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BUSINESS STRATEGY
SLIDES AND INFORMATION © 2012 EARLE HAGER
            ALL RIGHTS RESERVED
BUSINESS TIPS FROM SUN-TZU

 • “In respect of military method, we have, firstly,
   Measurement; secondly, Estimation of quantity;
   thirdly, Calculation; fourthly, Balancing of chances;
   fifthly, Victory.”
        Sun-Tzu




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THE BASICS


 • Everything is about Process




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AGENDA


 •   The Business Plan
 •   Licensing
 •   Partner Agreement
 •   Angel / Venture Capital
 •   Sale of Business
 •   Commercial Sales
 •   Incubators / Landing Zones
 •   Research Grant
 •   Conclusion

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Адміністрація Губернатора
        Відділ Eкономічного Pозвитку
            Майкл Трейгер, CGBP
Регіональний Директор, Євразія, Середній Схід і Африка
                   1-512-936-0530
        michael.treyger@governor.state.tx.us
Адміністрація Губернатора
           Відділ Eкономічного Pозвитку
          Міжнародний Бізнес i Bербування

 Адміністрація Губернатора, Відділ Eкономічного Pозвитку

 Міжнародний Бізнес i Bербування

    Допомагає Техас компаній, що прагнуть вийти на зарубіжні
      ринки, та залучення іноземних інвестицій в Техас

       Інформація про стимулів і програм
       Допомога місце вибір
       Допомога в природоохоронних дозволів
       Взаємодія з державними органами
       Всеосяжна дослідження клімату бізнес в Техас
       Сайт візит координації і виконання в Техас громад
       Центральний контакт для компаній, що працюють з
            декількома громадами Техас
THE BUSINESS PLAN
ELEMENTS OF A BUSINESS PLAN –
             SEQUOIA CAPITAL
 • Writing a Business Plan
     • We like business plans that present a lot of information in as
       few words as possible. The following business plan format,
       within 15-20 slides, is all that's needed.




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ELEMENTS OF A BUSINESS PLAN –
             SEQUOIA CAPITAL

 • Company Purpose
     • Define the company/business in a single declarative
       sentence.
 • Problem
     • Describe the pain of the customer (or the customer’s
       customer).
     • Outline how the customer addresses the issue today.
 • Solution
     • Demonstrate your company’s value proposition to
       make the customer’s life better.
     • Show where your product physically sits.
     • Provide use cases.

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ELEMENTS OF A BUSINESS PLAN –
             SEQUOIA CAPITAL
 • Why Now
     • Set-up the historical evolution of your category.
     • Define recent trends that make your solution possible.
 • Market Size
     • Identify/profile the customer you cater to.
     • Calculate the TAM (top down), SAM (bottoms up) and
       SOM.
 • Competition
     • List competitors
     • List competitive advantages



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ELEMENTS OF A BUSINESS PLAN –
              SEQUOIA CAPITAL
 • Product
     • Product line-up (form factor, functionality, features,
       architecture, intellectual property).
     • Development roadmap.
 • Business Model
     •   Revenue model
     •   Pricing
     •   Average account size and/or lifetime value
     •   Sales & distribution model
     •   Customer/pipeline list



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ELEMENTS OF A BUSINESS PLAN –
              SEQUOIA CAPITAL
 • Team
     • Founders & Management
     • Board of Directors/Board of Advisors
 • Financials
     •   P&L
     •   Balance sheet
     •   Cash flow
     •   Cap table
     •   The deal




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ELEMENTS OF A BUSINESS PLAN –
          ENTREPRENEUR MAGAZINE
 • Business concept. Describes the business, its product
   and the market it will serve. It should point out just
   exactly what will be sold, to whom and why the business
   will hold a competitive advantage.
 • Financial features. Highlights the important financial
   points of the business including sales, profits, cash flows
   and return on investment.
 • Financial requirements. Clearly states the capital
   needed to start the business and to expand. It should
   detail how the capital will be used, and the equity, if
   any, that will be provided for funding. If the loan for initial
   capital will be based on security instead of equity, you
   should also specify the source of collateral.

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ELEMENTS OF A BUSINESS PLAN –
          ENTREPRENEUR MAGAZINE
 • Current business position. Furnishes relevant
   information about the company, its legal form of
   operation, when it was formed, the principal owners
   and key personnel.
 • Major achievements. Details any developments
   within the company that are essential to the
   success of the business. Major achievements
   include items like patents, prototypes, location of a
   facility, any crucial contracts that need to be in
   place for product development, or results from any
   test marketing that has been conducted.

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ELEMENTS OF A BUSINESS PLAN –
                    SBA
 • Business Plan Executive Summary
     • Your executive summary is a snapshot of your business plan as a whole
       and touches on your company profile and goals. This section offers tips
       on what to include and how to keep it brief and succinct.
 • Market Analysis
     • Read about the specific industry, market and competitive analysis
       information you should conduct and include in your plan.
 • Company Description
     • What do you do? What differentiates your business? Which markets do
       you serve? Get tips on how to present this information.
 • Organization & Management
     • All businesses are structured differently. Find out how best to describe
       your organization and its management structure, regardless of its size.




