V.K. Narayanan-March 11,2004

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