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  • 1. ™ European Innovation Academy Tallinn, January 21-27 2013Global Technology Entrepreneurship Prof. Dr. Sc. math. Dr. h.c. Mark Harris CEO and Founder1 Adjunct Professor for Technology Entrepreneurship & Innovation
  • 2. Differences are ValuableinnoVaventures – UC Berkeley come with their own view – theSilicon Valley perspectiveRegional effects cause entrepreneurship to take its own uniqueform everywhereThrough the identification of major regional trends, and anappreciation for the success models of Silicon Valley, eachparticipating University can chart its own course to build asuccessful program. © innoVaventures ™ 2 All rights reserved
  • 3. Literature:Accompanying Literature:Timmons/Spinelli New Venture Creation ISBN 978-007-125438-0Steven Gary Blank The Four Steps to the Epiphany ISBN 0-9764707-0-5Geoffrey A. Moore Crossing the Chasm ISBN 0-88730-717-5Clayton M. Christensen The Innovator’s Dilemma ISBN 0-87584-585-1Henry Chesbrough Open Innovation ISBN 1-57851-837-7Recommended Literature:David J. Teece Managing Intellectual Capital ISBN 0-19-829-542-1Annalee Saxenian Regional Advantage ISBN 0-674-75340-2> www.innovaventures.com >NEWS>Blog>24 October American University in Bulgaria 3 Youtube Videos about 5 hours total. © innoVaventures ™ 3 All rights reserved
  • 4. The 5 Minute University © innoVaventures ™4 All rights reserved
  • 5. Introductions / Expectations © innoVaventures ™ 5 All rights reserved
  • 6. Lecture Series1.  Innovation, Entrepreneurship and Globalization2.  The Professional Entrepreneur, The Entrepreneurial Venture3.  Venture & Growth Capital4.  Opportunity Recognition5.  Open/Closed Innovation and the Innovator’s Dilemma6.  Communication Channels7.  Smart Business Plans © innoVaventures ™ 6 All rights reserved
  • 7. 1. Innovation, Entrepreneurship andGlobalization © innoVaventures ™ 7 All rights reserved
  • 8. What is innovation ? Innovation is an invention, paired with a process and a market Entrepreneurship invention process market © innoVaventures ™ 8 All rights reserved
  • 9. Light Bulb Hall of Fame © innoVaventures ™9 All rights reserved
  • 10. Computer Hall of Fame © innoVaventures ™10 All rights reserved
  • 11. What is Entrepreneurship ?What is Technology Entrepreneurship ? © innoVaventures ™11 All rights reserved
  • 12. Entrepreneurship is:A processNot a personAbout BIG companies that happen to be smallNot about small businessImportant to BIG business © innoVaventures ™12 All rights reserved
  • 13. What is Entrepreneurship ? „The pursuit of opportunity beyond the resources one currently has under control“. * * Source: Professor Howard Stevenson © innoVaventures ™13 All rights reserved
  • 14. Entrepreneurship Bridges the GapTechnology/ Entrepreneurship ValueOpportunity © innoVaventures ™14 All rights reserved
  • 15. What is Technology Entrepreneurship ? Cash Flow I II III IVThe technical Theinvention company t The business innovation Derived: Prof. Jerry Engel UC Berkeley Enhanced: Prof. Dr. Mark Harris Needed: Technology Entrepreneurship Skills Management Skills (MBA etc) So Technology Entrepreneurship is not only „What“, but also „When“ !! © innoVaventures ™ 15 All rights reserved
  • 16. The Entrepreneurial Process © innoVaventures ™16 All rights reserved
  • 17. The Entrepreneurial Process Identify •  Need Opportunity •  Solution •  ‘Unfair Advantage’ Acquire •  Technology rights Resources •  People •  Money © innoVaventures ™17 All rights reserved
  • 18. The Entrepreneur’s Task….Key Resources•  Technology•  Money People•  People Technology Money © innoVaventures ™18 All rights reserved
  • 19. Who is the Professional Entrepreneur?Personal Entrepreneurship StylesEntrepreneurship is a team sport•  Many can play – even if they are not ‘born’ entrepreneursThree modes•  Lead•  Follow•  ExecuteThree functions•  Create•  Manage•  InnovateWhich role is right for you? © innoVaventures ™19 All rights reserved
  • 20. Personal Entrepreneurship Styles: Modes: Lead orFollow High Performance entrepreneurial teams are : Lead Execute •  Self organizing •  Flexible •  Self disciplined •  Common goal •  Common priorities •  Common values •  Enabled by shared ownership Same people may play different roles on different teams within the same Follow company © innoVaventures ™20 All rights reserved
  • 21. Personal Entrepreneurship Styles Functions: Createor Manage Innovation requires a combination of creativity Create Innovate and management – brought by a team •  Creation requires the greatest technical competency •  Management requires technical affinity •  Different functions are best suited for different people. •  Functions rarely are exchanged •  All collaborate in BOTH Manage dimensions © innoVaventures ™21 All rights reserved
  • 22. Entrepreneurship is a Team Sport Results are WhatCount High performance technologyInnovation entrepreneurship Entrepreneurship •  Is a BLEND of Innovation and Execution •  Requires collaboration and discipline •  It is best performed by a team •  Alignment of incentives directly and dramatically related to the outcome Execution © innoVaventures ™22 All rights reserved
  • 23. Who is the Entrepreneur? High Entre- Inventor preneur Creativity and innovation Promoter Manager, administrator Low Low High General management skills, business know-how, and networks Source: J. Timmons, New Venture Creation, p. 25. © innoVaventures ™23 All rights reserved
  • 24. The Professional Entrepreneur Cash Flow I II III IVThe technical Theinnovation company Visioning the Future into the Present t The business innovation Needed: Technology Entrepreneurship Entrepreneurship Skills (MBA etc) Skills © innoVaventures ™ 24 All rights reserved
  • 25. The Professional Entrepreneur Cash Flow I II III IVThe technical Theinnovation company Zone of Collaboration t The business innovation Zone of Competition Needed: Technology Entrepreneurship Entrepreneurship Skills (MBA etc) Skills © innoVaventures ™ 25 All rights reserved
