Landmines for Entrepreneurs with Olivier Wenker, MD, MBA, DEAA


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About Dr. Olivier Wenker

Since 2001, Dr. Wenker is M. D. Anderson Cancer Center's Director of Technology Discovery. In this function, he has created a novel support mechanism for clinical and research faculty. The fund he manages created within a few years a multiple of 4 on value creation for the institution. Dr. Wenker also teaches entrepreneurship classes in collaboration with The University of Texas System.
Dr. Wenker started his career as an anesthesiologist in 1985. He is triple European board certified in anesthesiology, critical care medicine and emergency/disaster medicine and holds the title Professor of Anesthesiology. Dr. Wenker served many years as emergency/trauma physician on board rescue helicopters, ICU airplanes, ambulances, and emergency physician vehicles. He worked as a trauma field physician, rescue diver, disaster medicine triage and lead physician, and served many years as chief of a medical team for special police forces. He was involved in over 700 rescue missions. In 2004, Dr. Wenker earned a Master of Business Administration degree from the Jones Graduate School for Management at Rice University in Houston, Texas, receiving the prestigious Jones Award for Academic Excellence.

Dr. Wenker's special interests involve electronic publishing and the use of digital information for education. In 1996, he founded "Internet Scientific Publications, LLC." This online platform became the world's largest electronic medical publishing house. Approximately 15,000 daily readers enjoy the free medical content offered by the site. Dr. Wenker created and launched 64 online journals in the past nine years. He assembled over 1,000 international editors and reviewers and closely collaborates with over 60 editors-in-chief. For two consecutive years he won the esteemed ASA (American Society of Anesthesiologists) "Exceptional Merit for Outstanding Education in Anesthesia Award." In addition, he won over 20 awards for his online journals. Most recently he received the Golden Web Award presented by the International Association of Webmasters and Designers.

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Landmines for Entrepreneurs with Olivier Wenker, MD, MBA, DEAA

  1. 1. Landmines For EntrepreneursOlivier Wenker, MD, MBA, DEAADirector of Technology Discovery Professor of Anesthesiology MD Anderson Cancer Center
  2. 2. So, You Want To Start A Company
  3. 3. And That Will Be You, Right?
  4. 4. But This Is Your Near Future
  5. 5. Founders/CEOs• Think hard before you jump into the “cold water”• Agree with your spouse/partner• Talk to experienced entrepreneurs• Find mentors: entrepreneurs, accountants, lawyers,…• When you jump…jump all the way!
  6. 6. Jump Baby Jump
  7. 7. How do Founders Stumble?1 • Believing they can do everything • Not sharing ownership in an equitable way • Naïveté or lack of market knowledge • Hiring mediocre people • Stubbornness; not a good team player • Domineering personality or style
  8. 8. Most Important Things Techies Should Do:1 • Hire strong, experienced people • Operate to schedules and milestones • Control expenses and cash burn • Establish lean, mean, hungry, focused, team-oriented company culture • Bring in best possible CEO with sales and marketing track record
  9. 9. Do “Academic” Founders Have It?2 o Mostly R/D techies Founders o Science, engineering background o Often lack business skills, management experience o Most never exposed to sales Founders’ or marketing limitations o Don’t have MBAs o Undeveloped right brain skills
  10. 10. Skill SetLeft: Right:• exact calculation • estimation• scientific • creativeunderstanding • flexible/chaotic• spreadsheets • CMO• CFO, CSO Both but maybe R > L: CEO
  11. 11. What is a CEO?5 • Chief Executive Officer • The Boss (buck stops here!) • Sets and cultivates the company culture • Selected by and reports to the board of directors • Responsible and accountable for all management and operations • Leader and motivator
  12. 12. How to Find a CEO5 • Contacts of founders, VCs, Angels, etc. • Executive search firms • Critical skills – Matching chemistry to founders – Take-charge leadership skills – Wearing multiple hats – Relevant sales, marketing, industry background – Leader, motivator, team-builder – Must be able to attract investors
  13. 13. Burning Through CEOs• Startup CEO (#1) – Raising money, starting company• CEO # 2 – Growing company, raising more money• CEO # 3 – Stabilizing company, running company• CEO # 4 – Running large company (public or private) – Exit (IPO, M&A, closing company,…)
  14. 14. OwnershipBe the owner of 2% of 100 % $ 1 Billion Of Nothing
  15. 15. Some Observations8 • Most deals are undercapitalized • Management and founders will spend far more time than they think to get financing • VCs rarely say no! But they think…no way! • You should learn the decision dynamics of each VC firm • Never run out of cash • Don’t over-value the startup
  16. 16. How To Value?
