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

1. Harvard innovation lab : Michael J Skok : Startup Secrets : Company Formation
Hi
1
#innovationlab @mjskok #startupsecrets www.mjskok.com
MICHAEL J SKOK
Hi Harvard innovation lab
Turning Products into Companies
By Design & Architecture
twitter: @mjskok mjskok.com
North Bridge Venture Partners
STARTUP
SECRETS
Case Example: Gregg Favalora
Founder – Actuality Systems/Principal – Optics for Hire

2. Harvard innovation lab : Michael J Skok : Startup Secrets : Company Formation
Hi
2
#innovationlab @mjskok #startupsecrets www.mjskok.com
For context and more information:
• The entire “Turning Products into Companies”
presentation can be found here.
• For more on the Startup Secrets series, visit
www.startupsecrets.com
• Related Startup Secrets presentation recommendations:
– Building a Compelling Value Proposition
– Go To Market Strategies

3. Harvard innovation lab : Michael J Skok : Startup Secrets : Company Formation
Hi
3
#innovationlab @mjskok #startupsecrets www.mjskok.com
Gregg Favalora, Principal,
Optics for Hire
- Founder Actuality Systems
- @gfavalora

4. Client Confidential
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

5. Client Confidential

6. Client Confidential

7. Client Confidential
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, & Entertainment
• First product released on less than $2M
• Total Raised: $15M
• 20 customers, $M in gov’t grants
• 19 patents – strongest 3-D portfolio in the sector
• Assets acquired by Optics for Hire: December, 2009
• Real exit: 2011 patent sale

8. Client Confidential
www.opticsforhire.com8
Actuality
Systems
Actuality
Medical
Series A
$1.5M
Note
$0.8M
Series B
$3M
Series C
$6.5M
Notes
$2.5M
1997 2004 2009
PerspectaRad
Acquisition
By OFH
Patents
Sold to “X”
2011

9. Client Confidential
Actuality in 2005

10. Client Confidential

11. Client Confidential

12. Client Confidential
Discussion Topics
• Case Study: Actuality Systems (basic)
– Setting the Scene: 1997
– Market Need
– The Technology: Spatial 3D
– The Company - Initial Fight for $$$
• Three Lessons Learned for Startups
• Getting your foot in the door with prospects
• Four challenges at Actuality and how we overcame them
• Things we were glad we did a lot of
• Things we wish we had done differently
• Regarding optics, imaging
• The 3-D industry

13. Client Confidential
Discussion Topics
• Case Study: Actuality Systems (basic)
– Setting the Scene: 1997
– Market Need
– The Technology: Spatial 3D
– The Company - Initial Fight for $$$
• Three Lessons Learned for Startups
• Getting your foot in the door with prospects
• Four challenges at Actuality and how we overcame them
• Things we were glad we did a lot of
• Things we wish we had done differently
• Regarding optics, imaging
• The 3-D industry

14. Client Confidential
The First Few Years:
Harder Than You‟d Ever Think
> What to expect when starting up

15. Client Confidential
www.opticsforhire.com15
Actuality
Systems
Actuality
Medical
Series A
$1.5M
Note
$0.8M
Series B
$3M
Series C
$6.5M
Notes
$2.5M
1997 2004 2009
PerspectaRad
Acquisition
By OFH
Patents
Sold to “X”
2011

16. Client Confidential
I started working in 3-D in 1988

17. Client Confidential
T-3 years before funding: 1996 - Prototype
1996

18. Client Confidential
T-2: 1997: Met Chairman, entered Bplan comp.
IPO: 1994
+721% („95)
Merger: $24 Billion („99)

19. Client Confidential
In 1997, people actually said “cyber-”

20. Client Confidential
T-1: 1998, 1999

21. Client Confidential
T-0: 1999 – Met key journalist at MIT
Struggle, struggle...
ka-ching!

22. Client Confidential
Getting your ducks in a row for funding
• Get an amazing mentor who made VCs richer
• HAVE A CLUE ABOUT YOUR MARKET (ZOMG!!1!!!)
• Read Crossing the Chasm so that you know all the elements of a product
• IP
– Have and use an NDA to not mess up your patent rights
– File several provisional applications (see: Patent it Yourself, Pressman)
– Do a decent prior-art search
– !! After funding, when you’re filing patent applications, remember:
attorneys will agree to cap their fees !!
• References: talk to warm-blooded customers who like you, get money or
purchase orders from them... And ask them to be references to investors
• Plan for future expenses: get quotations on key components and processes
• Founders work for free to make prototypes and sell whatever you can
• Don‟t pitch any investors until you‟ve practiced your pitch on “friendly fire”
• “Consultants” – don’t rack up $xx,xxx in payables, investors won’t want to
pay it and you’re probably not getting anything in return anyway

23. Client Confidential
2000 – 2004 – Actually, a ton of fun
• 6 full-time employees
• Tiny office in Reading (128)
• Engineering
• Ship betas & product
• Rounds of funding
• Winning awards, getting grants
& customers
• Bringing in seasoned exec team
• ...a whole new set of challenges
& excitement
Build it, baby!