  • 26. The Importance of Teamwork Entrepreneurship is a team sport © innoVaventures ™26 All rights reserved
  • 27. Entrepreneurship and GlobalizationGlobalRegional Sourcing Selling © innoVaventures ™ 27 All rights reserved
  • 28. Entrepreneurship and GlobalizationGlobalRegional U.S. Start-up Sourcing Selling © innoVaventures ™ 28 All rights reserved
  • 29. Entrepreneurship and GlobalizationGlobalRegional • Local tech team • Beta customers • Local sourcing U.S. Start-up • Executive selling • May outsource manufacturing • Scaling direct sales • Retain quality control • Developing distribution Sourcing Selling © innoVaventures ™ 29 All rights reserved
  • 30. Entrepreneurship and GlobalizationGlobal Outsource • software development [India] • manufacturing [China] • Call Center customer support [India] U.S. Start-upRegional • Local tech team • Recurring customers • Local sourcing • Standardized selling • May outsource manufacturing • Scaling direct sales • Retain quality control • Expanding distribution Sourcing Selling © innoVaventures ™ 30 All rights reserved
  • 31. Entrepreneurship and Globalization VP SalesGlobal • Europe [through UK] Outsource • Asia [through Japan] • software development [India] • WRO [may license] • manufacturing [China] Localization • Call Center customer support [India] Ventures/Co-Branding Joint U.S. Start-up Establish subsidiaryRegional • Local tech team • Recurring customers • Local sourcing • Standardized selling • May outsource manufacturing • Scaling direct sales • Retain quality control • Expanding distribution Sourcing Selling © innoVaventures ™ 31 All rights reserved
  • 32. Entrepreneurship and Globalization VP SalesGlobal • Europe [through UK] Outsource • Asia [through Japan] • software development [India] • WRO [may license] • manufacturing [China] Localization • Call Center customer support [India] Ventures/Co-Branding Joint U.S. Start-up Establish subsidiaryRegional • Local tech team • Recurring customers • Local sourcing • Standardized selling • May outsource manufacturing • Scaling direct sales • Retain quality control • Expanding distribution Sourcing Selling © innoVaventures ™ 32 All rights reserved
  • 33. Entrepreneurship and Globalization VP SalesGlobal • Europe [through UK] Outsource • Asia [through Japan] • software development [India] • WRO [may license] • manufacturing [China] Localization • Call Center customer support [India] Ventures/Co-Branding Joint U.S. Start-up Establish subsidiaryRegional • Local tech team • Recurring customers • Local sourcing • Standardized selling • May outsource manufacturing • Scaling direct sales • Retain quality control • Expanding distribution Sourcing Selling © innoVaventures ™ 33 All rights reserved
  • 34. Entrepreneurship and GlobalizationGlobalRegional E.U. Start-up Sourcing Selling © innoVaventures ™ 34 All rights reserved
  • 35. Entrepreneurship and GlobalizationGlobalRegional • Local tech team • Beta customers • Local sourcing E.U. Start-up • Executive selling • May outsource manufacturing • Scaling direct sales • Retain quality control • Developing distribution • Hit “glass ceiling” Sourcing Selling © innoVaventures ™ 35 All rights reserved
  • 36. Entrepreneurship and Globalization Early Focus on U.S. SalesGlobal • US sales office • Establish U.S. Subsidiary early • US Sales support Asia [through Japan] WRO [may license] E.U. Start-up Joint Ventures/Co-BrandingRegional • Local tech team • Recurring customers • Local sourcing • Standardized selling • May outsource manufacturing • Scaling direct sales • Retain quality control • Expanding distribution • Pushing ‘glass ceiling’ Sourcing Selling © innoVaventures ™ 36 All rights reserved
  • 37. Entrepreneurship and Globalization Early Focus on U.S. SalesGlobal • US sales office Outsource • Establish U.S. Subsidiary early • software development [India] • US Sales support • manufacturing [China] Asia [through Japan] • Call Center customer support [India] [may license] WRO E.U. Start-up Joint Ventures/Co-BrandingRegional • Local tech team • Recurring customers • Local sourcing • Standardized selling • May outsource manufacturing • Scaling direct sales • Retain quality control • Expanding distribution • Breaking ‘glass ceiling’ Sourcing Selling © innoVaventures ™ 37 All rights reserved
  • 38. Entrepreneurship and Globalization Early Focus on U.S. SalesGlobal • US sales office Outsource • Establish U.S. Subsidiary early • software development [India] • US Sales support • manufacturing [China] Asia [through Japan] • Call Center customer support [India] [may license] WRO E.U. Start-up Joint Ventures/Co-BrandingRegional • Local tech team • Recurring customers • Local sourcing • Standardized selling • May outsource manufacturing • Scaling direct sales • Retain quality control • Expanding distribution Sourcing Selling © innoVaventures ™ 38 All rights reserved
  • 39. Entrepreneurship and GlobalizationGlobal Depends on Were you are Starting From U.S. Start-up E.U. Start-upRegional Sourcing Selling © innoVaventures ™ 39 All rights reserved
  • 40. Technology Entrepreneurship
 The New Way Forwards EURObservations: Criteria US Europe Comparison Comment•  EU 2020 declaration highly Economies in same focussed (#1 issue) on GDP (2010) 14.66 T$ 14.82 T$ Ballpark innovation and entrepreneurship. Europe invents Domestic Patents +65% more (actually•  Invention (ideas,patents ) (2009) 82000 135000 much more because no SW patents in Europe, is good, but CII) commercialization is not. Europe only ~•  Very low VC activity in EU VC activity 1/5th the VC 12.4 B$ 2.6 B$ (1/5th US), huge equity (H1 2010) GAP•  Attitude of % of population US is 50% higher that consider 67% 45% entrepreneurship and entrepreneurship failure not being an option US is 289% higher % of Population a big hindering factor. that become 13% 4.5%•  Need to catch-up on some entrepreneurs 20+ years of % of population US 40% higher entrepreneurship education that accept possible failure in 75% 54%•  Need to broaden where and a startup how entrepreneurship is Trying to catch up Entrepreneurship 20-25years of taught Education since 1980 s Early 2000 s Education and•  Need to get EU success attitude rates (20%) close to US © innoVaventures ™ Programs in HE and now starting (30%). 40 All rights reserved Breadth (# types) 8 1-2 in K12