  17. 17. Valuation• Valuation depends on: – Revenues (typically 2 to 4 times revenue) – Other recent deals in the market – Stage of development (important in drug development) – Potential future revenues – Previous $$ investments and your time invested is typically not valued much…but it will get you equity
  18. 18. Valuation• Over-valuing your company will do the following: – Make you look stupid – Scare away savvy investors – Result in a future down-round (devaluation) – Prevent professional VCs from coming on board with major money later on – It might kill the company before it even had a chance to survive
  19. 19. Asking $ And Financial Projections• A frequent mistake: – Asking for lets say $ 6 million – Preparing financial projections for 5 years – In the very best case scenario the revenues in “Year 5” is $ 6 million – Why would anyone give you $ 6 million? • You will never see the best case happening • You have to calculate profit (not just revenue) • A professional investor would not make a profit unless your market is very large and it is accepted that development takes more than 5 years (i.e. drugs)
  20. 20. Startup Financing3 • Founder team usually focused solely on current round needs • Need clear milestones and schedules • If met, constitutes a step-down in risk and a perceivable step-up in value • Important to plan ahead, design a capitalization scheme, i.e. next round
  21. 21. But Be Prepared For This
  22. 22. …. And This
  23. 23. Over-estimating Markets• Market might be large but very segmented – Difficult to capture multiple segments• Market windows might be very short-lived – Fast moving technology• Economic forces such as down-markets can significantly interfere with buyer behavior• You might not have enough money or staying power to win against inferior product adapted by many users
  24. 24. Over-estimating Markets• Market might be large but buying cycles might be very long – For example hospital information system• Great product … no buyers – No paying customers – No letters of intent (LOI) – Building it does not mean that they will come automatically
  25. 25. Under-estimating Competition• At any given time there are at least half a dozen working on the same great idea• “Google” at least your idea to see if something very similar already exists• Investors have typically heard the same story from different inventors• If your successful idea is easy to copy (lack of IP protection or low barrier of entry) your competition will quickly follow
  26. 26. Focus• Too many opportunities – For example startup biotech with 10 new drugs but no money to develop even 1 of them – Prioritize on 1 new drug and show others in potential pipeline• Too many features – Get a first functional prototype and add “whistles and bells” later
  27. 27. Timing
  28. 28. Marketing Materials• Have them ready• Update them regularly• Synchronize them• Use different messages for different audiences• Keep them clean and short
  29. 29. Marketing Materials6 • From restaurant napkin to bound book • Best plan is 15-20 pages, succinct, complete • 2-3 page executive summary • 12-15 page PowerPoint presentation – Mission, milestones, product, market, financing, human resources, value proposition • Need crisp elevator pitch • Trifold brochure… “always selling”
  30. 30. Intellectual Property Issues7 • Patents, disclosures • Licenses, terms • IP ownership: – Prior employer issue? – Co-inventors? – Overlapping claims with other IP – Similar technology, same claims • Trade secrets, know-how
  31. 31. Conflict Of Interest
  32. 32. Conflict Of Interest• If you work for an employer at the time you are starting or are working with an outside company you will have to disclose financial, ownership, and other interests• Most academic institutions have a Conflict- Of-Interest (COI) policy• Entrepreneurs who are still employed will have to play by the sometimes crippling rules
  33. 33. Conflict Of Interest• Every faculty member at MDACC has to submit a yearly Conflict-Of-Interest disclosure• Full financial disclosure required to COIC; includes family (spouse, dependent children, family trusts or corporation and other known relationships)• Full financial disclosure in publications or oral presentations
  34. 34. Conflict Of Interest• You cannot serve as member of Board of Directors or officer (such as CEO) of for-profit company or competitor of UTMDACC• You can obtain temporary permission to serve as CEO• No sponsored research is permitted at MDACC in which payment depends on a specific outcome
  35. 35. Conflict Of Interest• State resources such as MDACC property cannot be used for consultancy or employment with an entity other than MDACC• The same is true of the MDACC name• Consultant fee limits: – 50% of base salary in 12 months from all sources – 25% of base salary in 12 months from one source
