5. The Problem we have (2)}  In Italy competitiveness has slipped, as wages rose but productivity stagnated}  Unemployment is lower than the German/French experience BUT }  Participation rate (58%) is the second lowest in Europe }  Worst employment problem pertains to youth (28% unemployment for people between 15-24)}  Source: “Italy. Europe’s Investment Opportunity”, White Paper by Vietor, Onetti & Napolitano, New York, 2011 1,5 Average TFP growth (Percent) 1 0,5 1980-1995 0 1995-2005 ESP ITA GBR DEU EEA FRA US -0,5 -1 Source: EU KLEMS database 5  
  • 6. State of Entrepreneurship in Italy }  Lack of large companies }  In Italy SMEs are 98% of the total }  Mostly mature business }  Primarily Services (66% of GDP) }  Manufacturing is only 17% (it was 21% in 2000) }  Innovative industries play a minor role (2-6%) }  Strong family business vocation Food Wood Textile Metals Plastic&Rubber Automotive Industrial  Machinery Chemical Electronics Pharma Biotech Software ITALY: INDUSTRY CONTRIBUTION TO GDP (2009) Source: CrESIT 2011 6  
  • 7. State of Venture Finance in Italy Annual  VC  Investments  (B  US$)  2008   Italy   Europe   Silicon  Valley   US   Italy  0,169   Europe  7,41   Silicon  Valley   10,8   US  29,7   }  Lack of an established venture capital community }  Of the €3.8B invested yearly (avg. 2005-2009), approximately €70M went to early-stage investments (AIFI & Pricewaterhouse-Coopers 2005-2009) }  Only 255 start-ups were able to get funded in the last three years }  In 2009: 79 deals despite the financial crisis (€98M invested) }  Small size of the stock market }  The stock market capitalization to GDP ratio is lower than 60%, versus 140% in the US and 170% in the UK (IMF & World Federation of Exchange) 7  
  • 8. State of Italian R&D}  Quality basic research }  Cumulative R&D investments are €17B (4% of GDP) (ICE, Cotec, Istat) }  400k scientific publication in the period 1998-2008 ranking 8th in the global classification (7th for number of citations) (Thomson Reuters, 2008) }  Biotech: 233 clinical trials in progress during 2009 (Ernst & Young 2010)}  Issues in turning research into business }  Lack of efficient technology transfer offices }  Universities do not offer incentives for lecturers to spin-off business initiatives }  Scarcity of skilled executives with strong entrepreneurial skills }  Italian scientists do not think business 8  
  • 9. Italy: Key Issues}  A few startups often lacking high-quality business plans (deal “trickle”) }  Legal barriers to entry and exit (Italy is not a “corporate haven”) }  Reduce labor market rigidities }  Obstacles in bridging research into business }  Lack of managerial skills}  High mortality (“crisi del primo miglio”) and “Dwarfism” }  Change the mindset }  Lack of seed funds}  Exit on the domestic market }  High Tech “Leviathans” are not here }  Small size of the stock market and lack of large corporations doesn’t help }  Language barriers 9  
  • 10. AGENDA Entrepreneurship in Italy: key issues & opportunities The Startup world Business Planning The Venture Capital Market The Silicon Valley Mind the Bridge 10  
  • 11. Ingredients for a Start-up 11  
  • 12. What is an Entrepreneur 12  
  • 13. Average Entrepreneur’s Profile AGE 41 year old 68.8% between 35-43 SEX 79.7% men 20.3% women STUDIES 64% University student MARITAL STATUS 60% married FAMILY BUSINESS 60.3% COMPANY ORIGIN 76% Creation 20% Inheritance 4% Purchase FINANCE Own/Family/VC EMPLOYMENT IN   5   5 YEARS 13  
  • 14. MtB Entrepreneur’s Profile}  He/She is 35}  86% is male, only 14% is female}  67% has a scientific/technological background, while 33% has a business/humanistic education}  42% holds a Ph.D. or MBA and the 33% got it abroad}  Only 5% does not hold a university degree}  28% has prior entrepreneurial experience Source: CrESIT/Mind the Bridge 2011 14  
  • 15. What makes a successful entrepreneur?Education matters a lot}  2.0 Startups are founded by highly educated peopleExperience matters as well}  Being a serial entrepreneur is a job}  The right startup is never the first one you foundWorking/Studying abroad does open your mind}  It means more network, opportunities, ideas, experienceA successful startup is a team effort}  One-man bands do not go too far 15  
  • 16. Manager VS Entrepreneur• What resources do I control? • Where is the opportunity?• What structure determines our • How do I capitalize on it? organization’s relationship to its market? • What resources do I need?• How can I minimize the • How can I gain control over impact of others on my ability them? to perform? • What structure is best?• What opportunity is appropriate?The typical Theadministrator entrepreneurasks . . . asks . . . 16  