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ELEMENTS OF A BUSINESS PLAN –
                    SBA
 • Marketing & Sales Management
     • How do you plan to market your business? What is your sales
       strategy? Read more about how to present this information in
       your plan.
 • Service or Product Line
     • What do you sell? How does it benefit your customers? What is
       the product lifecycle? Do you plan R&D activities? Get tips on
       how to tell the "story" of your product or service.
 • Funding Request
     • If you are seeking funding for your business, find out what
       information you need to include in your plan to ensure success.
 • Financial Projections
     • If you need funding, providing financial projections to back up
       your request is critical. Find out what information you need to
       include in your financial projections for your small business.

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AND THE ANSWER IS …


 • Ask them what they want.
     • VC firms are used to reading many plans and want to see a
       specific format. They are evaluating ideas, markets, and
       ROI.
     • Grant organizations are seeking understandings of your
       research and if they can advance your research. They are
       evaluating your intellectual prowess.
     • Banks will evaluate cash flow.
     • Create detailed plan and
       shorten for different groups


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ELEMENTS OF A BUSINESS PLAN –
                   LINKS
               http://www.entrepreneur.com/article/38308
                    http://www.sequoiacap.com/ideas
 http://www.sba.gov/category/navigation-structure/starting-managing-
    business/starting-business/writing-business-plan/essential-elements-
                               good-busines
          http://www.ces.purdue.edu/extmedia/ec/ec-735.pdf
                                http://leeds-
 faculty.colorado.edu/moyes/bplan/Plan/Writing%20a%20Successful%2
                      0Business%20Plan%202004v4.pdf




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FROM HERE …


 • What is the best way to advance your technology?
     •   License Agreement
     •   Partner Agreement
     •   Angel / Venture Capital
     •   Sale of Technology
     •   Commercial Sales
     •   Incubators and Landing Zones
     •   Research Grant




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LICENSING
WHY LICENSE?


 • You can’t advance the technology to the next
   level with the resources available to you
     • Biotechnology or material science technologies require
       extensive testing to advance to the marketplace
     • Resources to conduct controlled, approved testing are
       expensive and may not be available to you
     • Organizations which have staffing available to gain
       regulatory approval can do so at a lower cost




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WHY LICENSE?


 • You need access to a larger market and do not
   have the staffing to reach the market
     • Sales organizations with relationships with key customers
       can get your product to the marketplace
     • If your technology is part of a larger system, you can
       expand your reach and opportunities




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WHY LICENSE?


 • Allows you to monetize your efforts and move on to
   your next idea
     • After the idea has been created, tested, and protected,
       you need to understand where you are most effective
 • Your next idea may be even more interesting




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LICENSING


 • In a licensing agreement, you give rights to another
   organization to use your technology
 • You must have patent / copyright filings on the
   technology
 • Limitations on the usage, modification, or effective
   date of the agreements are important




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LICENSING


 • Agreements must also be based upon usage of the
   technology
 • If unused or milestones are not achieved, the
   agreement is terminated




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LICENSING


 • In understanding milestones to the next step, you
   can structure an agreement which shares the risk
   on both parties
     • As a new technology advances through the testing and
       approval process, payments would be made
     • As a product advances in the marketplace, different royalty
       rates would take effect as sales increase




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LICENSING


 • As revenue is generated by your partners, revenue
   can be shared with you




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LICENSING TERMS –
               A SIMPLE GUIDE


 • You have to sign the agreement
 • They have to sign the agreement
 • The terms need to be viewed as fair by both sides




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LICENSING TERMS –
             LICENSOR OBLIGATIONS


 • Define the Material
 • Define the patents or other protections
     • Ownership of IP
     • License of IP
     • Sublicense Options
 • Delivery of product or materials
 • Cooperate with any testing processes
 • Date Restrictions


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LICENSE TERMS –
                LICENSEE OBLIGATIONS


 • Complete agreed upon steps in a mutually
   acceptable time frame
     • Regulatory approval
     • Sales / Royalty Payments
         • Minimum Payments
         • Performance Levels
         • Sublicense Requirements
 • Steps if terms are not met
     • Payment of minimums
     • Allow agreement to end

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LICENSING TERMS –
AGREEMENT LENGTH & TERMINATION


 • Length of agreement
 • Renewal requirements
     • Automatic
     • Exercised
 • Termination Process
 • Ownership / Transfer of IP
 • Bankruptcy of Parties



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LICENSING TERMS –
               DISPUTE RESOLUTION


 • Nexus – Whose law applies?
 • Courts – What Court System?
 • Avoiding Court – Good Planning
     • Arbitration
     • Mediation
     • Negotiation
 • Limitations of Amount in Dispute
 • Legal Fees


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LICENSING TERMS –
         DEVELOPMENT FEES AND COSTS


 • Costs of approvals, patents and other fees
 • Key issue when you are licensing v. selling the IP




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LICENSING INCOME


 • Rule of thumb for the value of a licensing
   agreement is the 25% rule
 • This model is used for the beginning of negotiations
   and will give you an idea of the potential value of a
   licensing agreement




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LICENSING INCOME


 • Costs of bringing a product to the marketplace
   must also be factored into the numbers
 • All rates are based upon the simplest number –
   gross sales before expenses