  36. 36. Conflict Of Interest• Company ownership rules: you cannot own more than: – 50% interest in privately-held company (that includes ownership by your family!) – 5% interest in publicly-traded company – 20% in private company at time of IPO• Faculty cannot be principal investigator of or primary physician for a patient on a trial if he/she has equity in sponsor company or receives cash > $10,000 per year
  37. 37. Common Board Problems9 • CEO loads board with cronies • Divided camps of interest • Big names are good…but they need to contribute • Inadequate agenda for board meetings • “Once-over lightly” financial scrutiny • Board member or CEO micromanagement • Clash of egomanias
  38. 38. Common Pitching Mistakes10 • Being caught short… no elevator pitch • Poor competitive assessments • Inadequate IP – Minimal proprietary uniqueness – Overlapping competitive patents – Stating “we have patents” when patients were filed but not yet issued
  39. 39. Common Pitching Mistakes10 • Sloppy bios • Poor references • Inconsistent format of presentation materials • Serial pursuit of prospective investors • Egomania, naïveté, stubbornness • Failure to show entrepreneurial zeal
  40. 40. Common Pitching Mistakes10 • Unprepared, half-baked presentations • Presentation too long and too technical • No passion, no story that sticks • Reading the slides with too much stuff on it • You are not applying for a NIH grant and you are not defending a thesis … you are trying to capture the interest of a potential investor
  41. 41. Common Pitching Mistakes10 • Don’t become too “sticky” with potential investor • Remember, first contact is not intended for a 2 hours presentation • Give him/her some privacy in the rest room • If investors calls the police and has restraining order issued .. You probably over-did it
  42. 42. Top Ten Mistakes Made by Entrepreneurs (and Investors)• Mistake No. 10: Failing to form an entity early enough• Mistake No. 9: Issuing founder shares without vesting• Mistake No. 8: Failing to: – Understand the tax effect of issuing stock or options – Make a timely Section 83 (b) election by Paul Pryzant, Burleson LLP
  43. 43. Top Ten Mistakes Made by Entrepreneurs (and Investors)• Mistake No. 7: Negotiating venture capital or angel financing based solely on valuation• Mistake No. 6: – Failing to do due diligence on your investors – Taking money from the “toxic” shareholder• Mistake No. 5: – Promising more in the business plan than can be delivered – Failing to comply with state and federal securities laws by Paul Pryzant, Burleson LLP
  44. 44. Top Ten Mistakes Made by Entrepreneurs (and Investors)• Mistake No. 4: Failing to: – Have an intellectual property strategy to understand what IP the Company has and how you need to protect it – Waiting too long to implement your IP strategy• Mistake No. 3: Disclosing inventions without a nondisclosure agreement, or before the patent application is filed. by Paul Pryzant, Burleson LLP
  45. 45. Top Ten Mistakes Made by Entrepreneurs (and Investors)• Mistake No. 2: – Starting a business while employed by a potential competitor – Hiring employees without first checking their agreements with the current employer and their knowledge of trade secrets• Mistake No. 1: – Thinking any legal problems can be solved later – Hiring a lawyer not experienced in dealing with entrepreneurs and venture capitalists by Paul Pryzant, Burleson LLP
  46. 46. Think Twice Before You Say This
  47. 47. Think Twice Before You Say This• We have first-mover advantage: – Is this advantage or disadvantage?• Our projections are conservative: – Be realistic – Startups should not be conservative; they are usually aggressive (but stay within the truth)
  48. 48. Think Twice Before You Say This• We have no competition – Yeah, right; are you kidding me? – At least do a Google search• We are truly disruptive – Investors look for disruptive technology – But can take long time to develop
  49. 49. Think Twice Before You Say This• We only need 1% of the market: – Well, that first 1% is the most difficult to get; why stop when you finally got it? – What investor wants only 1% of the market? – Overall, market sizes and sales projections are usually over-estimated (might be OK for an aggressive startup if not grossly over- stated)
  50. 50. Think Twice Before You Say This• We have a great CEO lined up and he will join as soon we raise the money: – What do you need this guy for? His job is to raise money! – Why does he not join you now? Does he not believe in you and your business?
  51. 51. Think Twice Before You Say This• We have strong interest from major customers: – Wishful thinking??? – Show me the money (LOI, order,…) – Get a letter of intent – Have paying customers is usually much better than having “strong interest”
  52. 52. Think Twice Before You Say This• Several VC’s are very interested and will get back to me: – Why did they not get back to you if they are so hot on your idea? – Were they just friendly? – Were you invited to present to them directly? – Wishful thinking?
