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Turning Products into Companies – Case – Actuality Systems
 

Turning Products into Companies – Case – Actuality Systems

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Through this case example, Actuality Systems Founder Gregg Favalora offers helpful insight into the path Actuality took from product design, to its acquisition by Optics for Hire in 2009 - and the ...

Through this case example, Actuality Systems Founder Gregg Favalora offers helpful insight into the path Actuality took from product design, to its acquisition by Optics for Hire in 2009 - and the ultimate patent sale (and exit) in 2011. Offering an insider’s view of building and commercializing 3D display products, Gregg offers his thoughts on some powerful lessons he learned as he grew his company.

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  • Actuality Systems operated from 1997 to 2009. We were best known for the 100 million voxel display PERSPECTA, while we secretly developed a series of light field displays that made less conspicuous use of moving mechanics.In 2009, a company called OFH aquired Actuality’s patents. And in 2011, sold them to a confidential buyer.I am a partner at OFH.Today you’ll learn about two displays, made around 2004 and 2005. One worked really well. The other did not work at all.
  • Actuality Systems operated from 1997 to 2009. We were best known for the 100 million voxel display PERSPECTA, while we secretly developed a series of light field displays that made less conspicuous use of moving mechanics.In 2009, a company called OFH aquired Actuality’s patents. And in 2011, sold them to a confidential buyer.I am a partner at OFH.Today you’ll learn about two displays, made around 2004 and 2005. One worked really well. The other did not work at all.

Turning Products into Companies – Case – Actuality Systems Turning Products into Companies – Case – Actuality Systems Presentation Transcript

