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Startup Secrets Case Study: Actuality Systems

Startup Secrets case study presentation on Actuality Systems

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Startup Secrets Case Study: Actuality Systems

  1. Case Study: Actuality Systems 6.14.19With Gregg Favalora
  2. Confidential & Proprietary @underscorevc Gregg Favalora: Principal, Optics for Hire Founder of Actuality Systems @gfavalora
  3. Confidential & Proprietary @underscorevc Building and Commercializing 3-D Display Products: Startups are Hard April 2013 Gregg Favalora Principal, Optics for Hire Founder, Actuality Systems (1997- 2009) gregg@opticsforhire.com
  4. Confidential & Proprietary @underscorevc
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  6. Confidential & Proprietary @underscorevc Actuality Systems, Inc. ● Founded 1997 ● At its peak, 23 employees ● Laid everyone off: Friday, Apr. 24, 2009 ● Product: Perspecta Spatial 3D System ○ Developer tools, Perspecta medical, Perspecta Viewer ● Target Markets: Medical Imaging, Military, and Entertainment ● First product released on less than $2M ● Total Raised: $15M ● 20 customers, $1M in government grants ● 19 patents - strongest 3D Portfolio in the sector ● Assets acquired by Optics for Hire: December, 2009 ● Real exit: 2011 patent sale
  7. Confidential & Proprietary @underscorevc Actuality Systems Actuality Medical Acquisition by OFH Patents sold to “X” 1997 2004 2009 2011 Series A $1.5M Note $0.8M Series B $3M Series C $6.5M Note $2.5M
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  11. Confidential & Proprietary @underscorevc Case Study: Actuality Systems (Basic) ● Setting the Scene: 1997 ○ Market Need ○ Technology: Spacial 3D ○ Company: Initial fight for $$$ ● Three Lessons Learned for Startups ● Getting your foot in the door with prospects ● Four challenges at Actuality and how we overcame them ● Things we were glad we did a lot of ● Things we wish we had done differently ● Regarding optics, imaging ● The 3D industry
  12. Confidential & Proprietary @underscorevc ● Setting the Scene: 1997 ○ Market Need ○ Technology: Spacial 3D ○ Company: Initial fight for $$$ ● Three Lessons Learned for Startups ● Getting your foot in the door with prospects ● Four challenges at Actuality and how we overcame them ● Things we were glad we did a lot of ● Things we wish we had done differently ● Regarding optics, imaging ● The 3D industry Case Study: Actuality Systems (Basic)
  13. Confidential & Proprietary @underscorevc The First Few Years: Harder Than You’d Ever Think What to expect when starting up
  14. Confidential & Proprietary @underscorevc Actuality Systems Actuality Medical Acquisition by OFH Patents sold to “X” 1997 2004 2009 2011 Series A $1.5M Note $0.8M Series B $3M Series C $6.5M Note $2.5M
  15. Confidential & Proprietary @underscorevc I Started Working in 3D in 1988
  16. Confidential & Proprietary @underscorevc T -3 Years Before Funding: 1996 - Prototype
  17. Confidential & Proprietary @underscorevc 1997 - Met Chairman, entered Bplan comp.
  18. Confidential & Proprietary @underscorevc In 1997, people actually said “cyber-”
  19. Confidential & Proprietary @underscorevc 1998 and 1999
  20. Confidential & Proprietary @underscorevc 1999: Met key journalist at MIT
  21. Confidential & Proprietary @underscorevc Getting Your Ducks in a Row for Funding ● Get an amazing mentor who made VCs richer ● Have a clue about your market!! ● Read Crossing the Chasm so that you know all the elements of a product ● IP ○ Have and use an NDA to avoid messing up your patent rights ○ File several provisional applications (See: Patent it Yourself, Pressman) ○ Do a decent prior-art search ○ After funding, when you’re filing patent applications, remember: attorneys will agree to cap their fees! ● References: talk to warm-blooded customers who like you, and get money or purchase orders from them. And ask them to be references to investors. ● Plan for future expenses: get quotes on key components and processes ● Founders work for free to make prototypes, and sell whatever you can ● Don’t pitch any investors until you’ve practiced your pitch on “friendly fire” ● “Consultants” - Don’t rack up $$ in payables -- investors won’t want to pay it, and you’re probably not getting anything in return anyway.
  22. Confidential & Proprietary @underscorevc Build it, baby! 2000-2004 Actually, a ton of fun! ● 6 full-time employees ● Tiny office in Reading (128) ● Engineering ● Ship betas and product ● Rounds of funding ● Winning awards, getting grants and customers ● Bringing in seasoned executive team ● ...a whole new set of challenges and excitement!
  23. Confidential & Proprietary @underscorevc How do we do this? Technical Interlude
  24. Confidential & Proprietary @underscorevc Under the Hood (ca. 2001)
  25. Confidential & Proprietary @underscorevc 12-Year Fishing Expedition
  26. Confidential & Proprietary @underscorevc 12-Year Fishing Expedition ● For many years, a few employees and I searched “wide and deep” for a market that would sustain Actuality, while we improved the core 3D product. This felt backwards. ● Every one of these markets seemed like a good fit, but ultimately, none felt the $100k ASP provided good ROI: ○ Virtual prototyping ○ Molecular visualization ○ C4I/battlefield visualization ○ Air traffic control ○ Diagnostic medical imaging (PET, orthopedics, cardiac) ○ Interventional medical imaging ○ Radiation therapy ○ 3D luggage scanning ○ Video games ○ Petroleum