  • 17. AGENDA Entrepreneurship in Italy: key issues & opportunities The Startup world Business Planning The Venture Capital Market The Silicon Valley Mind the Bridge 17  
  • 19. The question every entrepreneur must answerAre my Goals Do I have the Can I executewell defined right strategy the strategy•  personal •  clear definition •  resources aspirations •  profitability •  organizational•  business and growth infrastructure sustainability/ potential •  the founder’s size •  durability role•  risk profile (sustainability) •  rate of growth 19  
  • 20. The Business PlanTHE OPPORTUNITY THE MARKET}  The problem we solve (description }  The market you are of your product highlighting the addressing benefits to the users/customers) }  Market size}  The competitive advantage (why }  Potential growth your product is better) }  Competition}  Compelling reason to buy BUSINESS PLANTHE BUSINESS MODEL THE TEAM}  How do you make money? } The team}  Financials }  Your relevant experience in the}  What are you looking for (capital you domain youre addressing are raising- use of proceeds) 20  
  • 21. Why a Business Plan 21  
  • 22. Good and Bad Business Plans • Concise • Management, management, management • Realist, logical, convincing, clearGood •  Shows clearly that the opportunity exists in the market •  Description of essential resources • Risk analysis • Clear funding needs and return on capital employed • When funding is required, specify the terms of agreement (deal) • Infatuation with the idea • Insufficient research • Lack of funding • No target group • Over optimistic sales forecasts not based on market analysis Bad • Too long • Badly written: does not get ideas across • Illogical • Scant explanation of opportunity • Superficial analysis of competitors • No executive summary 22  
  • 23. The Business Plan Outline Executive summary Company Description Management team/key individuals Products and services Market, customers and competition Strategy and resource plan Business modelAssumptions and risks Financial plan Appendices 23  
  • 24. Scientists vs Entrepreneurs 24  
  • 25. Talking $$$ 25  
  • 26. Financials: Statement of Operations P&L 2011 2012 2012 2013 2014 established anticipatory forecast forecast forecastRevenue (000) # of maincustomers users Avr rev. per cust.Gross Margin Operating Expenses Operating Margin Ebit (000) Headcount R&D Mktg & Sales Production G&ATotal Expenses Source: Mind the Bridge 2011 26  
  • 27. Financials: Key Data Bookings   Billings   Revenue   Cash  on   Burn   Hand   (net/gross)   27  
  • 28. AGENDA Entrepreneurship in Italy: key issues & opportunities The Startup world Business Planning The Venture Capital Market The Silicon Valley Mind the Bridge 28  
  • 29. Investment Types Seed capital • Design of new products>$ 100K• 1-3 Years Start-up capital • Launch of a new product (or company) >$ 2M Development capital • 3-7 Years • Expand sales or production Consolidation capital • Consolidate and/or reinforce IPO market position 29  
  • 30. The Funding Decision Bootstrapping Equity FinancingEarly sources Founders’ capital/ Family/friends, Angels, Early stage savings   VC VC firms, CorporateLater sources Venture Debt/Loans, Acconts receivable, VC, Private placement, Strategic Partners, Investment banking, Retained earnings   Public markets 30  
  • 31. Investment Strategy Medium Risk High Risk Medium Risk Low Risk IPO M&A Valuation M&A Investment Focus Cumulative InvestmentIDEA DEVELOPMENT BETA CUSTOMERS EXPANSION MARKET SHARE 12-24 months 3 months 3-6 months 12-18 months 12-24 months Management Focus Vision/ Product Focus Customer / Market Share Focus 31  
  • 32. Early and Late Stage Financing EARLY LATE• Seed financing ($ 50k – 1m) • Expansion financing ($ 2-50m) • research, assess & develop • To finance increased initial concept production capacity, market • product development or product development; to• Start-up financing ($ 1-3m) provide working capital • product development, • For companies that break launch and initial marketing even or trade profitably and wish to grow/expand • Often “first round” • Bridge/mezzanine financing ($ • For companies that are in the 2-50m) process of being set up or that are in business for a short • For companies that are in the time (little revenue, no profits) period of transition from being privately owned to• Other early stage financing ($ being publicly quoted 2-8m) • Other stages ($ 10m-several • To initiate commercial billions) manufacturing and sales • Buyout • For companies with completed product • Replacement capital development but without • Rescue/turnaround 32   profit