24. Client Confidential
So How Do We Do this?
And now...

25. Client Confidential
Under the Hood (ca. 2001)
3-DMD
Projector
Three rotating
relay mirrors

26. Client Confidential
12-year Fishing Expedition
Gregg
The Elusive
“Market”

27. Client Confidential
[what I said during the previous slide]
• For many years, a few employees and I searched “wide
and deep” for a market that would sustain Actuality,
while we improved the core 3-D display 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, 3-D
luggage scanning, video games, petroleum, ...

28. Client Confidential
Traditional Radiation Therapy
Pinnacle3 (Philips Medical Systems)

29. Client Confidential
Beam Planning
YesNo
Eyes Tumor Brain

30. Client Confidential
PerspectaRAD

31. Client Confidential
We won technical awards, but markets and larger
investments weren’t materializing.

32. Client Confidential
Actuality‟s financing rounds (1999-2008)
Series A ($1/share) (2000) $ 1,500,000
“2001 Note” 807,500
Series B ($0.2826/share) 3,499,996
Series C ($0.35/share) 6,499,998
Note 1 (Mar 2006) 1,445,134
Note 2 611,206
Note 3 (2008) 536,356
$14,900,189

33. Client Confidential
Note: This slide goes with significant verbal commentary. I gathered these data from a filebox of quarterly
financial statements and board meetings. It conflates balance sheets and income statements, but gives an
overall picture of what happened: rapid headcount ramp in the absence of a big customer .(Why? Well, we
needed a headcount of 90% engineering just to get the basic product out the door in the first place.)

34. Client Confidential
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 3-D displays, contemplates [merger], and
starts work on software for prostate cancer treatment
• Mar 2009: The financial market TANKS. The CEO exits, to help reduce burn.
• Apr 2009: I lay off remaining staff
• [Not a good year for selling IP]
• Dec 2009: A flurry of paperwork, then acquisition by OFH
• Dec 31, 2009: Formal dissolution of Actuality
• Jan, 2010: Acquisition:

35. Client Confidential
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 are all quite happy about this
exit.]

36. Client Confidential
A happy ending (2011!)

37. Client Confidential
Discussion Topics
• Case Study: Actuality Systems (basic)
– Setting the Scene: 1997
– Market Need
– The Technology: Spatial 3D
– The Company - Initial Fight for $$$
• Three Lessons Learned for Startups
• Getting your foot in the door with prospects
• Four challenges at Actuality and how we overcame them
• Things we were glad we did a lot of
• Things we wish we had done differently
• Regarding optics, imaging
• The 3-D industry

38. Client Confidential
Three general lessons for HW startups
• “Technology looking for a market” is hard
• It is very difficult to raise money for HW plays. Best
bets are savings[1], SBIR, and angels. The exception
is if your CEO already made $$ for VCs. Convince
your accounts to become paying customers.
• And...
[1] Be PRUDENT about this. Do not risk your family’s
savings!
In my opinion:

39. Client Confidential
Discussion Topics
• Case Study: Actuality Systems (basic)
– Setting the Scene: 1997
– Market Need
– The Technology: Spatial 3D
– The Company - Initial Fight for $$$
• Three Lessons Learned for Startups
• Getting your foot in the door with prospects
• Four challenges at Actuality and how we overcame them
• Things we were glad we did a lot of
• Things we wish we had done differently
• Regarding optics, imaging
• The 3-D industry

40. Client Confidential
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)

41. Client Confidential
Discussion Topics
• Case Study: Actuality Systems (basic)
– Setting the Scene: 1997
– Market Need
– The Technology: Spatial 3D
– The Company - Initial Fight for $$$
• Three Lessons Learned for Startups
• Getting your foot in the door with prospects
• Four challenges at Actuality and how we overcame them
• Things we were glad we did a lot of
• Things we wish we had done differently
• Regarding optics, imaging
• The 3-D industry

42. Client Confidential
Advice particular to 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 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

43. Client Confidential
Try really hard to sell systems instead of
components
!=

44. Client Confidential
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’s records in display technology
• In early years, publicity from CNN to Wired
• Numerous Product of the Year awards
• We supported 23 people and their families over a
decade
• We were acquired and I am now happily working for the
acquiring company

45. Client Confidential
Contact me anytime
• Gregg Favalora, Principal
Optics for Hire (Arlington, MA)
gregg@opticsforhire.com

46. Harvard innovation lab : Michael J Skok : Startup Secrets : Company Formation
Hi
46
#innovationlab @mjskok #startupsecrets www.mjskok.com
For context and more information:
• The entire “Turning Products into Companies”
presentation can be found here.
• For more on the Startup Secrets series, visit
www.startupsecrets.com
• Related Startup Secrets presentation recommendations:
– Building a Compelling Value Proposition
– Go To Market Strategies

47. Harvard innovation lab : Michael J Skok : Startup Secrets : Company Formation
Hi
47
#innovationlab @mjskok #startupsecrets www.mjskok.com
MICHAEL J SKOK
Hi Harvard innovation lab
Turning Products into Companies
By Design & Architecture
twitter: @mjskok mjskok.com
North Bridge Venture Partners
STARTUP
SECRETS
Case Example: Gregg Favalora
Founder – Actuality Systems/Principal – Optics for Hire