  • 41. 2. The Professional Entrepreneur,The Entrepreneurial Venture © innoVaventures ™41 All rights reserved
  • 42. The Professional Entrepreneur Cash Flow I II III IVThe technical Theinnovation company Visioning the Future into the Present t The business innovation Needed: Technology Entrepreneurship Entrepreneurship Skills (MBA etc) Skills © innoVaventures ™ 42 All rights reserved
  • 43. The Professional Entrepreneur Cash Flow I II III IVThe technical Theinnovation company Zone of Collaboration t The business innovation Zone of Competition Needed: Technology Entrepreneurship Entrepreneurship Skills (MBA etc) Skills © innoVaventures ™ 43 All rights reserved
  • 44. The Importance of Teamwork Entrepreneurship is a team sport © innoVaventures ™44 All rights reserved
  • 45. The Entrepreneurial VentureFOUR PERIODS of DEVELOPMENT © innoVaventures ™45 All rights reserved
  • 46. The Entrepreneurial Venture FOUR PERIODS of DEVELOPMENT Cash Flow I II III IVThe technical Theinnovation company t The business innovation Needed: Technology Entrepreneurship Entrepreneurship Skills (MBA etc) Skills © innoVaventures ™ 46 All rights reserved
  • 47. Cash Flow The Entrepreneurial Venture I II III IV The technical The innovationcompany The business innovation t Attributes that characterize each Phase Needed: Technology Entrepreneurship Entrepreneurship Skills (MBA etc) SkillsPeriod I: Pure Period II: Period III: Period IV: Strategic Focus System Building CoporateEntrepreneurship ManagementDefining the concept What business aren’t Finacial Controls Hiring „outsider“of the business we in?Gathering Financial IMPLEMENTING the Stable division of labor Going PublicResources business we are in!Assembling the Knowing better than Reporting relationship Making acquistitionsstartup Team ANYONE else: and authoritiesIdentifying What will people pay Developing systems of Adding the follow-oncustomers internal control Products(s)Analyzing the How many will they buy Formalizing the terms Shedding those whocompetition of a sale can‘t keep upBuilding the How to distribute Operational systems Formalizing the cultureprototypeGetting your first How to service the Production, Outsourcing Rationalizing thecustomer customer strategy Distribution, Sales Service, Warranties *Source: Professor John Freeman Professor Jerry Engel UC Berkeley © innoVaventures ™ 47 All rights reserved
  • 48. Cash Flow The Entrepreneurial Venture I II III IV The technical The innovationcompany The business innovation t Attributes that characterize each Phase Needed: Technology Entrepreneurship Entrepreneurship Skills (MBA etc) SkillsPeriod I: Pure Period II: Period III: Period IV: Strategic Focus System Building CoporateEntrepreneurship ManagementDefining the concept of What business aren’t Finacial Controls Hiring „outsider“the business we in?Gathering Finacial IMPLEMENTING the Stable division of labor Going PublicResources business we are in!Assembling the startup Knowing better than Reporting relationship Making acquistitionsTeam ANYONE else: and authoritiesIdentifying customers What will people pay Developing systems of Adding the follow-on internal control Products(s)Analyzing the How many will they Formalizing the terms Shedding those whocompetition buy of a sale can‘t keep upBuilding the prototype How to distribute Operational systems Formalizing the cultureGetting your first How to service the Production, Outsourcing Rationalizing thecustomer customer strategy Distribution, Sales Service, Warranties *Source: Professor John Freeman Professor Jerry Engel UC Berkeley © innoVaventures ™ 48 All rights reserved
  • 49. Cash Flow The Entrepreneurial Venture I II III IV The technical The innovationcompany The business innovation t Attributes that characterize each Phase Needed: Technology Entrepreneurship Entrepreneurship Skills (MBA etc) SkillsPeriod I: Pure Period II: Period III: Period IV: Strategic Focus System Building CoporateEntrepreneurship ManagementDefining the concept of What business aren’t Finacial Controls Hiring „outsider“the business we in?Gathering Finacial IMPLEMENTING the Stable division of Going PublicResources business we are in! laborAssembling the startup Knowing better than Reporting Making acquistitionsTeam ANYONE else: relationship and authoritiesIdentifying customers What will people pay Developing systems Adding the follow-on of internal control Products(s)Analyzing the How many will they buy Formalizing the Shedding those whocompetition terms of a sale can‘t keep upBuilding the prototype How to distribute Operational systems Formalizing the cultureGetting your first How to service the Production, Rationalizing thecustomer customer Outsourcing strategy Distribution, Sales *Source: Professor John Freeman Service, Warranties Professor Jerry Engel UC Berkeley © innoVaventures ™ 49 All rights reserved
  • 50. Cash Flow The Entrepreneurial Venture I II III IV The technical The innovationcompany The business innovation t Attributes that characterize each Phase Needed: Technology Entrepreneurship Entrepreneurship Skills (MBA etc) SkillsPeriod I: Pure Period II: Period III: Period IV: Strategic Focus System Building CoporateEntrepreneurship ManagementDefining the concept of What business aren’t Finacial Controls Hiring „outsider“the business we in?Gathering Finacial IMPLEMENTING the Stable division of labor Going PublicResources business we are in!Assembling the startup Knowing better than Reporting relationship Making acquistitionsTeam ANYONE else: and authoritiesIdentifying customers What will people pay Developing systems of Adding the follow-on internal control Products(s)Analyzing the How many will they buy Formalizing the terms Shedding those whocompetition of a sale can‘t keep upBuilding the prototype How to distribute Operational systems Formalizing the cultureGetting your first How to service the Production, Outsourcing Rationalizing thecustomer customer strategy Distribution, Sales Service, Warranties *Source: Professor John Freeman Professor Jerry Engel UC Berkeley © innoVaventures ™ 50 All rights reserved