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LICENSING INCOME

Calculating the 25% Rule
The royalty rate is based upon gross sales

                 A. Sales                                       $    100,000
    B. Cost of Goods Sold (COGS)                                $     65,000
C. Marketing Costs Associate with this
      product and No Overhead                                   $     15,000
        D. Net Income (A) – (B+C)                               $     20,000
         E. 25% of Net Income (D)                               $        5,000

  Royalty Rate = (E) divided by (A)                                 5%
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PARTNER AGREEMENT
PARTNER AGREEMENT


 • Research and business partners to advance your
   shared goals
 • Plan details of your agreement to work together
 • Plan details of your agreement to end your
   collaboration




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PARTNER AGREEMENT


 • Partnership can take many forms:
     • Sharing of information
     • Individual control of technologies, share control of joint
       technology
     • Jointly held company




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PARTNER AGREEMENT


 • Key step is to understand where your product
   extends and their product starts
 • Who owns the collaborative material?
 • What is the decision making process?




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PARTNER AGREEMENT


 • Falling in love is easy
 • Falling out of love is not
     • Relationship, business, and legal issues associated with
       ending a partnership




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REASONS TO PARTNER


 • Access to market
     • funding for US, EU and other location based upon local
       organizations and citizenship
 • Access to technology advancements
     • Shared information and efforts could result in earlier market
       entry
 • Access to resources
     • Sales force
     • Customer base
     • Product Structure

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PARTNER AGREEMENTS –
                    TERMS


 • Share of business
 • Investment in business
 • Contribution to business




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PARTNER AGREEMENTS –
                   OBLIGATIONS


 • Decision process
     • Managing Partner
     • Voting
 • Obligations
     •   Financial
     •   Time
     •   Product or IP
     •   Steps if obligations are not met
 • Non Compete Agreements

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PARTNER AGREEMENTS –
                  FINANCIALS


 • Payment process
     • Payroll
     • Dividends
     • Re-Investment
 • Buyout value of partner share if partner leaves
     • Voluntary
     • Involuntary
     • Death




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PARTNER AGREEMENTS –
                  OWNERSHIP


 • Who owns initial IP?
 • Who owns collaborative IP?
 • Who owns IP upon separation?




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PARTNER AGREEMENTS –
                THE CHALLENGE


 • Maintain trust relationships as partners
 • Maintain trust relationships after partnerships
 • Develop decision making and dispute resolution
   process




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ANGEL / VENTURE
   CAPITAL
ANGEL / VENTURE CAPITAL


 • Investments are about money and control
 • In order to get Angel or VC funding, you will need to
   be prepared to give up control of your company
 • Your company should be in revenue or close to it
   for these groups to take risks




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ANGEL / VENTURE CAPITAL


 • Of 20 VC investments
     • 2-3 do very well
     • 10 make money
     • the rest fail




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ANGEL / VENTURE CAPITAL


 • These groups seek:
     • 4x their investment in 2-4 years
     • Exit strategy for their money (sale of company or next level
       of funding)
     • Control of company and direction




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ANGEL / VENTURE CAPITAL


 • You are seeking
     • Funding
     • A stake in a larger company
     • An investor / board of directors who can advance the
       company with their industry knowledge and contacts




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ANGEL / VENTURE CAPITAL


 • Investors give money to the Intellectual Property
   based upon their trust of the management team




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ANGEL / VENTURE CAPITAL


 • Questions you should ask:
     • Do they have experience with your innovation?
     • What is their track record of bringing these types of
       products to market?
     • Who would be working with you on the project?




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ANGEL / VENTURE CAPITAL


 • A few concepts to consider:
     •   Diluted stock
     •   Controlling interest
     •   Convertible debt
     •   IP ownership
     •   Stock ownership




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ANGEL / VENTURE CAPITAL


 • What is your company worth in four years?
     •   Complete a four year income statement
     •   Complete the Net Present Value of the income
     •   Complete your funding requirements
     •   Compare the two numbers




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ANGEL / VENTURE CAPITAL


 • The previous slide looks simple, but it is not
 • Income statements are complex and, for startups,
   filled with assumptions on getting to the
   marketplace
 • Goal is to demonstrate greater than 4X return with
   assumptions which are considered logical by the
   investors




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ANGEL / VENTURE CAPITAL


 • This can work for you, because owning 100% of a
   small company can be less than owning 10% of a
   large company




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ANGEL / VENTURE CAPITAL


 • Get a lawyer and an accountant




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SALE OF TECHNOLOGY
SALE OF TECHNOLOGY


 • What is your product worth?
 • What level of control are you willing to give up?
 • What is the effect of the sale on your work with
   subsequent technologies?




