Financing Technology V.K. Narayanan Stubbs Professor of Strategy & Entrepreneurship Drexel University Presentation to The Global Interdependence Center, 8th Annual International Business Symposium March 11, 2004 Philadelphia, PA
Outline of the Presentation
Introduction
Jonathan Rosefsky, a case study in progress
Key issues
Sources of financing
The emergence of corporate venture funding
The current climate
Concluding thoughts
2
Introduction
What is financing technology?
Different classes of technology projects
A focus on product technologies
Greater emphasis on technology start ups! 3
Jonathan Rosefsky, A Case Study in Progress
4
Key Issues
5
Key Issues 1.
Life cycle of a technology start up
2.
Characteristics of the financing problem
3.
Characteristics of the investor market
4.
The role of globalization
5.
The importance of valid and credible signaling
6
Key Issues
Life Cycle of A Technology Start Up
Idea formation
Product/service definition and development
Protecting intellectual property
Business development
Raising finances
Managing growth
IPO and going public
End game, sometimes
7
Key Issues
Life Cycle of A Technology Start Up
Idea formation
Product/service definition and development
Protecting intellectual property
Business development
Raising finances
Managing growth
IPO and going public
End game, sometimes
8
Key Issues
Life Cycle of A Technology Start Up
Idea formation
Product/service definition and development
Protecting intellectual property
Business development
Raising finances
Managing growth
IPO and going public
End game, sometimes 9
Key Issues Life cycle
Idea Formation
Sources of ideas Technology and market
Stage of technology: maturity
Product refinement through technology
Untapped market need
Many entrepreneurs develop market sense after having worked in other companies 10
Key Issues:
Product Development
Concept development
Workable prototype
Product refinement
Manufacturing plan
Costing the product
Life cycle
11
Key Issues: Life cycle
Intellectual Property Protection
Patents
Copyrights
Trade marks
Trade secrets
12
Key Issues
Life Cycle of A Technology Start Up
Idea formation
Product/service definition and development
Protecting intellectual property
Business development
Raising finances
Managing growth
IPO and going public
End game, sometimes 13
Key Issues: Life cycle
Business Development
Translating the product idea into a business proposition
A variety of ways
Assessing the market, customers, competition to establish the feasibility
Developing the operations plan and management to carry out plan
The purpose here is to assess profit potential of the product idea 14
Key Issues: Life cycle
Managing growth ď ľ
Life style companies
ď ľ
Growth companies
Managing growth is relevant only for growth companies
15
Key Issues
Life Cycle of A Technology Start Up
Idea formation
Product/service definition and development
Protecting intellectual property
Business development
Raising finances
Managing growth
IPO and going public
End game, sometimes
16
IP Commercialization Model
17
Key Issues 1.
Life cycle of a technology start up
2.
Characteristics of the financing problem
3.
Characteristics of the investor market
4.
The role of globalization
5.
The importance of valid and credible signaling
18
Characteristics of the Financing Problem 1.
The amount and ease of financing
2.
Moral hazard and adverse selection
3.
The risk of investment
19
Key Issues
$$$
The Amount of Financing
Key Issues: Financing
Idea Product formation Development
Business Development
Growth IPO
20
Key Issues: Financing
Characteristics of the Financing Problem 1.
The amount and ease of financing
2.
Moral hazard and adverse selection
3.
The risk of investment
21
Key Issues: Financing
Characteristics of the Financing Problem 1.
The amount and ease of financing
2.
Moral hazard and adverse selection
3.
The risk of investment
22
The Risk of Financing
Key Issues: Financing
Risk $$$
Idea Product formation Development
Business Development
Growth IPO
23
Key Issues 1.
Life cycle of a technology start up
2.
Characteristics of the financing problem
3.
Characteristics of the investor market
4.
The role of globalization
5.
The importance of valid and credible signaling
24
Key Issues: Markets
Characteristics of the Investor Markets
$$$
Idea Product formation Development
Business Development
Growth IPO
25
Applied Research Project
Strategic Research
Fundamental Science
Basic Research
Innovation
Innovation & Commercialization
Commercialization Life Cycle
$
Idea Conceptual Risk
Development Risk Market Risk Management Risk Growth Risk
Proof of Concept Technical Feasibility
University Research SBIR I
MACC/ESF
MAG/Angel/Pre-Seed
Tech Transfer
SBIR II
Local Seed
Start-up Company
Roll-out Product
Working Capital Infusion
Seed Capital
Venture Capital
Mezzanine Capital
Market Risk Management Risk Growth Risk
BioAdvantage ATP
Development Risk Growth Risk
Incubators/Port Ben Franklin Investment Funds
Bridge
Venture Capital
Successful Commercial Venture
Growth Risk
BFCOE
Industry
DVIRC
City, State & Federal Investment Programs
Mezzanine
26
Debt
Key Issues
Key Issues 1.