  • 51. The Professional Entrepreneur Cash Flow I II III IVThe technical Theinnovation company Visioning the Future into the Present t The business innovation Needed: Technology Entrepreneurship Entrepreneurship Skills (MBA etc) Skills © innoVaventures ™ 51 All rights reserved
  • 52. 3. Venture & Growth Capital © innoVaventures ™52 All rights reserved
  • 53. New Venture Funding Stream $" Sales" $80" IPO" Cash " $40" Flow" $20" $8" $1" time" Venture Capital Rounds! © innoVaventures ™53 All rights reserved
  • 54. Structuring the FinancingThe “Why” of multiple rounds Value is a Step Function: Value Technology/Product Marketing Management Time © innoVaventures ™54 All rights reserved
  • 55. Adding Technology Value Market Introduction Regulatory Approvals Value Manufacturing Prototype Working Prototype Patent Application Feasibility or Prototype Concept Time © innoVaventures ™55 All rights reserved
  • 56. Adding Market Value Backlog Satisfied Customers Market Launch Beta Test Value Technical Reports Published Surveys/Concept Testing Qualitative Research (Focus Groups) Market Analysis - Published Data Time © innoVaventures ™56 All rights reserved
  • 57. Adding Management Value Human Resources Mgr Chief Financial Officer Value Sales Manager Manufacturing Vice President Controller Marketing Vice President President Chief Technologist Time © innoVaventures ™57 All rights reserved
  • 58. The Entrepreneurial Venture FOUR PERIODS of DEVELOPMENT I II III IVCashFlow Time © innoVaventures ™ 58 All rights reserved
  • 59. Valuation in Steps Predictable Scale Scale Market Validated Traction Early ValidationI II III IVConceptDefined Time © innoVaventures ™59 All rights reserved
  • 60. Staged Financing Predictable Scale Scale Market Validated IPO Traction Early Series “n” ValidationI II III IV Series BConceptDefined Series A Seed Time © innoVaventures ™60 All rights reserved
  • 61. Venture CapitalInvestment Capital for EntrepreneurialVentures tends to clump•  By Region•  By IndustryIt is important to encourage local investment inEntrepreneurial Ventures © innoVaventures ™61 All rights reserved
  • 62. Perspective on European Market Venture Investment, US & Europe 6000,0 5000,0 Investment ($millions) 4000,0 3000,0 Europe North America 2000,0 Overall Investment 1000,0 US Venture investment comes back strong. ,0 Europe’s lowest for Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 5 years (632M$). 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 Quarter Source: BLN Business Leaders Network © innoVaventures ™ 62 All rights reserved
  • 63. Perspective on European Market Venture Investment, Europe by Country 1400 1200 Investment ($millions) 1000 Israel E Europe 800 S Europe Ireland 600 Overall Investment N Europe BENELUX 400 DACH France 200 UK 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 Quarter Source: BLN Business Leaders Network © innoVaventures ™ 63 All rights reserved
  • 64. Perspective on European Market(Patent applications) Europe (135.000) versus US (82.000)PART  A1-­‐  Table  A1-­‐1a,  Breakout  by  Country  of  Origin  Number  of  Patents  Granted  as  Distributed  by  Year  of  Patent  Grant.Granted:  01/01/1963  -­‐  12/31/2009           Pre  1996   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   All  Years  Total,  U.S.  And  Foreign  Origin       2401288   109645   111984   147517   153485   157494   166035   167330   169023   164290   143806   173772   157282   157772   167349   4548072  -­‐-­‐  Subtotal  -­‐-­‐  U.S.  Origin       1497955   61104   61708   80289   83905   85068   87600   86970   87893   84270   74637   89823   79526   77502   82382   2620632  -­‐-­‐  Subtotal  -­‐-­‐  Foreign  Origin       903333   48541   50276   67228   69580   72426   78435   80360   81130   80020   69169   83949   77756   80270   84967   1927440  JAPAN       313267   23053   23179   30840   31104   31295   33223   34858   35515   35348   30341   36807   33354   33682   35501   761367  GERMANY       188840   6818   7008   9095   9337   10235   11260   11280   11444   10779   9011   10005   9051   8914   9000   322077  UNITED  KINGDOM       85906   2454   2680   3467   3576   3669   3967   3843   3631   3450   3148   3585   3292   3094   3175   132937  FRANCE       72160   2788   2958   3674   3820   3819   4041   4035   3868   3380   2866   3431   3130   3163   3140   120273  CANADA       43077   2232   2379   2973   3226   3419   3606   3431   3427   3374   2894   3572   3318   3393   3655   87976  TAIWAN       9245   1897   2057   3100   3693   4667   5371   5431   5298   5938   5118   6361   6128   6339   6642   77285  KOREA,  SOUTH       4649   1493   1891   3259   3562   3314   3538   3786   3944   4428   4352   5908   6295   7548   8762   66729  SWITZERLAND       38555   1112   1090   1279   1279   1322   1420   1364   1308   1277   995   1201   1035   1112   1208   55557  ITALY       26916   1200   1239   1584   1492   1714   1709   1751   1722   1584   1296   1480   1302   1357   1346   47692  SWEDEN       23939   854   867   1225   1401   1577   1741   1675   1521   1290   1123   1243   1061   1060   1014   41591  NETHERLANDS       22611   797   808   1226   1247   1241   1332   1391   1325   1273   993   1323   1250   1330   1288   39435  AUSTRALIA       9010   471   478   720   707   705   876   859   902   953   910   1325   1265   1291   1221   21693  ISRAEL       4861   484   534   754   743   783   970   1040   1193   1028   924   1218   1107   1166   1404   18209  BELGIUM       8628   488   515   693   648   694   718   722   622   612   519   625   520   510   594   17108  AUSTRIA       8656   362   376   387   479   505   589   530   592   540   463   577   457   464   503   15480  FINLAND       4844   444   452   595   649   618   732   809   865   918   720   950   850   824   864   