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SALE OF TECHNOLOGY


 • Larger corporations will focus on control and may
   seek to purchase outright
 • Key for you to manage your next projects within the
   terms of the agreement




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COMMERCIAL SALES
COMMERCIAL SALES


 • Market ready products
 • Seeking sales and distribution
 • After completion of market assessment, you will
   know the types of partners you are seeking




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COMMERCIAL SALES


 • Use of web services, such as Alibaba, eBay and
   others are effective in providing a trusted sales
   channel
 • These services do not replace your requirement to
   market your product




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COMMERCIAL SALES


 • Distribution partners will give you a localized
   presence in different countries
 • Many buyers will only buy from a US address
 • Manage shipping and legal issues
 • Use of partners or drop ship organizations




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COMMERCIAL SALES


 • Trade shows are critical to meeting partners
 • Plan for one year in advance – the Christmas toys
   are settled in New York in February at the Toy Show
 • Seek co-marketing or co-branding opportunities




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INCUBATORS AND
 LANDING ZONES
INCUBATORS


 • Opportunity to locate in a new country with a
   market favorable to development
 • IP transfer requirements
 • Finding incubator partners who specialize in your
   ideas and technologies




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INCUBATORS


 •   Key step is to find a local partner / facilitator
 •   University Partners
 •   Economic Development Partners
 •   The State of Texas




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LANDING ZONES


 • Office address
 • Support services
 • Creation of legal entity for global presence




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LANDING ZONES


 • Support services to full business efforts
 • Access to local executives and sales / support staff




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LOCATION


 • Choice of U.S. landing zones would be based upon
   best resources available for your innovation
     •   Automotive – Detroit
     •   Pharmaceutical – Research Triangle, Boston, Philadelphia
     •   IT – Silicon Valley, Austin
     •   Medical Devices – Silicon Valley, Research Triangle, Boston,
         and Cleveland




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RESEARCH GRANT
RESEARCH GRANT


 • Key option when technology is not ready for the
   marketplace or next phase of commercialization
 • Academic life is all research grants




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RESEARCH GRANT


 • Seek research partners in other countries who can
   apply for EU or US grants
 • www.enGrant.com database as a source for US
   grants
 • Plan ahead for research grant funding




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RESEARCH GRANT


 • Seek opportunities with organization which provide
   testing or collaboration facilities
 • Labs may have access to funding sources or
   partners who may need research partners




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IN CONCLUSION
NEXT STEPS


 •   Review your options
 •   Perform your own financial calculations
 •   Determine what is important to you
 •   Understand where your next idea is coming from to
     bring forward




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THANK YOU


 Earle Hager
 Managing Partner, The Neutrino Donut, LLC
 Commercialization of Science and Technology
 ehager@austin.rr.com
 Skype: earle.hager.panidea
 +1 512 662 1728
 http://www.linkedin.com/in/earlehager
 http://tinyurl.com/6vy4uum

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QUESTIONS?

