Post on 14-Jul-2015
TCF…CIF…WTF(unding)?
How to prepare a winning
application
The Process
Technology Commercialization Fund
Purpose:
Fund product development to position a company for follow-on investment
Who:
Early-stage companies in MD meeting eligibility requirements
What:
$100K Investment for up to 12 month projects
When:
1st of every month
Program Contact:
Henry Ahnhahn@tedco.md
Cybersecurity Investment Fund
Purpose:
Fund product development to position a cybersecurity company for follow-on investment
Who:
Early-stage “Cybersecurity” companies in MD
What:
$100K Investment for up to 12 months
When:
15th of every month
Program Contact:
Ron Kaeserkaese@tedco.md
TCF Eligibility Requirement
Contract or license with:
• MD university,• Federal lab with
partnership agreement, or
• Other not-for-profit in MD
OR
Affiliation with:
• One of Maryland’s ‘Qualified’ incubators
• RBI2, ACTiVATE, or INNoVATE programs
For-profit with less than 16 FTE employees
• At least 50% working in Maryland
• Potential for growth in MD
AND AND
Pre-revenueOR
Pre-institutional Investment (Less than $500K investment)
CIF Eligibility Requirement
For-profit with less than 16 FTE employees
• At least 50% working in Maryland
• Potential for growth in MD
AND
Pre-revenueOR
Pre-institutional Investment (Less than $500K investment)
Review Timeline
TCF
CIF
Month 1 Month 2
1st
15th
Application Due Date
Compliance Review + Site Visit
Compliance Review + Site Visit
Preliminary Review:2nd Wed of the month
Preliminary Review:1st Monday of the month
Pitch to Committee:3rd Wed of the month
Pitch to Committee:1st Wed of the month
Reference checks / Additional due diligence as necessary
TCF/CIF Reporting Requirement
Milestone Reports and invoice
Quarterly (April, July, October, January): Financial statement
Annual (April of each year):
State and federal income and payroll tax returns
Financial statement (full year)
Annual economic reports (Revenue, # employees, money raised)
8% simple interest
May convert to equity or another form of investment after the company raises $500K or more (TEDCO’s option)
No discount or cap provision
TCF/CIF Convertible Note Terms
Where do I get more information?
W W W . T E D C O . M D
Where do I get more information?
Request for Application
Funding Document
Application Link
Program Manager
Checklist
The Project
Project Orientation
Empirical evidence that the technology works
Commercial market(s)
identified
Target market justified
Designed to strengthens
IP position
Project within company’s commercialization pathway
Project Orientation
Moves technology through next step(s) toward commercialization
Leverages additional resources (Federal / Academic / Incubator / …)
Achievable with the team proposed, funding allocated, and within 12 months
A Good Project
Importance to Business
Project success likely to increase valuation of technology and company
Advances along commercialization pathway
Builds business network
A Good Project
Importance to Business
Success attracts follow-on funding
Plan for follow-on funding
The Ask
Planned Uses of Funds
Anticipated Sources of Funding
A Good Project
Milestones
Three milestones of nearly equal budget (tranches)
Demonstrable achievement
TEDCO informed if changes need to be made
Closeout site visit scheduled as project end nears
Timely receipt of Comprehensive final report
Achieving technical/budget/schedule milestones
A Good Project
Budget
At least 80% “direct” funding to the technology project
25% paid upon signing of the Project Agreement
Entrepreneur does not need to float the start
Three 25% progress payments
50% company match (may be in-kind)
Company match keeps pace with TEDCO funding
TEDCO informed if changes need to be made
A Good Project Example
A Good Project Example
Entrepreneur licensed US Army technology
Added further collaboration to leverage resources
Started a company
Received funding through TEDCO
Joined local Incubator
Software development (neighbor in Incubator)
Product is a Research tool sold world-wide
Company remains small with 4 to 5 employees
Outsources 4 to 5 manufacturing jobs locally
Rural community now has 8 to 10 high tech jobs
Financials
Financial Projections
Financials are not separate from the business plan. They are a different way of representing that plan
The key to securing investors is telling a consistent, believable story, and your numbers should tell the same story as your elevator pitch
Investment Needs
Strive to match critical milestones to capital needs
Figure out what level of traction and commercialization different stage investors (i.e. angel, early institutional, series A) need to see, then develop a credible plan to get to each of those discrete points
Avoid common mistakes, such as:
Projecting negative cash flow (or leaving too narrow a cushion)
Spending significantly less than the amount invested
Raising a dollar amount incommensurate with the magnitude of the opportunity
Investment Needs
On the cost side of things, avoid fixing different categories in operating costs at a certain percentage of revenue
Instead, take the time to build out an actual headcount model, driven by key assumptions around how many leads salespeople can generate and follow up on and how much progress developers can make
Revenue Model
Use both the top-down and bottom-up approaches as aides. The worst models rely on only one (e.g. we will grow from 1 – 5 % market penetration in the next five years). Ideally these two approaches will converge
Research the implications of GAAP revenue recognition on your revenue model
Marketplaces that do not take on inventory risk should recognize only their commission as gross revenue, but companies that utilize channel sales partners recognize all the revenue with lower margins
Revenue Model
Keep any industry-specific sales cycle dynamics in mind
Retailers see sales spikes in December
Education technology companies see MRR increases at the end of their sales cycles
Being conservative is good, but never be conservative about metrics that are core to the value proposition
Operating Metrics