  • 33. The Angel Investor Definition • High net worth individual ($1 million to invest) who provides financing, advice, and networking to early stage companies. Key investment Criteria • Geography (close to home) • High growth industry • Growth Potential of the venture • Personal attributes of the entrepreneur and team • Track record of entrepreneur and team 33  
  • 35. The Venture Capitalist DEFINITION • VC Firms are financial intermediaries that provide the following to privately held enterprises: • Equity (often coupled with debt) financing • Risk sharing • Managerial expense • Contacts • Reputation • In exchange, VC firms obtain equity TYPES OF VCs • Private Fund VC • Legal Structures: Partnership, Limited Liability Corporation, Corporation • Stakeholders in a Partnership: General Partners (GP), Special Limited Partners (SLP), Limited Partners, Advisory Board • Corporate VC • Consider impact on earning of parent • How does it further the parent’s objective? 35  
  • 36. VC: General Investment Process Limited PartnersDistributions Fundraising Commitments VC Firm (General Partners)   Fund Fund Fund   Proceeds Investment Disbursements Startup Companies Exit IPO/M&A 36  
  • 37. VC Compensation Structure • get a management fee + carried interest (about 20% toGP 30%) • allocation among partners on seniority, effort, or performance • vesting for new partners based on seniority, performance and special circumstances (e.g., death, sale of firm, ipo)SLP • pay reduced management fee • receive carried interestLP • pay 2-3% annual management fee ("two and 20" arrangement) •  receive % of the fund’s returns (in the range of 70% - 80%) 37  
  • 38. The Valuation is a two side process•  Size of market opportunity •  how big is the market segment, what market share can you gain? revenue / price model•  Comparables •  multiple of revenue (trailing/forward) or EBITDA•  Financial Projections •  EBITDA, DCF•  Ultimately •  Bid vs. Ask negotiation
  • 39. The Valuation Process:Pre- e Post-Money ValuationHow  much  you  need   How  much  equity  you  and     want  to  give  up  (  Y  %)  Why  (Cap  Incr)   e.g.    25%  e.g.  €  1,0M   Post  Money  ValuaPon  (V)     =  Cap  Incr  /  Y  =  1/0,25     =  €  4,0M   Pre  Money  ValuaPon     =  V  -­‐  Cap  Incr   =  €  4,0M  -­‐  1,0M=    €  3,0M  
  • 40. VC Financing Process: Getting through the Funnel 1,000 Leads 150 Meetings Actively Pursued 70 $Less than 1% of all $ 5 – 10leads get funded $ Financed 40  
  • 41. VC Average Investment Portfolio "   DEFAULTS 60% "   BREAKEVEN 12% "   “FIRE SALES” 10% "   ZOMBIES 8% "   IPO/M&A 6% "   GOOD IPO/M&A 4% "   WILD ONES (IPO) 0% TOTAL 100% Source: ATV 41  
  • 42. What does an investor do with a BP? h Looks to see who sent it 15 sec h Analyzes key aspects sector location investment required 60 sec h Reads the plan 15 min h Decides whether or not to request a formal presentation 10min Total: 26 min 15 sec 42  
  • 43. Agreement Variables and Control MechanismsAgreement Control•  Amount and timing of investment Mechanisms•  Form of investment •  Convertible•  Terms of investment Preferred securities•  Rights •  Syndication of •  Puts and call investment •  Registration •  Staging of capital •  Preemptive and first infusion refusal•  Vesting/buy-back provisions•  Board representation 43  
  • 44. Why Venture Capital? 44  
  • 45. AGENDA Entrepreneurship in Italy: key issues & opportunities The Startup world Business Planning The Venture Capital Market The Silicon Valley Mind the Bridge 45  
  • 46. The History of the Valley 46  
  • 47. The (REAL) History of the Valley 47  
  • 48. The (REAL) History of the Valley INTERNET ? Today: 25 of Fortune 100 PERSONAL Adobe Systems COMPUTERS AMD Agilent Technologies Apple Inc.WAVES OF INNOVATION Applied Materials Business Objects Cisco Systems INTEGRATED ◊  Yahoo, ebay, eBay Electronic Arts CIRCUITS Google (90s) Google Hewlett-Packard Intel ◊  3Com, Adobe, Intuit Cisco LSI Logic Maxtor DEFENSE ◊  Apple (80) National Semiconductor Network Appliance Nvidia Oracle Corporation ◊  Kleiner Perkins SanDisk (72) Seagate Technology Solectron ◊  Intel Symantec (68) Sun Microsystems Yahoo! ◊  HP (47) …   ◊  ◊  NASA Lockheed 1930 1940 1950 1960 1970 1980 1990 2000 48  
  • 49. UNIVERSITIES highly connected with biz world The Main Pillars ENTREPRENEURS The garage culture FINANCIAL MARKET M&A, IPO dream KEY QUESTIONS◊ Is that replicable / portable?◊ Is it sustainable long-term?◊ What is the impact of the changing 49   international outlook?