Life cycle of a technology start up
2.
Characteristics of the financing problem
3.
Characteristics of the investor market
4.
The role of globalization
5.
The importance of valid and credible signaling
27
Key Issues
The Role of Globalization
Assessment of market potential
Assessment of market acceptance
Intellectual property regimes
Availability of capital
The possibilities of
Global start up Factor cost advantages Global switching, sourcing and focusing
Global competition 28
Key Issues 1.
Life cycle of a technology start up
2.
Characteristics of the financing problem
3.
Characteristics of the investor market
4.
The role of globalization
5.
The importance of valid and credible signaling
29
Key Issues
The Importance of Signaling
Some lessons from large company experience
Building technical credibility
Government stamp Science panel stamps Prototype Manufacturing/servicing credibility
Building business credibility
How stock markets respond
Customer acceptance Commitment
Intangibles 30
Key Issues
Key Issues: Drexel Examples
A two year story
Number of companies under incubation in Baiada Center of entrepreneurship in technology:
$$$ through business plan competition and later through investors Mentors more or less free Incubation space Credibility
Continued…..
31
Key Issues: Drexel Examples
Deva
Oasis
Webergize (Philadelphia $$$ traffic card)
Milla by Mail
Software companies
32
The Deva Approach
33
Oasis
34
Oasis ď ľ
Delivers comprehensive and objective analysis of the patient’s vital signs and hemodynamic status in less than five minutes.
ď ľ
With this information the physician can accurately adjust drug therapy to maximize cardiac function and hence quality of life.
35
Milla by Mail ď ľ
Online design and clothing
ď ľ
Global with offices in London, Paris and San Francisco
36
Key Issues: Drexel Examples
Deva
Oasis
Philadelphia $$$ traffic card
Online clothing
Other companies
37
Sources of financing
38
Sources
Characteristics of the Investor Markets
$$$
Idea Product formation Development
Business Development
Growth IPO
39
Sources
Characteristics of the Investor Markets
$$$ Sweat equity F&F Government: PreSeed capital
Idea Product formation Development
Business Development
Growth IPO
40
Sources
Characteristics of the Investor Markets 1. Licensing & Strategic alliances 2. Cash: Sweat equity • Government F&F • Private investors • Angels Government: 3. Kind: Pre• Incubators Seed capital • Piggy back
Idea Product formation Development
Business Development
$$$
Growth IPO
41
Sources
Characteristics of the Investor Markets 1. Licensing & Strategic alliances 2. Cash: • Government Sweat equity • Private investors F&F • CVC • Angels Government: 3. Kind: Pre• Incubators Seed capital • Piggy back
Idea Product formation Development
Business Development
$$$
VC CVC Private Operations
Growth IPO
42
Applied Research Project
Strategic Research
Fundamental Science
Basic Research
Innovation
Innovation & Commercialization
Commercialization Life Cycle
$
Idea Conceptual Risk
Development Risk Market Risk Management Risk Growth Risk
Proof of Concept Technical Feasibility
University Research SBIR I
MACC/ESF
MAG/Angel/Pre-Seed
Tech Transfer
SBIR II
Local Seed
Start-up Company
Roll-out Product
Working Capital Infusion
Seed Capital
Venture Capital
Mezzanine Capital
Market Risk Management Risk Growth Risk
BioAdvantage ATP
Development Risk Growth Risk
Incubators/Port Ben Franklin Investment Funds
Bridge
Venture Capital
Successful Commercial Venture
Growth Risk
BFCOE
Industry
DVIRC
City, State & Federal Investment Programs
Mezzanine
43
Debt
Corporate Venture Capital
44
Corporate Venture Capital
45
Corporate Venture Capital
46
Corporate Venture Capital
47
Corporate Venture Capital
48
Corporate Venture Capital
49
Corporate Venture Capital
50
Outline of the Presentation
Introduction
Jonathan Rosefsky, a case study in progress
Key issues
Sources of financing
The emergence of corporate venture funding
The current climate
Concluding thoughts
51