  • Harvard innovation lab : Michael J Skok : Startup Secrets : Company FormationHi1#innovationlab @mjskok #startupsecrets www.mjskok.comMICHAEL J SKOKHi Harvard innovation labTurning Products into CompaniesBy Design & Architecturetwitter: @mjskok mjskok.comNorth Bridge Venture PartnersSTARTUPSECRETSCase Example: Gregg FavaloraFounder – Actuality Systems/Principal – Optics for Hire
  • Harvard innovation lab : Michael J Skok : Startup Secrets : Company FormationHi2#innovationlab @mjskok #startupsecrets www.mjskok.comFor context and more information:• The entire “Turning Products into Companies”presentation can be found here.• For more on the Startup Secrets series, visitwww.startupsecrets.com• Related Startup Secrets presentation recommendations:– Building a Compelling Value Proposition– Go To Market Strategies
  • Harvard innovation lab : Michael J Skok : Startup Secrets : Company FormationHi3#innovationlab @mjskok #startupsecrets www.mjskok.comGregg Favalora, Principal,Optics for Hire- Founder Actuality Systems- @gfavalora
  • Client ConfidentialBuilding andCommercializing 3-DDisplay Products:Startups are HardApril 2013Gregg FavaloraPrincipal, Optics for Hire* Founder, Actuality Systems (1997 – 2009)gregg@opticsforhire.com
  • Client Confidential
  • Client Confidential
  • Client ConfidentialActuality Systems, Inc.• Founded 1997• At its peak, 23 employees• Laid everyone off: Friday Apr. 24, 2009• Product: Perspecta Spatial 3D System– Developer tools, Perspecta Medical, Perspecta Viewer• Target Markets: Medical Imaging, Military, & Entertainment• First product released on less than $2M• Total Raised: $15M• 20 customers, $M in gov’t grants• 19 patents – strongest 3-D portfolio in the sector• Assets acquired by Optics for Hire: December, 2009• Real exit: 2011 patent sale
  • Client Confidentialwww.opticsforhire.com8ActualitySystemsActualityMedicalSeries A$1.5MNote$0.8MSeries B$3MSeries C$6.5MNotes$2.5M1997 2004 2009PerspectaRadAcquisitionBy OFHPatentsSold to “X”2011
  • Client ConfidentialActuality in 2005
  • Client Confidential
  • Client Confidential
  • Client ConfidentialDiscussion Topics• Case Study: Actuality Systems (basic)– Setting the Scene: 1997– Market Need– The Technology: Spatial 3D– The Company - Initial Fight for $$$• Three Lessons Learned for Startups• Getting your foot in the door with prospects• Four challenges at Actuality and how we overcame them• Things we were glad we did a lot of• Things we wish we had done differently• Regarding optics, imaging• The 3-D industry
  • Client ConfidentialDiscussion Topics• Case Study: Actuality Systems (basic)– Setting the Scene: 1997– Market Need– The Technology: Spatial 3D– The Company - Initial Fight for $$$• Three Lessons Learned for Startups• Getting your foot in the door with prospects• Four challenges at Actuality and how we overcame them• Things we were glad we did a lot of• Things we wish we had done differently• Regarding optics, imaging• The 3-D industry
  • Client ConfidentialThe First Few Years:Harder Than You‟d Ever Think> What to expect when starting up
  • Client Confidentialwww.opticsforhire.com15ActualitySystemsActualityMedicalSeries A$1.5MNote$0.8MSeries B$3MSeries C$6.5MNotes$2.5M1997 2004 2009PerspectaRadAcquisitionBy OFHPatentsSold to “X”2011
  • Client ConfidentialI started working in 3-D in 1988
  • Client ConfidentialT-3 years before funding: 1996 - Prototype1996
  • Client ConfidentialT-2: 1997: Met Chairman, entered Bplan comp.IPO: 1994+721% („95)Merger: $24 Billion („99)
  • Client ConfidentialIn 1997, people actually said “cyber-”
  • Client ConfidentialT-1: 1998, 1999
  • Client ConfidentialT-0: 1999 – Met key journalist at MITStruggle, struggle...ka-ching!
  • Client ConfidentialGetting your ducks in a row for funding• Get an amazing mentor who made VCs richer• HAVE A CLUE ABOUT YOUR MARKET (ZOMG!!1!!!)• Read Crossing the Chasm so that you know all the elements of a product• IP– Have and use an NDA to not mess up your patent rights– File several provisional applications (see: Patent it Yourself, Pressman)– Do a decent prior-art search– !! After funding, when you’re filing patent applications, remember:attorneys will agree to cap their fees !!• References: talk to warm-blooded customers who like you, get money orpurchase orders from them... And ask them to be references to investors• Plan for future expenses: get quotations on key components and processes• Founders work for free to make prototypes and sell whatever you can• Don‟t pitch any investors until you‟ve practiced your pitch on “friendly fire”• “Consultants” – don’t rack up $xx,xxx in payables, investors won’t want topay it and you’re probably not getting anything in return anyway
  • Client Confidential2000 – 2004 – Actually, a ton of fun• 6 full-time employees• Tiny office in Reading (128)• Engineering• Ship betas & product• Rounds of funding• Winning awards, getting grants& customers• Bringing in seasoned exec team• ...a whole new set of challenges& excitementBuild it, baby!
  • Client ConfidentialSo How Do We Do this?And now...
  • Client ConfidentialUnder the Hood (ca. 2001)3-DMDProjectorThree rotatingrelay mirrors
  • Client Confidential12-year Fishing ExpeditionGreggThe Elusive“Market”
  • Client Confidential[what I said during the previous slide]• For many years, a few employees and I searched “wideand deep” for a market that would sustain Actuality,while we improved the core 3-D display product. This feltbackwards.• Every one of these markets seemed like a good fit, butultimately, none felt the $100k ASP provided good ROI:• Virtual prototyping, molecular visualization, C4I /battlefield visualization, air traffic control, diagnosticmedical imaging (PET, orthopedics, cardiac),interventional medical imaging, radiation therapy, 3-Dluggage scanning, video games, petroleum, ...
  • Client ConfidentialTraditional Radiation TherapyPinnacle3 (Philips Medical Systems)
  • Client ConfidentialBeam PlanningYesNoEyes Tumor Brain
  • Client ConfidentialPerspectaRAD
  • Client ConfidentialWe won technical awards, but markets and largerinvestments weren’t materializing.