  53. 53. Do This• Know your pitch• Know your target audience• Know your market• Know your projections• Know your competition• Be prepared to support your statements• Know what you are asking for (value proposition)
  54. 54. Watch And Learn• Learn from othersWatch some episodes on
  55. 55. The Problem• You have an idea and need $$$$• How do you go about raising money• What things do you need to have ready to go• Remember: Success comes when opportunity meets preparedness
  56. 56. What is your primary goal? To raise positive awareness and money
  57. 57. What is your goal? To get a meeting To be remembered To raise interest
  58. 58. What is NOT your goal?To summarize your entire business plan To look like you don’t know what you are doing To be remembered for the wrong reasons
  59. 59. Stories are interesting.Scientific facts are mostly boring. Unless you are applying for a scientific grant.
  60. 60. Stories That Stick• Friday the 13th is an unlucky day! This is a story that sticks!
  61. 61. Friday The 13 th• Movies have been created around this topic• Many, many, many people around the world believe in this• Is it just an Urban Legends that sticks or is there more to it?
  62. 62. Friday The 13 th• It is the most widespread superstition in the United States today.• Some people refuse to go to work on Friday the 13th• Some wont eat in restaurants• Many wouldnt think of setting a wedding on the date• Many will not travel that day
  63. 63. Friday The 13 th• A medical study published in one of the most prestigious medical journals (British Journal of Medicine) investigated the relation between health, behavior, and superstition surrounding Friday 13th in the UK• The investigators collected data on: – Numbers of drivers on the streets – Number of shoppers in malls – Number of admissions in hospitals
  64. 64. Friday The 13 th• The results of the study: – Significantly and consistently less vehicles on the street – No difference in shoppers – Significant increase in hospital admissions (risk of admission increased by 52%)• Recommendation: Staying home on Friday 13th is recommended
  65. 65. Friday The 13 thThe real reason behind it: The Knights Templar Friday, October 13, 1307
  66. 66. Friday The 13 th• Self-fulfilling prophecy• At least 21 million Americans believe this bad- luck fact and change their lives around to avoid certain activities around that day• Almost no one knows really where the story came from but it certainly “sticks”• A “sticky idea” is understood, its remembered, and it changes something
  67. 67. Suggested Reading • Hardcover: 291 pages • Publisher: Random House; 1 edition (January 2, 2007) • Language: English • ISBN-10: 1400064287 • ISBN-13: 978-1400064281 • Price: US $ 15.26
  68. 68. Messages To Your Audience• Investors like to hear: – You have a great story to tell – You have something novel (disruptive) – You can deliver the technology/product – You have a large market – There is a great need for your technology
  69. 69. Messages To Your Audience• Investors like to hear: – There are barrier to entry for competitors – Customers are willing to pay for your technology/product – You are credible and believable – You can also listen – You have thought about reasonable financials
  70. 70. Messages To Your Audience• Investors do NOT like to hear: – There is no product yet but you think the company is worth tens of millions – You are willing to give away 10% of your company for $ 5 million (remember all those unreal business propositions on TV “Shark Tank”) – There is no competition (there is usually is) – You know it all (the investors and others may also know some things)
  71. 71. What’s on your tombstone?• How do you want to be remembered? – “Oh, yeah. He’s that guy with the…?” A. Delaware C-Corp… B. 62 really impressive scientific advisory board members that I’ve never heard of… C. A cool way of making sure that lung cancer patients survive.. (the story that sticks) Paul Campbell: Ideas On Fire Series by O. Wenker
  72. 72. Real Showstoppers10 • Incompetent CEO • Excess product development risks • Troubling intellectual property issues • Inattention to cash management • Inadequate capitalization plans • Unrealistic valuations • Poor market understanding
  73. 73. Real Showstoppers10 • Lack of focus • Overly optimistic sales forecasts • Underestimation of competition • Don’t know what you don’t know (how do you know that they will buy it …I just know) • Unable to describe business or opportunity in 30 seconds
  74. 74. Conclusions• Success comes when preparedness meets opportunity Be prepared: Wait for the opportunity: • Elevator pitch • Business plan competition • Executive summary • Venture meeting • Business plan • Introduction to investor • Slide presentation • Any other opportunity Success
  75. 75. From This …..
  76. 76. ….To This
  77. 77. Good Luck
  78. 78. What Now?• If you want to learn more about entrepreneurship and about how to start your company• Take for free 17 online modules at the Entrepreneur’s Academy• Go to: transform/ p