  27. Confidential & Proprietary @underscorevc Traditional Radiation Therapy Pinnacle3 (Philips Medical Systems)
  28. Confidential & Proprietary @underscorevc Beam Planning
  29. Confidential & Proprietary @underscorevc PerspectaRAD
  30. Confidential & Proprietary @underscorevc We won technical awards, but markets and larger investments weren’t materializing.
  31. Confidential & Proprietary @underscorevc Actuality’s Financing Rounds 1999-2008
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  33. Confidential & Proprietary @underscorevc Acquisition ● 2004: CEO transitioned out. I was asked to be CEO during the search ● 2005: Frankly, a very difficult year for me -- large team, 70% travel, etc. ● 2006-2009: Pivot: new CEO stops 3D displays, contemplates merger, and starts work on software for prostate cancer treatment ● Mar. 2009: The financial market tanks. CEO exits to help reduce burn ● Apr. 2009: I lay off remaining staff ● 2009: Not a good year for selling IP! ● Dec. 2009: A flurry of patent attorneys ● Dec. 31, 2009: Formal decision for OFH to acquire Actuality Systems ● Jan. 2010: Acquisition
  34. Confidential & Proprietary @underscorevc While working at OFH Summary: I got a job at product-engineering firm OFH. We approached 150 prospects to buy the ex-Actuality patent portfolio. One deal came close to completion, and collapsed a few months later. About 6 months after that, a buyer was identified. We were all quite happy about this exit.
  35. Confidential & Proprietary @underscorevc Happy Ending: 2011
  36. Confidential & Proprietary @underscorevc ● Setting the Scene: 1997 ○ Market Need ○ Technology: Spacial 3D ○ Company: Initial fight for $$$ ● Three Lessons Learned for Startups ● Getting your foot in the door with prospects ● Four challenges at Actuality and how we overcame them ● Things we were glad we did a lot of ● Things we wish we had done differently ● Regarding optics, imaging ● The 3D industry Case Study: Actuality Systems (Basic)
  37. Confidential & Proprietary @underscorevc 3 General Lessons for Hardware Startups In my opinion: ● “Technology looking for a market” is very hard ● It is very difficult to raise money for hardware plays. Best bets are savings*, SBIR, and angels. The exception is if your CEO already made money for VCs. Convince your accounts to become paying customers. ● And… *Be prudent about this. Do not risk your family’s savings!
  38. Confidential & Proprietary @underscorevc ● Setting the Scene: 1997 ○ Market Need ○ Technology: Spacial 3D ○ Company: Initial fight for $$$ ● Three Lessons Learned for Startups ● Getting your foot in the door with prospects ● Four challenges at Actuality and how we overcame them ● Things we were glad we did a lot of ● Things we wish we had done differently ● Regarding optics, imaging ● The 3D industry Case Study: Actuality Systems (Basic)
  39. Confidential & Proprietary @underscorevc Sales for Dummies ● One-paragraph, iPhone friendly email intro, “I’m a student…” ● Explicitly respect people’s time ● In demos, “you,” not “I”: ○ NO: “With our feature-rich software, I can click here…” ○ YES: “You can learn about your customers with ClientSort 2.0…” ● Use less techno-jargon ● The two best words are “for example” ● Smile, use first names, talk about happy things ● Email their PR people ● Email one of their VCs ● Try to Shopify it -- sell prototypes (FCC/UL though) ● Don’t use gimmicks! E.g., don’t use Re: unless it really is ● Go to the account’s office and show up day after day, because that’s not creepy or anything, but I hear it works ● On landing SBIRs
  40. Confidential & Proprietary @underscorevc ● Setting the Scene: 1997 ○ Market Need ○ Technology: Spacial 3D ○ Company: Initial fight for $$$ ● Three Lessons Learned for Startups ● Getting your foot in the door with prospects ● Four challenges at Actuality and how we overcame them ● Things we were glad we did a lot of ● Things we wish we had done differently ● Regarding optics, imaging ● The 3D industry Case Study: Actuality Systems (Basic)
  41. Confidential & Proprietary @underscorevc Advice for optics, imaging ● Takes a lot of money and time for prototyping ● Our best computer graphics people were mathematicians ● ITAR/DFARs/customs ● Investor contracts are (for better or for worse) not etched in stone. Later-stage investors often require amendments to early-stage investment contracts, e.g., “Hey, you can have 100% of a $0 company, or 2% of a potentially $100M company, take your pick.” ● Government money and audits ● The creative process ● Components are not solutions
  42. Confidential & Proprietary @underscorevc Try to sell systems instead of components !=
  43. Confidential & Proprietary @underscorevc What Went Right ● Went for it! Low-risk at first ● Extraordinary luck at hiring engineering team ● Incredible IP portfolio - so good, we sold it twice! ● Broke four world records in display technology ● In early years, publicity from CNN to Wired ● Numerous Product of the Year awards ● Supported 23 people and their families for over a decade ● Acquired and now happily working for acquiring company
  44. @underscorevcConfidential & Proprietary Contact me anytime Gregg Favalora, Principal Optics for Hire Arlington, MA gregg@opticsforhire.com
  45. Case Study: Actuality Systems 6.14.19With Gregg Favalora

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