BUSINESS PLANS FOR BUSINESS PLANS FOR EQUITY INVESTORS &EQUITY INVESTORS &BOOTSTRAPPING TO SURVIVEBOOTSTRAPPING TO SURVIVE

Presented as part of “Climbing the Stairway to Heaven” Presented as part of “Climbing the Stairway to Heaven” on 2/15/05 for the Venture Association of New Jerseyon 2/15/05 for the Venture Association of New Jersey

Randy Harmon,Randy Harmon,Foundations Business Development Group Foundations Business Development Group www.FoundationsBusiness.comwww.FoundationsBusiness.com

consultant with NJ Small Business Development Centers consultant with NJ Small Business Development Centers of Rutgers Business Schoolof Rutgers Business School

Business Plan Article-www.njbiz.com/guideBusiness Plan Article-www.njbiz.com/guide

I DID IT! I’VE GOT IT!I DID IT! I’VE GOT IT!MAYBE I SHOULD GO INTO BUSINESSMAYBE I SHOULD GO INTO BUSINESS

-Science and technology based businesses are typically founded by -Science and technology based businesses are typically founded by one or more technical professionals with little business experienceone or more technical professionals with little business experience

-They are vulnerable to overemphasizing the technology… If we build -They are vulnerable to overemphasizing the technology… If we build it, they will comeit, they will come

-First step in considering launching a technology-based business is -First step in considering launching a technology-based business is to ask yourself: Who is going to care about this technology and to ask yourself: Who is going to care about this technology and why?why?

-What CUSTOMER problem am I going to solve, what unmet need -What CUSTOMER problem am I going to solve, what unmet need am I going to fill? Is it already being filled?am I going to fill? Is it already being filled?

-Whose pain am I going to ease?-Whose pain am I going to ease?-Will they care enough to pay for my solution/product at a price at -Will they care enough to pay for my solution/product at a price at

which I can afford to make it available?which I can afford to make it available?

RESEARCH, RESEARCH, ANDRESEARCH, RESEARCH, ANDMORE RESEARCHMORE RESEARCH

-Preliminary market research including the industry you are in and -Preliminary market research including the industry you are in and the industries you are targeting, customers, competitors, and the industries you are targeting, customers, competitors, and new technologies under developmentnew technologies under development

-Determine approximately how much money you will need to launch -Determine approximately how much money you will need to launch the business and carry it to the break-even pointthe business and carry it to the break-even point Begin thinking about where this money is going to come from Begin thinking about where this money is going to come from

and the requirements for accessing this moneyand the requirements for accessing this money-Conduct a preliminary patent search to make sure that you are not -Conduct a preliminary patent search to make sure that you are not

about to set out to reinvent someone else’s wheelabout to set out to reinvent someone else’s wheel-Consider the legal aspects and implications of setting up a -Consider the legal aspects and implications of setting up a

businessbusiness-YOUR OBJECTIVE IS TO CONDUCT SUFFICIENTLY DETAILED -YOUR OBJECTIVE IS TO CONDUCT SUFFICIENTLY DETAILED

AND COMPREHENSIVE RESEARCH TO ENABLE YOU TO AND COMPREHENSIVE RESEARCH TO ENABLE YOU TO COMPLETE A WRITTEN BUSINESS PLANCOMPLETE A WRITTEN BUSINESS PLAN

MISSION STATEMENTMISSION STATEMENT

-What the company does, what business you -What the company does, what business you are inare in

-What industry you are in-What industry you are in

-Customers and markets-Customers and markets

-What the company aspires to become-What the company aspires to become

-Maximum of 2-4 sentences-Maximum of 2-4 sentences

““WHERE’S THE BEEF?”WHERE’S THE BEEF?”WHAT’S COMPELLING?WHAT’S COMPELLING?

-What unmet need does this fill?-What unmet need does this fill?

-Why is this important?-Why is this important?

-Why will customers care?-Why will customers care?

-Why should investors care?-Why should investors care?

-Why you will be successful-Why you will be successful

ELEVATOR PITCHELEVATOR PITCH

-Networking is one of an entrepreneur’s most important -Networking is one of an entrepreneur’s most important activitiesactivities

-Typically a one minute description of the BUSINESS -Typically a one minute description of the BUSINESS OPPORTUNITY in LAYMAN’S termsOPPORTUNITY in LAYMAN’S terms

-No more than 15 seconds on the technology and product-No more than 15 seconds on the technology and product

-Entrepreneurs should also have a 10-15 second -Entrepreneurs should also have a 10-15 second networking pitch, which can be elaborated on if the networking pitch, which can be elaborated on if the listener is interestedlistener is interested

ELEVATOR PITCHELEVATOR PITCHADDRESS EACH POINT BELOW WITH 1 OR 2 SENTENCES AND THEN ADDRESS EACH POINT BELOW WITH 1 OR 2 SENTENCES AND THEN

COMBINE AND SELECT YOUR BEST 10-14:COMBINE AND SELECT YOUR BEST 10-14:

-What the company does/what business you are in-What the company does/what business you are in

-Who you do it to- customers and markets-Who you do it to- customers and markets

-What the company aspires to become-What the company aspires to become

-What unmet need/customer problem do you solve?-What unmet need/customer problem do you solve?

-Brief product/service description, 2 sentences max, non-technical terms-Brief product/service description, 2 sentences max, non-technical terms

-Why this is important/why customers will care/customer benefits-Why this is important/why customers will care/customer benefits

-Why should investors care/what is compelling?-Why should investors care/what is compelling?