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Business Strategy Final

  • 1. BUSINESS STRATEGY SLIDES AND INFORMATION © 2012 EARLE HAGER ALL RIGHTS RESERVED
  • 2. BUSINESS TIPS FROM SUN-TZU • “In respect of military method, we have, firstly, Measurement; secondly, Estimation of quantity; thirdly, Calculation; fourthly, Balancing of chances; fifthly, Victory.” Sun-Tzu CRDF Training Ivano-Frankivsk and April 2012 2 Dnepropetrovsk © 2012 Earle Hager
  • 3. THE BASICS • Everything is about Process CRDF Training Ivano-Frankivsk and April 2012 3 Dnepropetrovsk © 2012 Earle Hager
  • 4. AGENDA • The Business Plan • Licensing • Partner Agreement • Angel / Venture Capital • Sale of Business • Commercial Sales • Incubators / Landing Zones • Research Grant • Conclusion CRDF Training Ivano-Frankivsk and April 2012 4 Dnepropetrovsk © 2012 Earle Hager
  • 5. Адміністрація Губернатора Відділ Eкономічного Pозвитку Майкл Трейгер, CGBP Регіональний Директор, Євразія, Середній Схід і Африка 1-512-936-0530 michael.treyger@governor.state.tx.us
  • 6. Адміністрація Губернатора Відділ Eкономічного Pозвитку Міжнародний Бізнес i Bербування  Адміністрація Губернатора, Відділ Eкономічного Pозвитку  Міжнародний Бізнес i Bербування  Допомагає Техас компаній, що прагнуть вийти на зарубіжні ринки, та залучення іноземних інвестицій в Техас  Інформація про стимулів і програм  Допомога місце вибір  Допомога в природоохоронних дозволів  Взаємодія з державними органами  Всеосяжна дослідження клімату бізнес в Техас  Сайт візит координації і виконання в Техас громад  Центральний контакт для компаній, що працюють з декількома громадами Техас
  • 8. ELEMENTS OF A BUSINESS PLAN – SEQUOIA CAPITAL • Writing a Business Plan • We like business plans that present a lot of information in as few words as possible. The following business plan format, within 15-20 slides, is all that's needed. CRDF Training Ivano-Frankivsk and April 2012 8 Dnepropetrovsk © 2012 Earle Hager
  • 9. ELEMENTS OF A BUSINESS PLAN – SEQUOIA CAPITAL • Company Purpose • Define the company/business in a single declarative sentence. • Problem • Describe the pain of the customer (or the customer’s customer). • Outline how the customer addresses the issue today. • Solution • Demonstrate your company’s value proposition to make the customer’s life better. • Show where your product physically sits. • Provide use cases. CRDF Training Ivano-Frankivsk and April 2012 9 Dnepropetrovsk © 2012 Earle Hager
  • 10. ELEMENTS OF A BUSINESS PLAN – SEQUOIA CAPITAL • Why Now • Set-up the historical evolution of your category. • Define recent trends that make your solution possible. • Market Size • Identify/profile the customer you cater to. • Calculate the TAM (top down), SAM (bottoms up) and SOM. • Competition • List competitors • List competitive advantages CRDF Training Ivano-Frankivsk and April 2012 10 Dnepropetrovsk © 2012 Earle Hager
  • 11. ELEMENTS OF A BUSINESS PLAN – SEQUOIA CAPITAL • Product • Product line-up (form factor, functionality, features, architecture, intellectual property). • Development roadmap. • Business Model • Revenue model • Pricing • Average account size and/or lifetime value • Sales & distribution model • Customer/pipeline list CRDF Training Ivano-Frankivsk and April 2012 11 Dnepropetrovsk © 2012 Earle Hager
  • 12. ELEMENTS OF A BUSINESS PLAN – SEQUOIA CAPITAL • Team • Founders & Management • Board of Directors/Board of Advisors • Financials • P&L • Balance sheet • Cash flow • Cap table • The deal CRDF Training Ivano-Frankivsk and April 2012 12 Dnepropetrovsk © 2012 Earle Hager
  • 13. ELEMENTS OF A BUSINESS PLAN – ENTREPRENEUR MAGAZINE • Business concept. Describes the business, its product and the market it will serve. It should point out just exactly what will be sold, to whom and why the business will hold a competitive advantage. • Financial features. Highlights the important financial points of the business including sales, profits, cash flows and return on investment. • Financial requirements. Clearly states the capital needed to start the business and to expand. It should detail how the capital will be used, and the equity, if any, that will be provided for funding. If the loan for initial capital will be based on security instead of equity, you should also specify the source of collateral. CRDF Training Ivano-Frankivsk and April 2012 13 Dnepropetrovsk © 2012 Earle Hager
  • 14. ELEMENTS OF A BUSINESS PLAN – ENTREPRENEUR MAGAZINE • Current business position. Furnishes relevant information about the company, its legal form of operation, when it was formed, the principal owners and key personnel. • Major achievements. Details any developments within the company that are essential to the success of the business. Major achievements include items like patents, prototypes, location of a facility, any crucial contracts that need to be in place for product development, or results from any test marketing that has been conducted. CRDF Training Ivano-Frankivsk and April 2012 14 Dnepropetrovsk © 2012 Earle Hager
  • 15. ELEMENTS OF A BUSINESS PLAN – SBA • Business Plan Executive Summary • Your executive summary is a snapshot of your business plan as a whole and touches on your company profile and goals. This section offers tips on what to include and how to keep it brief and succinct. • Market Analysis • Read about the specific industry, market and competitive analysis information you should conduct and include in your plan. • Company Description • What do you do? What differentiates your business? Which markets do you serve? Get tips on how to present this information. • Organization & Management • All businesses are structured differently. Find out how best to describe your organization and its management structure, regardless of its size. CRDF Training Ivano-Frankivsk and April 2012 15 Dnepropetrovsk © 2012 Earle Hager