15134  DENMARK       5026   241   333   392   487   436   479   426   529   414   358   439   388   391   390   10729  U.S.S.R.       6963   16   4   6   3   1   0   1   0   0   0   0   0   0   0   6994  CHINA,  PEOPLES  REPUBLIC  OF       528   46   62   72   90   119   195   289   297   404   402   661   772   1225   1655   6817  SPAIN       2797   157   177   248   222   270   269   303   309   264   273   295   268   303   317   6472  NORWAY       2890   139   142   198   224   248   265   242   262   243   220   244   247   273   265   6102  INDIA       493   35   47   85   112   131   178   249   342   363   384   481   546   634   679   4759  SINGAPORE       301   88   94   120   144   218   296   410   427   449   346   412   393   399   436   4533  CHINA,HONG  KONG  S.A.R.       845   88   81   160   155   179   237   233   276   311   283   308   338   311   305   4110  SOUTH  AFRICA       2614   111   101   115   110   111   120   113   112   100   87   109   82   91   93   4069  HUNGARY       2242   43   25   50   39   36   60   48   72   48   46   49   47   66   46   2917  NEW  ZEALAND       1106   52   85   114   114   107   124   140   135   142   122   136   113   105   127   2722  IRELAND       805   77   71   71   90   121   141   127   163   186   156   174   146   164   177   2669  RUSSIAN  FEDERATION       139   116   111   189   181   183   234   200   203   169   148   172   188   176   196   2605  MEXICO       1614   39   45   57   76   76   81   94   85   86   80   66   56   54   60   2569  BRAZIL       875   63   62   74   91   98   110   96   130   106   77   121   90   101   103   2197  CZECHOSLOVAKIA       2090   8   9   9   5   0   0   0   0   0   0   0   0   0   0   2121  ARGENTINA       698   30   35   43   44   54   51   54   63   46   24   38   37   32   45   1294  MALAYSIA       88   12   17   23   30   42   39   55   50   80   88   113   158   152   158   1105  LUXEMBOURG       567   18   22   20   22   40   33   37   35   44   41   33   38   24   36   1010  POLAND       626   15   11   15   19   13   16   11   17   16   23   29   32   54   35   932  Others  (142)       4862   200   231   296   359   366   414   427   446   377   338   458   402   468   527   10171   ™ Sources: U.S. PATENT AND TRADEMARK OFFICE and EPO (European Patent Office) © innoVaventures 64 All rights reserved
  • 65. Creating Value The Individual Company Perspective © innoVaventures ™65 All rights reserved
  • 66. Growth Capital © innoVaventures ™66 All rights reserved
  • 67. Company FormationFounders A, B and C each purchase 1M shares of Common Stock at apurchase price of $.001 per share. Person Shares % Total Value Founder A 1,000,000 33.3% $1,000 Founder B 1,000,000 33.3% $1,000 Founder C 1,000,000 33.3% $1,000 totals 3,000,000 100% Post-Money Valuation $3,000 © innoVaventures ™67 All rights reserved
  • 68. Hiring a President/CEOCreation of an Option Plan The company hires a chief executive officer who purchases 1M shares of Common Stock at a purchase price of $.01 per share. Additionally, in order to attract additional key employees, the Company establishes an employee stock option plan and reserves 1M shares of Common Stock for issuance under this plan. The pre-financing valuation is $30,000. Person Shares % Total Value Founder A 1,000,000 20.0% $10,000 Founder B 1,000,000 20.0% $10,000 Founder C 1,000,000 20.0% $10,000 President 1,000,000 20.0% $10,000 Option Plan 1,000,000 20.0% $10,000 totals 5,000,000 100% Post-Money Valuation $50,000 © innoVaventures ™68 All rights reserved
  • 69. Initial Venture Capital Round $5,000,000 venture capital financing at a purchase price of $1 per share, representing a pre-financing valuation of $5,000,000 (5M shares with a value of $1 per share). The new shares are typical venture capital Series A Preferred Stock, with each share of Series A Preferred Stock being convertible into one share of Common Stock. Person Shares % Total Value Founder A 1,000,000 10.0% $1,000,000 Founder B 1,000,000 10.0% $1,000,000 Founder C 1,000,000 10.0% $1,000,000 President 1,000,000 10.0% $1,000,000 Option Plan 1,000,000 10.0% $1,000,000 Series A Inv 5,000,000 50.0% $5,000,000 totals 10,000,000 100% Post-Money Valuation $10,000,000 © innoVaventures ™69 All rights reserved
  • 70. Series B Preferred Financing Person Founder A$10,000,000 Series B Preferred Stock financing at a purchase price ofFounder B Founder C$2 per share, representing a pre-financing valuation of $20,000,000 (10M Presidentshares with a value of $2 per share). Like the Series A Preferred Stock, each Option Planshare of Series B Preferred Stock is convertible into one share of Common Inv Series AStock. Series B Inv Post Financing Person Shares % Total Value Valuation Founder A 1,000,000 6.7% $2,000,000 Founder B 1,000,000 6.7% $2,000,000 Founder C 1,000,000 6.7% $2,000,000 President 1,000,000 6.7% $2,000,000 Option Plan 1,000,000 6.7% $2,000,000 Series A Inv 5,000,000 33.3% $10,000,000 Series B Inv 5,000,000 33.3% $10,000,000 totals 15,000,000 100% Post-Money Valuation $30,000,000 © innoVaventures ™70 All rights reserved
  • 71. Initial Public Offering (IPO)A total of 5M shares to be sold in the offering, including 3M shares sold by theCompany and 1M shares sold by each of the Series A and Series B investors.Shares will be sold at a price of $10 per share, representing a pre-financingvaluation of $150,000,000 (15M shares with a value of $10 per share.) Series A and Series B Preferred Stock automatically converted into Common Stock. All shares sold in offering will be Common Stock. Note that the interest of each founder has decreased from 33.33% at the Company’s formation to 5.55% following the IPO. However, the value of the interest of each founder has increased from $1,000 to $10,000,000. Person Shares % Total Value Founder A 1,000,000 5.6% $10,000,000 Founder B 1,000,000 5.6% $10,000,000 Founder C 1,000,000 5.6% $10,000,000 President 1,000,000 5.6% $10,000,000 Option Plan 1,000,000 5.6% $10,000,000 Series A Inv 4,000,000 22.2% $40,000,000 Series B Inv 4,000,000 22.2% $40,000,000 Public IPO 5,000,000 27.8% $50,000,000 totals 18,000,000 100% Post-Money Valuation $180,000,000 © innoVaventures ™71 All rights reserved