  • Client ConfidentialActuality‟s financing rounds (1999-2008)Series A ($1/share) (2000) $ 1,500,000“2001 Note” 807,500Series B ($0.2826/share) 3,499,996Series C ($0.35/share) 6,499,998Note 1 (Mar 2006) 1,445,134Note 2 611,206Note 3 (2008) 536,356$14,900,189
  • Client ConfidentialNote: This slide goes with significant verbal commentary. I gathered these data from a filebox of quarterlyfinancial statements and board meetings. It conflates balance sheets and income statements, but gives anoverall picture of what happened: rapid headcount ramp in the absence of a big customer .(Why? Well, weneeded a headcount of 90% engineering just to get the basic product out the door in the first place.)
  • Client ConfidentialAcquisition• 2004: CEO transitioned out. I was asked to be CEO during the Search.• 2005: Frankly, a very difficult year for me – large team, 70% travel, etc.• 2006-2009: PIVOT – new CEO stops 3-D displays, contemplates [merger], andstarts work on software for prostate cancer treatment• Mar 2009: The financial market TANKS. The CEO exits, to help reduce burn.• Apr 2009: I lay off remaining staff• [Not a good year for selling IP]• Dec 2009: A flurry of paperwork, then acquisition by OFH• Dec 31, 2009: Formal dissolution of Actuality• Jan, 2010: Acquisition:
  • Client ConfidentialWhile working at OFH• [Summary: I got a job at product-engineering firm OFH.We approached 150 prospects to buy the ex-Actualitypatent portfolio. One deal came close to completion, andcollapsed a few months later. About 6 months after that,a buyer was identified. We are all quite happy about thisexit.]
  • Client ConfidentialA happy ending (2011!)
  • Client ConfidentialDiscussion Topics• Case Study: Actuality Systems (basic)– Setting the Scene: 1997– Market Need– The Technology: Spatial 3D– The Company - Initial Fight for $$$• Three Lessons Learned for Startups• Getting your foot in the door with prospects• Four challenges at Actuality and how we overcame them• Things we were glad we did a lot of• Things we wish we had done differently• Regarding optics, imaging• The 3-D industry
  • Client ConfidentialThree general lessons for HW startups• “Technology looking for a market” is hard• It is very difficult to raise money for HW plays. Bestbets are savings[1], SBIR, and angels. The exceptionis if your CEO already made $$ for VCs. Convinceyour accounts to become paying customers.• And...[1] Be PRUDENT about this. Do not risk your family’ssavings!In my opinion:
  • Client ConfidentialDiscussion Topics• Case Study: Actuality Systems (basic)– Setting the Scene: 1997– Market Need– The Technology: Spatial 3D– The Company - Initial Fight for $$$• Three Lessons Learned for Startups• Getting your foot in the door with prospects• Four challenges at Actuality and how we overcame them• Things we were glad we did a lot of• Things we wish we had done differently• Regarding optics, imaging• The 3-D industry
  • Client ConfidentialSales for Dummies• One-paragraph, iPhone-friendly email intro, “I’m astudent…”• Explicitly respect people’s time• In demos, “you” not “I”:– NO: “With our feature-richsoftware, I can click here…”– YES: “You can learn about yourcustomers with ClientSort 2.0…”• Use less techno-jargon.• The two best words are “forexample.”• Smile, use first names, talkabout happy things• Email their PR people• Email one of their VCs• Try to Shopify it – sellprototypes (FCC / UL though)• Don’t use gimmicks, e.g. don’tuse Re: unless it really is• Go to the account’s office andshow up day after day,because that’s not creepy oranything, but I hear it works• (On landing SBIRs)
  • Client ConfidentialDiscussion Topics• Case Study: Actuality Systems (basic)– Setting the Scene: 1997– Market Need– The Technology: Spatial 3D– The Company - Initial Fight for $$$• Three Lessons Learned for Startups• Getting your foot in the door with prospects• Four challenges at Actuality and how we overcame them• Things we were glad we did a lot of• Things we wish we had done differently• Regarding optics, imaging• The 3-D industry
  • Client ConfidentialAdvice particular to optics, imaging• Takes a lot of money and time for prototyping• Our best computer graphics people weremathematicians• ITAR / DFARs / customs• Investor contracts are (for better or worse) notetched in stone – later-stage investors often requireamendments to early-stage investment contracts.E.g., “Hey, you can have 100% of a $0 company, or2% of a potentially $100M company, take your pick.”• Government money and audits• The creative process• COMPONENTS ARE NOT SOLUTIONS
  • Client ConfidentialTry really hard to sell systems instead ofcomponents!=
  • Client ConfidentialWhat Went Right• Went for it, low-risk at first• Extraordinary luck at hiring engineering team• Incredible IP portfolio – so good, we sold it twice!• Broke four world’s records in display technology• In early years, publicity from CNN to Wired• Numerous Product of the Year awards• We supported 23 people and their families over adecade• We were acquired and I am now happily working for theacquiring company
  • Client ConfidentialContact me anytime• Gregg Favalora, PrincipalOptics for Hire (Arlington, MA)gregg@opticsforhire.com
  • Harvard innovation lab : Michael J Skok : Startup Secrets : Company FormationHi46#innovationlab @mjskok #startupsecrets www.mjskok.comFor context and more information:• The entire “Turning Products into Companies”presentation can be found here.• For more on the Startup Secrets series, visitwww.startupsecrets.com• Related Startup Secrets presentation recommendations:– Building a Compelling Value Proposition– Go To Market Strategies
  • Harvard innovation lab : Michael J Skok : Startup Secrets : Company FormationHi47#innovationlab @mjskok #startupsecrets www.mjskok.comMICHAEL J SKOKHi Harvard innovation labTurning Products into CompaniesBy Design & Architecturetwitter: @mjskok mjskok.comNorth Bridge Venture PartnersSTARTUPSECRETSCase Example: Gregg FavaloraFounder – Actuality Systems/Principal – Optics for Hire