  • 16. ELEMENTS OF A BUSINESS PLAN – SBA • Marketing & Sales Management • How do you plan to market your business? What is your sales strategy? Read more about how to present this information in your plan. • Service or Product Line • What do you sell? How does it benefit your customers? What is the product lifecycle? Do you plan R&D activities? Get tips on how to tell the "story" of your product or service. • Funding Request • If you are seeking funding for your business, find out what information you need to include in your plan to ensure success. • Financial Projections • If you need funding, providing financial projections to back up your request is critical. Find out what information you need to include in your financial projections for your small business. CRDF Training Ivano-Frankivsk and April 2012 16 Dnepropetrovsk © 2012 Earle Hager
  • 17. AND THE ANSWER IS … • Ask them what they want. • VC firms are used to reading many plans and want to see a specific format. They are evaluating ideas, markets, and ROI. • Grant organizations are seeking understandings of your research and if they can advance your research. They are evaluating your intellectual prowess. • Banks will evaluate cash flow. • Create detailed plan and shorten for different groups CRDF Training Ivano-Frankivsk and April 2012 17 Dnepropetrovsk © 2012 Earle Hager
  • 18. ELEMENTS OF A BUSINESS PLAN – LINKS http://www.entrepreneur.com/article/38308 http://www.sequoiacap.com/ideas http://www.sba.gov/category/navigation-structure/starting-managing- business/starting-business/writing-business-plan/essential-elements- good-busines http://www.ces.purdue.edu/extmedia/ec/ec-735.pdf http://leeds- faculty.colorado.edu/moyes/bplan/Plan/Writing%20a%20Successful%2 0Business%20Plan%202004v4.pdf CRDF Training Ivano-Frankivsk and April 2012 18 Dnepropetrovsk © 2012 Earle Hager
  • 19. FROM HERE … • What is the best way to advance your technology? • License Agreement • Partner Agreement • Angel / Venture Capital • Sale of Technology • Commercial Sales • Incubators and Landing Zones • Research Grant CRDF Training Ivano-Frankivsk and April 2012 19 Dnepropetrovsk © 2012 Earle Hager
  • 21. WHY LICENSE? • You can’t advance the technology to the next level with the resources available to you • Biotechnology or material science technologies require extensive testing to advance to the marketplace • Resources to conduct controlled, approved testing are expensive and may not be available to you • Organizations which have staffing available to gain regulatory approval can do so at a lower cost CRDF Training Ivano-Frankivsk and April 2012 21 Dnepropetrovsk © 2012 Earle Hager
  • 22. WHY LICENSE? • You need access to a larger market and do not have the staffing to reach the market • Sales organizations with relationships with key customers can get your product to the marketplace • If your technology is part of a larger system, you can expand your reach and opportunities CRDF Training Ivano-Frankivsk and April 2012 22 Dnepropetrovsk © 2012 Earle Hager
  • 23. WHY LICENSE? • Allows you to monetize your efforts and move on to your next idea • After the idea has been created, tested, and protected, you need to understand where you are most effective • Your next idea may be even more interesting CRDF Training Ivano-Frankivsk and April 2012 23 Dnepropetrovsk © 2012 Earle Hager
  • 24. LICENSING • In a licensing agreement, you give rights to another organization to use your technology • You must have patent / copyright filings on the technology • Limitations on the usage, modification, or effective date of the agreements are important CRDF Training Ivano-Frankivsk and April 2012 24 Dnepropetrovsk © 2012 Earle Hager
  • 25. LICENSING • Agreements must also be based upon usage of the technology • If unused or milestones are not achieved, the agreement is terminated CRDF Training Ivano-Frankivsk and April 2012 25 Dnepropetrovsk © 2012 Earle Hager
  • 26. LICENSING • In understanding milestones to the next step, you can structure an agreement which shares the risk on both parties • As a new technology advances through the testing and approval process, payments would be made • As a product advances in the marketplace, different royalty rates would take effect as sales increase CRDF Training Ivano-Frankivsk and April 2012 26 Dnepropetrovsk © 2012 Earle Hager
  • 27. LICENSING • As revenue is generated by your partners, revenue can be shared with you CRDF Training Ivano-Frankivsk and April 2012 27 Dnepropetrovsk © 2012 Earle Hager
  • 28. LICENSING TERMS – A SIMPLE GUIDE • You have to sign the agreement • They have to sign the agreement • The terms need to be viewed as fair by both sides CRDF Training Ivano-Frankivsk and April 2012 28 Dnepropetrovsk © 2012 Earle Hager
  • 29. LICENSING TERMS – LICENSOR OBLIGATIONS • Define the Material • Define the patents or other protections • Ownership of IP • License of IP • Sublicense Options • Delivery of product or materials • Cooperate with any testing processes • Date Restrictions CRDF Training Ivano-Frankivsk and April 2012 29 Dnepropetrovsk © 2012 Earle Hager
  • 30. LICENSE TERMS – LICENSEE OBLIGATIONS • Complete agreed upon steps in a mutually acceptable time frame • Regulatory approval • Sales / Royalty Payments • Minimum Payments • Performance Levels • Sublicense Requirements • Steps if terms are not met • Payment of minimums • Allow agreement to end CRDF Training Ivano-Frankivsk and April 2012 30 Dnepropetrovsk © 2012 Earle Hager
  • 31. LICENSING TERMS – AGREEMENT LENGTH & TERMINATION • Length of agreement • Renewal requirements • Automatic • Exercised • Termination Process • Ownership / Transfer of IP • Bankruptcy of Parties CRDF Training Ivano-Frankivsk and April 2012 31 Dnepropetrovsk © 2012 Earle Hager