  • 50. Soft Factors KEY TO SUCCESS ◊ The importance of Dynamism, speed: continuous evolving world ◊  Approach to Risk ◊  Value of Failure (not just a downside but a must-have) ◊  Importance of the Hub: a world of opportunities ◊ Think Big 50  
  • 51. Raising money today (@#$!) in Silicon Valley DON’T TALK TO ME IF YOU… "   are you not local "   how many exits again? "   don’t show me the buyer (don’t IPO me…) "   haven’t jumped yet 51  
  • 52. Investments B US$ (1997-2010) US Silicon Valley $98,6 $50,9 $37,6 $31,8 $29,9 $26 $28,1 $19,4 $20,7 $21,7 $22,5 $21,8 $16,8 $18,8 $18,3$14 $11,6 $10,9 $11 $6,8 $6,3 $7,8 $8,1 $9,6 $7,3 $8,5 $4,4 $5,5 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Deals (1997-2010) US Silicon Valley 7.973 5.556 4.543 4.035 4.025 3.694 3.7543.201 3.157 3.145 3.201 3.277 2.990 2.927 2.169 1.703 1.049 1.108 1.209 1.265 1.252 875 808 874 951 994 915 961 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: MoneyTree Report 2011, Data: Thomson Reuters 52  
  • 53. Why Now IT’S THE BEST OPPORTUNITY "   talent abounds "   from scarcity comes clarity "   innovation comes from hunger "   startup cost ~0 53  
  • 54. 5 Lessons from Google 1.  the team is all (almost) 2.  healthy disregard for the impossible 3.  big problems are better than small ones 4.  users first 5.  don’t pay attention to the VC bandwagon 54  
  • 55. AGENDA Entrepreneurship in Italy: key issues & opportunities The Startup world Business Planning The Venture Capital Market The Silicon Valley Mind the Bridge 55  
  • 56. Mind the Bridge Foundation Mission: to promote a new Italian entrepreneurial ecosystem that is: ETHICAL, HIGHLY PROFESSIONAL, INTERNATIONALLY FOCUSED, EXCELLENCE DRIVEN Model:CONNECTING TALENT funded by foundations/companies/private sector/donors not government partnering with the most relevant actors INDEPENDENT     Ø   bridging opportunities of the Silicon Valley with Italian talent Ø  associating mentors and role models Ø  professionalizing the business planning skills Ø  using and building the network Ø  “give back” to build a bigger pie 56  
  • 57. Building the Bridge: the PillarsØ  Discovering and Nurturing the Italian Talents MtB Italy Tour 2011Ø  Selecting the best of breed MtB Business Plan CompetitionØ  Providing training & education to the new generation of entrepreneurs MtB Bootcamp and MtB CoachingØ  Showcasing the most promising startups and opening an international debate MtB Venture Camp @ Corriere della SeraØ  Hosting & Mentoring the most promising startups in the Silicon Valley MtB GymØ  Pitching US investors / partners MtB Gran Finale events   57  
  • 58. Building the Bridge: the Timeline MtB US MtB GYM Roadshows March 2012 April 2012 MtB Venture Camp 4-5 November 2011 MtB Business Plan Competition July 31st 2011MtB Italy Tour 2011Q1 & Q2 MtB GYM Every Quarter     - MtB Affiliates - Online Signups 58  
  • 59. MtB Italy Tour 2011 nn elsG oals and cha   FirenzeØ EducationThe MtB Startup Business School gives you the“nuts and bolts” regarding entrepreneurship,business planning, venture capital marketand Silicon Valley eco-system May 13thØ Honest Feedback PaviaThanks to the Gym session the startupsselected have the opportunity to presenttheir business idea in front of a panel ofinvestors and entrepreneurs Jun 17th GenoØ  Fine tuning the business idea vaEverybody can largely benefit from thediscussion of all the business ideas as well asthe education program in the morning.     Jun 259  th 2  
  • 60. Business Plan Competition 2011WHO: High knowledge based companiesalready established or planning to incorporatebefore the end of the yearWHAT: Executive Summary (in the requiredformat*) & Business Plan/Pitch PresentationWHEN: Deadline July 31st , 2011HOW: Competition Rules*PRIZES: Selected participants to Mind the BridgeBusiness Plan Competition may be eligible toreceive prizes and equity investments.* Download at 60  
