Entrepreneurship 101: Different forms of Entrepreneurship
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Part of the MaRS Entrepreneurship 101 series. An outline of various technology business structures Speaker: Tony Redpath Download the audio presentation and post questions on the MaRS Blog: http://blog.marsdd.com/2006/11/02/entrepreneurship-101-debt-vs-equity/
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Entrepreneurship 101: Different forms of Entrepreneurship
- 1. Entrepreneurship 101 November 1, 2006 Different forms of Entrepreneurship .
- 2. Three basic questions: • What does my business look like ? • What resources do I need? • How do I fit into the rest of the world? .
- 3. Overview • Different types of business • Where do they fit into the rest of the world • How do you finance your business • What factors do investors look at .
- 4. Technology Commercialization KNOWLEDGE Universities / Hospitals Government Labs PATENTS (Novel, Useful, Non-Obvious) Company II Engineering Project R & D Project Concept Production Sales Engineering Prototype Lab Prototype Marketplace R & D Project Engineering Project Production Sales Concept Lab Prototype Engineering Prototype Company I .
- 5. Business types - Consulting • You provide advice, based on your specialized knowledge .
- 6. Technology Commercialization KNOWLEDGE Universities / Hospitals Government Labs PATENTS (Novel, Useful, Non-Obvious) Company II Engineering Project R & D Project Concept Production Sales Engineering Prototype Lab Prototype Marketplace R & D Project Engineering Project Production Sales Concept Lab Prototype Engineering Prototype Company I .
- 7. Consulting …. Cont’d • Can start as a one-person business • May have a technical, management, or marketing focus • Often stay small, but consulting engineering firms can be large (e.g Hatch Associates) • Often operate via a virtual network of consultants • Need liability insurance • Capital costs low .
- 8. Business types - Consulting • Q: How much should I charge? * A: What is the client’s alternative cost? .
- 9. Business types: Service • You provide a service to existing businesses .
- 10. Technology Commercialization KNOWLEDGE Universities / Hospitals Government Labs PATENTS (Novel, Useful, Non-Obvious) Company II Engineering Project R & D Project Concept Production Sales Engineering Prototype Lab Prototype Marketplace R & D Project Engineering Project Production Sales Concept Lab Prototype Engineering Prototype Company I .
- 11. Service business…. Cont’d • Technical service businesses often provide analytical services • May provide custom clinical trials • Classic IT service providers • Can be very small or very large • Capital costs can be quite high .
- 12. Business types: Product • You have real article ( pharmaceutical compound, medical device, consumer product….) that you wish to take to the market .
- 13. Technology Commercialization KNOWLEDGE Universities / Hospitals Government Labs PATENTS (Novel, Useful, Non-Obvious) Company II Engineering Project R & D Project Concept Production Sales Engineering Prototype Lab Prototype Marketplace R & D Project Engineering Project Production Sales Concept Lab Prototype Engineering Prototype Company I .
- 14. Product …. Cont’d • Examples range from cottage industry craft producers up to General Motors • Capital needs vary widely, but there will usually be a need for at least working capital • “Mercedes in the driveway” vs. high growth .
- 15. Types of Financing • Debt – You borrow from someone, using some asset as security, an amount that will have to be repaid • Equity – You sell a piece of your venture to someone in exchange for an investment in the venture • Bootstrap – You self-fund by using the profits of your business to grow the business .
- 16. The Lemonade Stand Example • Assume you’re 8 years old and you need $20 to set up a lemonade stand • Return Debt 50:50 Equity • Rain $10 lender loses $10 partner loses $15 • ent gets $0 ent gets $5 • Cloud $30 lender is even partner loses $5 • ent gets $10 ent gets $15 • Sun $50 lender is even partner makes $5 • ent gets $30 ent gets $25 .
- 17. Sources of Debt Financing • You – your mortgage • You – your credit cards • The 3 F’s – Friends, Family and Fools • Banks – Can lend to you (e.g. line of credit) or to your venture – Lend against assets or receivables • Venture Debt funds .
- 18. Sources of Equity Financing • The 3F’s again – Friends, Family and Fools • Angels (aka high net worth individuals) – Generally like to invest in areas that they have worked in or are comfortable with – Can add valuable hands-on experience – http://www.angelinvestor.ca/splash.asp – http://www.tvg.org/toronto_angel_group.htm – http://www.the-scientist.com/2005/10/24/36/1 • Venture Capital Funds – Different funds invest at different stages in the growth of a company – http://www.cvca.ca/ .
- 19. Special Financing Sources • NSERC / CIHR / SSHRC Intellectual Property Mobilization Program (IPM) • CIHR Proof of Principle – http://www.cihr-irsc.gc.ca/e/25487.html • NSERC Idea to Innovation (I2I) Program – http://www.nserc.ca/professors_e.asp?nav=profna v&lbi=b4 • NRC - IRAP – http://irap-pari.nrc-cnrc.gc.ca/main_e.html .
- 20. The Financing Life Cycle Public Markets Venture Capital Seed Funds t en Angels m st ve Grants s In le Sa R is k Expansion Concept Start-up Growth © Primaxis Technology Ventures Inc.
- 21. The Financing Life Cycle Public Markets Venture Capital Seed Funds t en Angels m st ve Grants In R is k s le Sa Expansion Concept Start-up Growth © Primaxis Technology Ventures Inc.
- 22. The Financing Life Cycle R is k a n t: f in e n ce lf - t m Se ves In s Grants le Sa Expansion Concept Start-up Growth © Primaxis Technology Ventures Inc.
- 23. What do Financing Sources Look For ? Technology Risk • Stage of Development • Impact & Application • Sustainable Advantage .
- 24. Technology Risks • Stage of Development (concept ? proof of concept ? prototype of product) • Product development path (costs and “risks”) • Technology impact • Scope of application • Competitive technologies • Disruptive technologies • Reliance on infrastructure • Ease of scale-up, technology transfer, copy • Manufacturability and costs .
- 25. Due Diligence and Valuation Criteria Technology Risk • Stage of Development • Impact & Application • Sustainable Advantage IP Risk Market Risk • Nature and Scope • Size and Growth • IP Form • Dynamics • Ownership • Competition • Enforceability • Customers • IP Building • Distribution Channels • Freedom to Operate Execution Risk • Reputation / Leadership • Commitment • Market Knowledge • Experience .
- 26. Intellectual Property Risks • Nature of the invention • Scope of the invention • IP form: Patent, know-how, software • Ownership of IP - Lingering rights of funding agencies or students • Level of IP protection – NA, worldwide • Competitive research activity, patent activity, availability of Licensees • Prior disclosure - publications or conferences • Enforceability .
- 27. Market Risks • Market size, dynamics and growth potential • Route to market, access, scalability • USPs of the products or services • Nature of the customers • Lead customers • Market or industry drivers • Competitive landscape and profit margins • Regulatory barriers or opportunities .
- 28. Execution Risk • Management vision for the company • Management leadership ability • Commitment and drive • Recognized technology expertise • Knowledge of the market, networks • Skills required to move the technology through all stages of development and product launch • Reputation in the marketplace .