  • 32. LICENSING TERMS – DISPUTE RESOLUTION • Nexus – Whose law applies? • Courts – What Court System? • Avoiding Court – Good Planning • Arbitration • Mediation • Negotiation • Limitations of Amount in Dispute • Legal Fees CRDF Training Ivano-Frankivsk and April 2012 32 Dnepropetrovsk © 2012 Earle Hager
  • 33. LICENSING TERMS – DEVELOPMENT FEES AND COSTS • Costs of approvals, patents and other fees • Key issue when you are licensing v. selling the IP CRDF Training Ivano-Frankivsk and April 2012 33 Dnepropetrovsk © 2012 Earle Hager
  • 34. LICENSING INCOME • Rule of thumb for the value of a licensing agreement is the 25% rule • This model is used for the beginning of negotiations and will give you an idea of the potential value of a licensing agreement CRDF Training Ivano-Frankivsk and April 2012 34 Dnepropetrovsk © 2012 Earle Hager
  • 35. LICENSING INCOME • Costs of bringing a product to the marketplace must also be factored into the numbers • All rates are based upon the simplest number – gross sales before expenses CRDF Training Ivano-Frankivsk and April 2012 35 Dnepropetrovsk © 2012 Earle Hager
  • 36. LICENSING INCOME Calculating the 25% Rule The royalty rate is based upon gross sales A. Sales $ 100,000 B. Cost of Goods Sold (COGS) $ 65,000 C. Marketing Costs Associate with this product and No Overhead $ 15,000 D. Net Income (A) – (B+C) $ 20,000 E. 25% of Net Income (D) $ 5,000 Royalty Rate = (E) divided by (A) 5% CRDF Training Ivano-Frankivsk and April 2012 36 Dnepropetrovsk © 2012 Earle Hager
  • 38. PARTNER AGREEMENT • Research and business partners to advance your shared goals • Plan details of your agreement to work together • Plan details of your agreement to end your collaboration CRDF Training Ivano-Frankivsk and April 2012 38 Dnepropetrovsk © 2012 Earle Hager
  • 39. PARTNER AGREEMENT • Partnership can take many forms: • Sharing of information • Individual control of technologies, share control of joint technology • Jointly held company CRDF Training Ivano-Frankivsk and April 2012 39 Dnepropetrovsk © 2012 Earle Hager
  • 40. PARTNER AGREEMENT • Key step is to understand where your product extends and their product starts • Who owns the collaborative material? • What is the decision making process? CRDF Training Ivano-Frankivsk and April 2012 40 Dnepropetrovsk © 2012 Earle Hager
  • 41. PARTNER AGREEMENT • Falling in love is easy • Falling out of love is not • Relationship, business, and legal issues associated with ending a partnership CRDF Training Ivano-Frankivsk and April 2012 41 Dnepropetrovsk © 2012 Earle Hager
  • 42. REASONS TO PARTNER • Access to market • funding for US, EU and other location based upon local organizations and citizenship • Access to technology advancements • Shared information and efforts could result in earlier market entry • Access to resources • Sales force • Customer base • Product Structure CRDF Training Ivano-Frankivsk and April 2012 42 Dnepropetrovsk © 2012 Earle Hager
  • 43. PARTNER AGREEMENTS – TERMS • Share of business • Investment in business • Contribution to business CRDF Training Ivano-Frankivsk and April 2012 43 Dnepropetrovsk © 2012 Earle Hager
  • 44. PARTNER AGREEMENTS – OBLIGATIONS • Decision process • Managing Partner • Voting • Obligations • Financial • Time • Product or IP • Steps if obligations are not met • Non Compete Agreements CRDF Training Ivano-Frankivsk and April 2012 44 Dnepropetrovsk © 2012 Earle Hager
  • 45. PARTNER AGREEMENTS – FINANCIALS • Payment process • Payroll • Dividends • Re-Investment • Buyout value of partner share if partner leaves • Voluntary • Involuntary • Death CRDF Training Ivano-Frankivsk and April 2012 45 Dnepropetrovsk © 2012 Earle Hager
  • 46. PARTNER AGREEMENTS – OWNERSHIP • Who owns initial IP? • Who owns collaborative IP? • Who owns IP upon separation? CRDF Training Ivano-Frankivsk and April 2012 46 Dnepropetrovsk © 2012 Earle Hager
  • 47. PARTNER AGREEMENTS – THE CHALLENGE • Maintain trust relationships as partners • Maintain trust relationships after partnerships • Develop decision making and dispute resolution process CRDF Training Ivano-Frankivsk and April 2012 47 Dnepropetrovsk © 2012 Earle Hager
  • 48. ANGEL / VENTURE CAPITAL
  • 49. ANGEL / VENTURE CAPITAL • Investments are about money and control • In order to get Angel or VC funding, you will need to be prepared to give up control of your company • Your company should be in revenue or close to it for these groups to take risks CRDF Training Ivano-Frankivsk and April 2012 49 Dnepropetrovsk © 2012 Earle Hager
  • 50. ANGEL / VENTURE CAPITAL • Of 20 VC investments • 2-3 do very well • 10 make money • the rest fail CRDF Training Ivano-Frankivsk and April 2012 50 Dnepropetrovsk © 2012 Earle Hager
  • 51. ANGEL / VENTURE CAPITAL • These groups seek: • 4x their investment in 2-4 years • Exit strategy for their money (sale of company or next level of funding) • Control of company and direction CRDF Training Ivano-Frankivsk and April 2012 51 Dnepropetrovsk © 2012 Earle Hager
  • 52. ANGEL / VENTURE CAPITAL • You are seeking • Funding • A stake in a larger company • An investor / board of directors who can advance the company with their industry knowledge and contacts CRDF Training Ivano-Frankivsk and April 2012 52 Dnepropetrovsk © 2012 Earle Hager
  • 53. ANGEL / VENTURE CAPITAL • Investors give money to the Intellectual Property based upon their trust of the management team CRDF Training Ivano-Frankivsk and April 2012 53 Dnepropetrovsk © 2012 Earle Hager
  • 54. ANGEL / VENTURE CAPITAL • Questions you should ask: • Do they have experience with your innovation? • What is their track record of bringing these types of products to market? • Who would be working with you on the project? CRDF Training Ivano-Frankivsk and April 2012 54 Dnepropetrovsk © 2012 Earle Hager