  • 61. Business Plan Competition 2011: Some Prizes Premio Gaetano Marzotto all’Idea Imprenditoriale Giovane sviluppata nellarea Hi-Tech con possibilità di sviluppo internazionale RCS Digital Publishing Prize Target: Innovative and Promising Ideas to transform either the user experience of digital readers or the appeal of digital publishing platforms for advertisers 61  
  • 62. 2010 Selected Startups ! 62  
  • 63. 2010 Winners Barbara Labate - IID New YorkMarco Brini - IID Stanford
  • 64. Venture CampMind the Bridge Venture Campis a 2-day event held each yearin Milan at Corriere della Sera(the leading Italian newspaper)to promote a healthier Italianentrepreneurial ecosystem.Selected entrepreneurs present rstheir business ideas to a large +P artne torsaudience, including potential +Inves re n eursinvestors and partners. E ntrepSelected startups will be invitedto participate in the  MtB Gym,a tutoring program betweenItaly and the Silicon Valley. 64  
  • 65. Venture Camp Objectives Event Goals as r good ide tunities foOppor Fostering a sustainable Italian ecosystem for entrepreneurship MEET MtB Business PlanCompetition 2011 finalists Boosting ideas with high potential showing their business Providing entrepreneurs with pitches direct exposure to venture FIND successful links   capital investors both from between Italy and the Italy and the Silicon Valley Silicon Valley LEARN from examples of Inspi ration Italian entrepreneurial + success Polic NETWORK with y + entrepreneurs, potential Netw orkin investors, partners and g 65   mentors
  • 66. Venture Camp 2011 ly Milano, ItaNovember 4-5, 2011 66  
  • 67. MtB GYMSan Francisco @ Pier 38 s c ription ua l Subs +Individ Affiliates 67  
  • 68. The GYMMind the Bridge Gymnasium is astartup incubator. Positioned in Pier38 (San Francisco) we share thespace with some of the hotteststartups (50+) in Silicon Valley(, WordPress,Tweetme, etc.)Selected Startups are assigned aMentor, supported in BusinessDevelopment activities and givenTraining Sessions.Training Sessions include:Financing, Immigration Visas, Build p a cea team, Corporate Operations, ining+ Office SPresentation Skills, Taxes Mentors + Tra 68  
  • 69. The GYM: Open Now!Accelerate the startup chances of success • Hosting: office space @ Pier38 in San Francisco • Mentoring: assign a dedicated mentor per startup • Coaching: provide regular classes (training modules)Build critical mass of startups A constant flow of startups hosted(10-15) to maximize the “educational impact”Become a social hub for Italian entrepreneurship in Silicon Valley Events, Mind-the-Beer, etc (social Gym)Targets • Early stage startups interested in a getting plugged into the Silicon Valley •  Italian “origin” • Min 3 months, average 6 months. • Starting at beginning of each quarter possibility to stay longer (as an affiliate startup)Access Affiliates Channel Individual Subscriptions 69  
  • 70. MtB Startup Summer School The Program: Lessons and Hands OnTheoretic Learning: Lessons (20 hrs) Ø  Introduction to the Silicon Valley ecosystem Ø  Corporate Operations and Legal Aspects in Silicon Valley Ø  Corporate Finance Ø  Business development Ø  Fund raising with investors Ø  Communication skills Ø  Visa issues Ø  Human resourcesPractical Learning: Visits (20 hrs) + Business Planning (50 hrs) Ø  Google’s headquarter – Mountain View Ø  Funambol’s headquarter -Redwood City Ø  University of California, Berkeley eks fo r 3 we Ø  Stanford University ley S tartup o n Val Be a Silic 70  
  • 71. MtB Startup Summer SchoolWHO CAN PARTICIPATE?Students, PhD Students,Wanna-be-EntrepreneursSESSIONSThree sessions are scheduled in 20111.  July 5th– 23rd2.  August 1st – 20th3.  September 5th – 24thWHERE?Pier 38, San FranciscoHOW TO APPLY?Send an email eks fo r 3 we yS tartup o n Valle B e a Silic 71  
  • 72. THANK YOU FOR YOUR ATTENTION Questions & AnswersSOCIAL MEDIA: BLOGS:Facebook:  Mind  the  Bridge  -­‐  ConnecMng  Talent  Twier:  MindTheBridge   EMAILS:     USEFUL  LINKS:           72