  • 72. Growing the Equity Pie Predictable Scale Scale Market Validated IPO Traction Series “N” Early ValidationI II III IV Series BConceptDefined Series A Seed Person Shares % Total Value Founder A 1,000,000 33.3% $1,000 Founder B 1,000,000 33.3% $1,000 Time Founder C 1,000,000 33.3% $1,000 totals 3,000,000 100% Post-Money Valuation $3,000 © innoVaventures ™72 All rights reserved
  • 73. Growing the Equity Pie Predictable Scale Scale Market Validated IPO Traction Series “N” Early ValidationI II III IV Series BConceptDefined Series A Seed Person Shares % Total Value Founder A 1,000,000 20.0% $10,000 Founder B 1,000,000 20.0% $10,000 Founder C 1,000,000 20.0% $10,000 President 1,000,000 20.0% $10,000 Time Plan Option 1,000,000 20.0% $10,000 totals 5,000,000 100% Post-Money Valuation $50,000 © innoVaventures ™73 All rights reserved
  • 74. Growing the Equity Pie Predictable Scale Scale Market Validated IPO Traction Series “N” Early ValidationI II III IV Series BConceptDefined Series A Person Shares % Total Value Seed Founder A 1,000,000 10.0% $1,000,000 Founder B 1,000,000 10.0% $1,000,000 Founder C 1,000,000 10.0% $1,000,000 President 1,000,000 10.0% $1,000,000 Option Plan 1,000,000 10.0% $1,000,000 Time A Inv 5,000,000 Series 50.0% $5,000,000 totals 10,000,000 100% Post-Money Valuation $10,000,000 © innoVaventures ™74 All rights reserved
  • 75. Growing the Equity Pie Predictable Scale Scale Market Validated IPO Pe Traction Fo Fo Fo Series “N” Pre Early Op ValidationI II III IV Se Se Series BConceptDefined F Series A Person Shares % Total Value Founder A 1,000,000 6.7% $2,000,000 Seed Founder B 1,000,000 6.7% $2,000,000 Founder C 1,000,000 6.7% $2,000,000 President 1,000,000 6.7% $2,000,000 Option Plan 1,000,000 6.7% $2,000,000 Series A Inv 5,000,000 33.3% $10,000,000 Time B Inv 5,000,000 Series 33.3% $10,000,000 totals 15,000,000 100% © innoVaventures Post-Money Valuation ™ $30,000,00075 All rights reserved
  • 76. Growing the Equity Pie Predictable Scale Scale Market Validated IPO Traction Series “N” Early ValidationI II III IV Series BConceptDefined Person Shares % Total Value Series A Founder A 1,000,000 5.6% $10,000,000 Founder B 1,000,000 5.6% $10,000,000 Seed Founder C 1,000,000 5.6% $10,000,000 President 1,000,000 5.6% $10,000,000 Option Plan 1,000,000 5.6% $10,000,000 Series A Inv 4,000,000 22.2% $40,000,000 Series B Inv 4,000,000 22.2% $40,000,000 Time IPO Public 5,000,000 27.8% $50,000,000 totals 18,000,000 100% Post-Money Valuation $180,000,000 © innoVaventures ™76 All rights reserved
  • 77. The Entrepreneurial Venture PARADOX OF POWER Series A: Power Manager for of and with othersFounder/ IPO: Influential executive CEO I II III IV Series B, etc. “Control” Tipping Point Zone of Freedom Zone of Management Time © innoVaventures ™ 77 All rights reserved
  • 78. 4. Opportunity Recognition © innoVaventures ™78 All rights reserved
  • 79. How to Evaluate a Deal from the Company’sPerspectiveFounder’s IssuesEmployee’s IssuesCorporate Issues•  Sufficient Capital•  Freedom of OperationPrevious Investor and Creditor IssuesEtc. © innoVaventures ™79 All rights reserved
  • 80. How to Evaluate a Deal from the Investor’sPerspectivePotential for Adequate ReturnOpportunity for a Home Run?Potential ‘Fatal Flaws’Time RequirementsFollow-on Investment RequirementsPortfolio and Fund CompatibilityEtc. © innoVaventures ™80 All rights reserved
  • 81. Effect of Eleven Factors on Company Valuation Variables Lower Valuation Higher Valuation Technology •  Stage of Development Concept Product •  Patent Status None Filed Issued •  Time to Market Long Short Market •  Demonstrable Need No Yes •  Size & Growth Small Large •  Market Penetration Slow Rapid Management Team Novice Tested Financial •  Profit Margins Low High •  Total Capital Required High Low Return on Investment •  Potential Future Valuation Low High •  Time to Liquidity Long Short © innoVaventures ™81 All rights reserved
  • 82. 5. Open/Closed Innovation and the Innovator’s Dilemma Recommended Literature: Open Innovation Henry Chesbrough ISBN 1-57851-837-782 © innoVaventures ™ 82 All rights reserved
  • 83. Open Innovation (Intro) Obviously, talking about Open Innovation, there must be something like „Closed Innovation“. So lets first cover the „Closed Innovation Paradigm“Research Development Boundary of the firm Research The Market Projects Source: Open Innovation Henry Chesbrough83 © innoVaventures ™ 83 All rights reserved
  • 84. Open Innovation (Intro) Assumptions of Closed Innovation: • We should hire the best and brightest people, so that the smartest people in the industry work for us. • In order to bring new products and services to the market, we must discover and develop them ourselves. • If we discover it ourselves, we will get to market first • The company that gets an innovation to market first will usually win. • If we lead the industry in making R&D investments in R&D, we will disciver the best and the most ideas and will come to lead the market as well. • We should control our intellectual property, so that our competitors don‘t profit from our ideas. Source: Open Innovation Henry Chesbrough84 © innoVaventures ™ 84 All rights reserved
  • 85. Open Innovation (Intro) Advantages of Closed Innovation: • The logic of Closed Innovation created a virtuous circle. • Companies invested in internal R&D, which led to many breakthrough discoveries. • Those discoveries enabled those companies to bring new products and services to market. • Because of those products they could realize more sales and higher margins, which enabled them to spend more in internal R&D, which led to further breakthroughs. • And because the intellectual property (IP) that arises from this internal R&D is closely guarded, others could not exploit these ideas for their own profit. Source: Open Innovation Henry Chesbrough85 © innoVaventures ™ 85 All rights reserved