  • 55. ANGEL / VENTURE CAPITAL • A few concepts to consider: • Diluted stock • Controlling interest • Convertible debt • IP ownership • Stock ownership CRDF Training Ivano-Frankivsk and April 2012 55 Dnepropetrovsk © 2012 Earle Hager
  • 56. ANGEL / VENTURE CAPITAL • What is your company worth in four years? • Complete a four year income statement • Complete the Net Present Value of the income • Complete your funding requirements • Compare the two numbers CRDF Training Ivano-Frankivsk and April 2012 56 Dnepropetrovsk © 2012 Earle Hager
  • 57. ANGEL / VENTURE CAPITAL • The previous slide looks simple, but it is not • Income statements are complex and, for startups, filled with assumptions on getting to the marketplace • Goal is to demonstrate greater than 4X return with assumptions which are considered logical by the investors CRDF Training Ivano-Frankivsk and April 2012 57 Dnepropetrovsk © 2012 Earle Hager
  • 58. ANGEL / VENTURE CAPITAL • This can work for you, because owning 100% of a small company can be less than owning 10% of a large company CRDF Training Ivano-Frankivsk and April 2012 58 Dnepropetrovsk © 2012 Earle Hager
  • 59. ANGEL / VENTURE CAPITAL • Get a lawyer and an accountant CRDF Training Ivano-Frankivsk and April 2012 59 Dnepropetrovsk © 2012 Earle Hager
  • 61. SALE OF TECHNOLOGY • What is your product worth? • What level of control are you willing to give up? • What is the effect of the sale on your work with subsequent technologies? CRDF Training Ivano-Frankivsk and April 2012 61 Dnepropetrovsk © 2012 Earle Hager
  • 62. SALE OF TECHNOLOGY • Larger corporations will focus on control and may seek to purchase outright • Key for you to manage your next projects within the terms of the agreement CRDF Training Ivano-Frankivsk and April 2012 62 Dnepropetrovsk © 2012 Earle Hager
  • 64. COMMERCIAL SALES • Market ready products • Seeking sales and distribution • After completion of market assessment, you will know the types of partners you are seeking CRDF Training Ivano-Frankivsk and April 2012 64 Dnepropetrovsk © 2012 Earle Hager
  • 65. COMMERCIAL SALES • Use of web services, such as Alibaba, eBay and others are effective in providing a trusted sales channel • These services do not replace your requirement to market your product CRDF Training Ivano-Frankivsk and April 2012 65 Dnepropetrovsk © 2012 Earle Hager
  • 66. COMMERCIAL SALES • Distribution partners will give you a localized presence in different countries • Many buyers will only buy from a US address • Manage shipping and legal issues • Use of partners or drop ship organizations CRDF Training Ivano-Frankivsk and April 2012 66 Dnepropetrovsk © 2012 Earle Hager
  • 67. COMMERCIAL SALES • Trade shows are critical to meeting partners • Plan for one year in advance – the Christmas toys are settled in New York in February at the Toy Show • Seek co-marketing or co-branding opportunities CRDF Training Ivano-Frankivsk and April 2012 67 Dnepropetrovsk © 2012 Earle Hager
  • 69. INCUBATORS • Opportunity to locate in a new country with a market favorable to development • IP transfer requirements • Finding incubator partners who specialize in your ideas and technologies CRDF Training Ivano-Frankivsk and April 2012 69 Dnepropetrovsk © 2012 Earle Hager
  • 70. INCUBATORS • Key step is to find a local partner / facilitator • University Partners • Economic Development Partners • The State of Texas CRDF Training Ivano-Frankivsk and April 2012 70 Dnepropetrovsk © 2012 Earle Hager
  • 71. LANDING ZONES • Office address • Support services • Creation of legal entity for global presence CRDF Training Ivano-Frankivsk and April 2012 71 Dnepropetrovsk © 2012 Earle Hager
  • 72. LANDING ZONES • Support services to full business efforts • Access to local executives and sales / support staff CRDF Training Ivano-Frankivsk and April 2012 72 Dnepropetrovsk © 2012 Earle Hager
  • 73. LOCATION • Choice of U.S. landing zones would be based upon best resources available for your innovation • Automotive – Detroit • Pharmaceutical – Research Triangle, Boston, Philadelphia • IT – Silicon Valley, Austin • Medical Devices – Silicon Valley, Research Triangle, Boston, and Cleveland CRDF Training Ivano-Frankivsk and April 2012 73 Dnepropetrovsk © 2012 Earle Hager
  • 75. RESEARCH GRANT • Key option when technology is not ready for the marketplace or next phase of commercialization • Academic life is all research grants CRDF Training Ivano-Frankivsk and April 2012 75 Dnepropetrovsk © 2012 Earle Hager
  • 76. RESEARCH GRANT • Seek research partners in other countries who can apply for EU or US grants • www.enGrant.com database as a source for US grants • Plan ahead for research grant funding CRDF Training Ivano-Frankivsk and April 2012 76 Dnepropetrovsk © 2012 Earle Hager
  • 77. RESEARCH GRANT • Seek opportunities with organization which provide testing or collaboration facilities • Labs may have access to funding sources or partners who may need research partners CRDF Training Ivano-Frankivsk and April 2012 77 Dnepropetrovsk © 2012 Earle Hager
  • 79. NEXT STEPS • Review your options • Perform your own financial calculations • Determine what is important to you • Understand where your next idea is coming from to bring forward CRDF Training Ivano-Frankivsk and April 2012 79 Dnepropetrovsk © 2012 Earle Hager
  • 80. THANK YOU Earle Hager Managing Partner, The Neutrino Donut, LLC Commercialization of Science and Technology ehager@austin.rr.com Skype: earle.hager.panidea +1 512 662 1728 http://www.linkedin.com/in/earlehager http://tinyurl.com/6vy4uum CRDF Training Ivano-Frankivsk and April 2012 80 Dnepropetrovsk © 2012 Earle Hager