Let key operating metrics drive both sides of the model. When revenue numbers fall behind projections, operating metrics help inform why
General metrics that all companies should be tracking
Cost per customer
ARPU and lifetime value
Burn rate
Revenue model-specific metrics
Churn for SaaS
CPM for advertising
Example
Selling software into the corporate wellness space
Top-down (macro) approach:
Total employer-provided insurance market: $700 B
Roughly 2 pct. spent on wellness by payers and self-insured companies
Approximately $14 B market for corporate wellness
Example
Bottom-up (micro) approach:
27 MM firms in the USA
21 MM are nonemployer firms
5 MM have fewer than 10 employees
1 MM have 10 – 100 employees
About 100,000 have 100 – 500 employees
About 20,000 have 500 employees or more
Segmenting the Market
Nonemployer firms and firms with fewer than 10 employees are non-addressable; few offer coverage to employees
Large firms with over 500 employees are more likely to be self-insured, have high actuarial standards, long sales-cycles, and like to run wellness programs themselves
Opportunity is in the middle of the market
1 MM have 10 – 100 employees
About 100,000 have 100 – 500 employees
Assumptions
Friends & Family, development of prototype
Founder plus one engineer
Series Seed I, pilot with a few companies
Founders responsible for sales, marketing
4 engineers necessary for development
1 account management/support person
Assumptions
Series Seed II, acquisition and onboarding of ten paying clients
5 salespeople
2 account managers
1 marketer
5 engineers
Series A, start tapping into the payer and self-insured market
Additional sales people to close higher quality deals
Additional development to add features unique to the Tier 1 market
Projections
($K) 2015 2016 2017 2018 2019
Customers 5 15 45 140 220
Revenue - $ 450 $ 1,350 $ 7,200 $ 21,400
COGS $ 10 $ 90 $ 270 $ 1,800 $ 6,500
Gross Margin $ (10) $ 360 $ 1,080 $ 5,400 $ 14,900
SG&A $ 350 $ 900 $ 2,180 $ 2,900 $ 3,500
R&D $ 300 $ 560 $ 1,300 $ 1,400 $ 1,500
EBITDA $ (650) $ (1,110) $ (2,400) $ 1,100 $ 9,900
Investment $ 700 $ 1,200 $ 3,000 - -
EoY Cash Balance $ 50 $ 150 $ 750 $ 1,850 $ 11,750
What is TEDCO
Looking For?
What is TEDCO Looking For?
An innovative, possibly disruptive, seed stage, technology-enabled solution to a big problem.
Biologic/diagnostic
Medical device
Health IT / Tele-health
Enterprise software
Web application
Engineered product
You get the picture…but, not simply a “me too” play.
TEDCO TOP 10 LIST
#1…
Please follow the instructions in the Request for Application (RFA).
It sounds simple, but you’d be surprised!
And, remember, the “customer” is always right.
#2…
Prepare a high quality proposal that has been refined with the help of outside advisors.
It’s a competitive process – and you’re up against previously funded plans, not simply with those submitted “last month”.
And, remember, we use outside reviewers who see 100’s of plans.
TEDCO TOP 10 LIST
#3…
Show us a technology, not just an idea.
Significant Discriminator/IP that directly impacts competitive position
Preliminary data:
Life Sciences – in vitro studies
Engineered products – prototype & lab testing
Software – MVP & some user feedback
And, remember, we can always point you to other, more stage-appropriate funding options
TEDCO TOP 10 LIST
#4…
Show us a team, not an individual.
We understand “stage-appropriate”
Blend business acumen with technical expertise
Identify no/low cost external resources that can help fill holes
Demonstrate that you understand what new hires are needed and when
And, remember, marketing & sales is a commonly overlooked skill set
TEDCO TOP 10 LIST
#5…
Show us a company, not just a technology.
Revenue model w/ customer validation
Go-to-market plan
Realistic channel strategy
Target segment and follow-on segments
Breadth and depth
And, remember, this all needs to be linked directly to your P&L projections
TEDCO TOP 10 LIST
#6…
Show us a clear, compelling value proposition.
Will anyone actually buy what you’re selling? Why?
Beta testers or early adopters (paying or not)
Evaluate competition, including “do nothing”
Be careful about a value proposition built on incremental cost savings
And, remember, don’t forget to identify the paying customer
TEDCO TOP 10 LIST
#7…
Show us a validated understanding of customer & market.
Minimize macro research report market size data
Do some actual market research; talk to potential users and build from the “bottom up”
If you’re a platform, identify a target segment
Life Sciences – address FDA & reimbursement pathways
And, remember, your market research conclusions should be embedded into your P&L projections
TEDCO TOP 10 LIST
#8…
Show us a solid go-to-market plan.
Can be a really powerful differentiator among competitive proposals
Address the classic 4 P’s of marketing
And, remember, don’t expect the customer to alter it’s buying habits to suit your plan
TEDCO TOP 10 LIST
#9…
Show us a financial projections with clear, reasonable assumptions that link directly to the other elements of your plan.
Can also be a really powerful differentiator among competitive proposals
Include operating metrics so the reviewer can evaluate the “size of the problem”
Support the amount of money you’re raising
And, remember, don’t run out of cash and don’t make math errors.
TEDCO TOP 10 LIST
#10…
Show us a set of project milestones that actually advance the company.
Be realistic
Be detailed
And, remember, TCF/CIF is intended to get you either to the next fundraising inflection point or to revenue generation.
TEDCO TOP 10 LIST
#11… because we all love Spinal Tap!
Show us that you’re an effective communicator.
Follow the RFA
Balance between technology & business
Don’t assume that TEDCO’s reviewers are experts in your technology –pitch so your grandparents get it
Get outside help with your pitch…and practice
And, remember, please have your proposal & presentation proofread by someone not familiar with your application.
TEDCO TOP 10 LIST
Stephen Auvil
TEDCO
Senior Vice President, Technology Transfer & Commercialization
410.715.4166
sauvil@tedco.md
Questions?