  • 86. Open Innovation (Intro) Origin of Closed Innovation Paradigm: • First started in the German Chemical Industry in the 19th + 20th century with the creation of a central research Lab. • Copied by Thomas Edison in a US version, developed and perfected a number of breakthroughs, and founded General Electric‘s famed laboratory. • Bell Labs discovered amazing physical phenomena and harnessed its discoveries to create the transistor among its many important achievements. • US government created an ad hoc central reseach Lab to conduct a crash project on nuclear fission, which led to the development of the A-Bomb • The cold war kept some level of Closed Innovation Source: Open Innovation going. Henry Chesbrough86 © innoVaventures ™ 86 All rights reserved
  • 87. Open Innovation (Intro)Open Innovation ParadigmResearch Development The New Market Boundary of the firm Research The Current Projects Market Source: Open Innovation Henry Chesbrough 87 © innoVaventures ™ 87 All rights reserved
  • 88. Open Innovation (Intro) Assumptions of Open Innovation: • Not all the smart people work for us. We need to work with smart people inside and outside of our company. • External R&D can create significant value; internal R&D is needed to claim some portion of the value. • We don‘t have to originate the research to profit from it. • Building a better business model is better than getting to market first. • If we make best use of internal and external ideas, we will win. • We should profit from other‘s use of our IP, and we should buy other‘s IP whenever it advances our own business model. Source: Open Innovation Henry Chesbrough88 © innoVaventures ™ 88 All rights reserved
  • 89. Open Innovation (Intro) Comparison: Closed / Open Innovation: • Examples of Industries: • Examples of Industries: nuclear reactors, PCs, movies mainframe computers • Largely internal ideas • Many external ideas • Low Labor mobility • High Labor mobility • Little VC • Active VC • Few, weak start-ups • Numerous start-ups • Universities unimportant • Universities very important Source: Open Innovation Henry Chesbrough89 © innoVaventures ™ 89 All rights reserved
  • 90. The Innovators Dilemma (Intro) Recommended Literature: The Innovator‘s Dilemma Clayton M. Christensen ISBN 0-87584-585-190 © innoVaventures ™ 90 All rights reserved
  • 91. The Innovators Dilemma (Intro)The Impact of Sustaining and Disruptive Technological Change P Revolutionary Innovation Product Performance Performance Demanded At the high end of the market Performance Demanded At the low Disruptive end of the market Technological innovation t Source: The Innovator‘s Dilemma Clayton M. Christensen 91 © innoVaventures ™ 91 All rights reserved
  • 92. The Innovators Dilemma (Intro) Disruptive Technologies: • Disruptive technologies bring to a market a different value proposition than available previously. • Generally, disruptive technologies underperform established products in mainstream markets. • But they have other features that other new customers value. • Products based on disruptive technologies are typically cheaper, simpler, smaller, and frequenty more convenient to use. Source: The Innovator‘s Dilemma Clayton M. Christensen92 © innoVaventures ™ 92 All rights reserved
  • 93. The Innovators Dilemma (Intro) Disruptive Technologies: •  So should I focus on developing disruptive technologies ? •  The conclusion by established companies that investing aggresively in disruptive technologies is not a rational financial decision for them to take is based on three arguements: 1.  disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits 2.  disruptive products are typically first commercialized in emerging or insignificant markets 3.  Leading firms‘ most profitable customers generally don‘t want and indeed can‘t use products based on disruptive technologies Source: The Innovator‘s Dilemma Clayton M. Christensen93 © innoVaventures ™ 93 All rights reserved
  • 94. The Innovators Dilemma (Intro) Harnessing the Principles of Disruptive Innovation: •  Harness versus fighting disruptive technologies. (Example: antique versus modern flight) Principle #1: Companies depend on Customers and investors for resources Its really customers and investors who decide how money will be spent. Principle #2: Small markets don‘t solve the growth needs of Large Companies Play with numbers (40-48M$ growth is 20%, 4-4.8B$ is also 20% but 800M$ is larger than any new emerging market) Principle #3: Markets that don‘t exist can‘t be analyzed Sound market research and good planning are the hallmarks of good management in sustained technological innovation Principle #4: Technology supply may not Equal Market demand Many companies don‘t realize the speed at which they are moving up-market, over-satisfying the needs of the origional customers as they race the competition towards higher performance, higher-margin markets. In doing so, they create a vacuum at lower proce points into which competitors employing disruptive technologies can enter. Source: The Innovator‘s Dilemma Clayton M. Christensen94 © innoVaventures ™ 94 All rights reserved
  • 95. Strategy: Using Small Markets as “Beach Heads” “Sustaining” Technological Innovation Product Performance Big Companies Need Third Technology A Continuous Process Second Technology First Technology Time or Engineering Effort Source: Clayton M. Christensen, “Exploring the Limits of the Technology S-Curve. Part I: Component Technologies,” Production and Operations Management 1, no. 4 (Fall 1992): 340. Reprinted by permission.95 © innoVaventures ™ 95 All rights reserved
  • 96. Strategy: Using Small Markets as “Beach Heads” Application (Market) “A” Application (Market) “B”Performance as Defined in Application “A” Performance as Defined in Application “B” Disruptive Technology takes over the larger established market! New entrant Technology 2 dominates Older BIG company playing Disruptive Technology catch-up •  new market niche •  small markets Technology 1 •  small companies Time or Engineering Effort Source: Clayton M. Christensen, “Exploring the Limits of the Technology S-Curve. Part I: Component Technologies,” Production and Operations Management 1, no. 4 (Fall 1992): 361. Reprinted by permission. 96 © innoVaventures ™ 96 All rights reserved
  • 97. 6. Communication Channels © innoVaventures ™97 All rights reserved
  • 98. 6. Communication Channels CH 1: PRESENTATION CH 4: EARS CH 3: EYES CH 2: VOICE CH 7: BODY CH 6: RIGHT HAND CH 5: LEFT HAND CHANNEL IN OUT PRESENTATION ✔ VOICE ✔ EYES ✔ ✔ EARS ✔ LEFT HAND ✔ RIGHT HAND ✔ BODY ✔ © innoVaventures ™98 All rights reserved
  • 99. 7. Smart business models ?•  How to become the next Facebook, Google, etc. ???•  If this was a pure science and any of us new the exact formula, we wouldn’t be here…•  Much of that is a function also of the right product at the right time and (besides greatness) tons of luck….•  Larry and Sergey first failed with their strategy to offer a new search algorithm to Yahoo…. (I wonder if that Yahoo employee who turned it down is still there ??)•  Or look at the Intel founders Robert Noyce and Gordon Moore, they left Fairchild to follow their passion !! © innoVaventures ™99 All rights reserved
  • 100. Smart business models ?•  Follow your passion !! Being passionate about your new business will help you survive J•  Create your new venture as “global born”. Focusing initially on a local market is fine, but don’t loose sight of the global opportunity•  Know and understand your customers !!!•  Know and understand your market !!!•  Focus on YEAR ONE !! Get that right.•  Have several exit strategies already when you start.•  Work with global enablers like ™ © innoVaventures ™100 All rights reserved
  • 101. Your path to success !!! ™101
  • 102. Backup © innoVaventures ™102 All rights reserved
  • 103. A short excursion in Math: Question: What is the shortest distance between points A and B ? Sure, a straight line: A B as long as we are in two dimensional space.... in three dimensional space, for example on a globe it is the GREAT Circle (ARC) 103 © innoVaventures ™Slide: 103 All rights reserved
  • 104. So what is the shortest path for a new venture ? The Path (Trail) to New Ventures Start(up) loop forever Gazelle © innoVaventures ™Slide: 104 All rights reserved
  • 105. ™ helps you to bridge the GAP !! Phase 1 Phase 2 entrepreneurship Coaching Phase 3
 Phase 4 Consulting education, Mentoring 1st real BizPlans Angel Funding Phase 5 Summer schools infrastructure VC / further scale Experimental labs Educational BizPlan Industry connections Bootcamps Seed Funding Competitions Seed Funding Entrepreneurship Education Educational Real-life RealServices Process practice © innoVaventures companies ™ 105 All rights reserved
  • 106. ™ helps you to bridge the GAP !! Phase 1 Phase 2 entrepreneurship Coaching Phase 3
 Phase 4 Consulting education, Mentoring 1st real BizPlans Angel Funding Phase 5 Summer schools infrastructure VC / further scale Experimental labs Educational BizPlan Industry connections Bootcamps Seed Funding Competitions Seed Funding Entrepreneurship Education Educational Real-life RealServices Process practice © innoVaventures companies ™ 106 All rights reserved
  • 107. InnoVaventures Global Network of Experts © innoVaventures ™107 All rights reserved
  • 108. InnoVaventures Network of -in negotiation (Phase I) -planned (Phase II) -planned (Phase III) © innoVaventures ™ 108 All rights reserved
  • 109. Network of Global Clusters of Innovation © innoVaventures ™109 All rights reserved
  • 110. Investment Framework Highest Pioneering Risk need Dangerous Dangerous Market Existing Need Creation Risk Enabling new applications Type of Never Product Faster, cheaper Never , better Execution Risk Lowest Risk Known Business Model Unknown © innoVaventures ™110 All rights reserved
  • 111. Investment Framework Pioneering Highest need Risk Dangerous Dangerous Market Existing Need Creation Risk Enabling Seed new Only applications Type of All Neve Product r Stages Faster, cheaper Never , better Execution Risk Lowest Risk Known Business Model Unknown © innoVaventures ™111 All rights reserved
  • 112. Investment Framework Highest Pioneering Risk need Dangerous Dangerous Market Existing Need Creation Risk Enabling new applications Type of Neve Product r Faster, cheaper Never , better Execution Risk Lowest Risk Known Business Model Unknown © innoVaventures ™112 All rights reserved
  • 113. Return on Investment Expectations at Various Stages Financing Business Objectives Expected Time To Liquidity Round (capital use) Annual Return (IPO or merger) Seed Product Research 75 - 100% 5 - 8 Years Market Research Preliminary Plan Start-up Product Development 50 - 75% 4 - 7 Years Working Prototype Complete Management Team Confirm Market Size 1st, 2nd, 3rd Alpha & Beta Tests 30 - 50% 3 - 5 Years rounds Selling Manufacturing Expand Work Force Mezzanine Prepare For IPO 24 - 30% 1 - 2 Years Public Of fering Market Development 10 - 20% Immediate New Products © innoVaventures ™113 All rights reserved
  • 114. Investor Ownership Expectations How much ownership will the investor want/require? Ownership" required" =" Investment" (discounted at required ROI)" Expected PV Future Value" Expected PV" =" n(years)" (1+Necessary ROI)" Future Value" =" Net Income"(year n)"X PE" © innoVaventures ™114 All rights reserved
  • 115. Investor Ownership Expectations A VERY Simple Example ASSUMPTIONS Company: NI in Year 5 $2.5M P/E 15 times NI Investor: Investment $2.0M ROI 50% Holding Period 5 years © innoVaventures ™115 All rights reserved
  • 116. How much ownership will the investor want/require? FUTURE V" LUE (FV) (Y" ar 5)" A e NI X P/E = ($2.5M X 15) = $37.5M" PRESENT"V" LUE (PV)" A (FV)" $37.5M" Post Money Value n" =" 5" = $4.93M" (1+i)" (1 + .50)" OWNERSHIP REQUIRED" A $2M investment would require ownership of:" Investment" =" $2M" = 41%" (PV)" $4.93M" (i = ROR, n = year)" © innoVaventures ™116 All rights reserved
  • 117. So the Company’s Value is…..Post money [investment] value……. $4.93mPre-money value is……. $2.93m © innoVaventures ™117 All rights reserved