-One or two exceptional milestones that demonstrate momentum is building.-One or two exceptional milestones that demonstrate momentum is building.

-What you are presently looking for (i.e. financing, guidance, team members)-What you are presently looking for (i.e. financing, guidance, team members)

-Why you will be successful-Why you will be successful

BUSINESS PLANBUSINESS PLAN

-The FINAL EXAM test of the adequacy of your research-The FINAL EXAM test of the adequacy of your research-One of the most important steps in preparing to launch a -One of the most important steps in preparing to launch a

new businessnew business-Describes what a business does, where it is going, how -Describes what a business does, where it is going, how

it is going to get there, and the resources it is going to it is going to get there, and the resources it is going to requirerequire

-It will only be as good as the depth and the quality of -It will only be as good as the depth and the quality of your researchyour research

-Generally a prerequisite for formal debt and equity -Generally a prerequisite for formal debt and equity investorsinvestors

-

3 PURPOSES3 PURPOSES

-Extraction: Extracts, translates and expands upon an -Extraction: Extracts, translates and expands upon an idea for a company from the entrepreneur’s head idea for a company from the entrepreneur’s head turning it into a written outline and roadmap for how turning it into a written outline and roadmap for how to run a businessto run a business-Most effective exercise you will go through-Most effective exercise you will go through

-Communication: Communicates business to -Communication: Communicates business to prospective advisors, management team members, prospective advisors, management team members, investors, strategic partners and employeesinvestors, strategic partners and employees-Sales document-Sales document

-Management: Effective management tool-Management: Effective management tool-Serves as a benchmark-Serves as a benchmark-Dynamic, living document-Dynamic, living document

BUSINESS PLAN OUTLINEBUSINESS PLAN OUTLINE

-Executive Summary-Executive Summary

-Company Description-Company Description

-Market Analysis-Market Analysis

-Product/Technology/ Service-Product/Technology/ Service

-Competitive Analysis-Competitive Analysis

-Marketing and Sales Plan-Marketing and Sales Plan

-Management and Operations-Management and Operations

-Long Term Development and Risk Analysis-Long Term Development and Risk Analysis

-Financial Plan-Financial Plan

EXECUTIVE SUMMARYEXECUTIVE SUMMARY

-Most important component of plan-Most important component of plan-Should convey the essence of your business IN LAYMAN’S -Should convey the essence of your business IN LAYMAN’S

LANGUAGE and summarize the most important information LANGUAGE and summarize the most important information contained in each section of the plancontained in each section of the plan

-Starts with the mission statement, what business are you in?-Starts with the mission statement, what business are you in?-Essentially an expansion of your elevator pitch -Essentially an expansion of your elevator pitch -Identifies how much money you are looking to raise, your planned use -Identifies how much money you are looking to raise, your planned use

of the funds, earnings projections and an exit strategyof the funds, earnings projections and an exit strategy-Typically read first by investors and bankers, screening tool -Typically read first by investors and bankers, screening tool -Should arouse curiosity and be compelling-Should arouse curiosity and be compelling-You want to demonstrate through a few significant milestones that a -You want to demonstrate through a few significant milestones that a

momentum is buildingmomentum is building-Should be completed last and run no more than 2 to 3 pages in length-Should be completed last and run no more than 2 to 3 pages in length

A GOOD EXECUTIVE SUMMARY A GOOD EXECUTIVE SUMMARY AND BUSINESS PLAN ARE LIKE THE AND BUSINESS PLAN ARE LIKE THE FOUNDATION OF A BUILDINGFOUNDATION OF A BUILDING

-Build reader’s understanding of business -Build reader’s understanding of business opportunity block by blockopportunity block by block

-Each block must be clear and succinct -Each block must be clear and succinct

-Must build upon and fit with one before it-Must build upon and fit with one before it

-Must flow smoothly and be easy to read-Must flow smoothly and be easy to read

-Readability, must be user friendly-Readability, must be user friendly

OPPORTUNITY VERSUS RISKOPPORTUNITY VERSUS RISK

--Equity financing is based upon the perception of Equity financing is based upon the perception of opportunity compared to the perception of riskopportunity compared to the perception of risk

-Each word should be written to enhance the reader’s -Each word should be written to enhance the reader’s perception of the business opportunity and minimize perception of the business opportunity and minimize the perception of riskthe perception of risk

-Risk also increases because of what is lacking in a plan-Risk also increases because of what is lacking in a plan

-Re-read draft of the plan with risk awareness glasses-Re-read draft of the plan with risk awareness glasses

COMPANY DESCRIPTIONCOMPANY DESCRIPTION

-Company founding (who, what, when, why?)-Company founding (who, what, when, why?)

-Structure-Structure

-Compelling information about origins of company-Compelling information about origins of company

-Current status-Current status

-Anticipated pathway to market entry and profitability-Anticipated pathway to market entry and profitability

-Introduction to complex technologies and their -Introduction to complex technologies and their significancesignificance

MILESTONESMILESTONES

-Significant achievements to date-Significant achievements to date

-You want to be able to demonstrate -You want to be able to demonstrate that a momentum is buildingthat a momentum is building

-The number and significance of them -The number and significance of them determines their placement in the plandetermines their placement in the plan

MARKET ANALYSISMARKET ANALYSIS

-Investors expect entrepreneurs to know -Investors expect entrepreneurs to know their markets at least as well as anyone their markets at least as well as anyone else and to demonstrate that else and to demonstrate that understanding in the Market, Competitive understanding in the Market, Competitive Analysis and Marketing and Sales Plan Analysis and Marketing and Sales Plan sections of the plansections of the plan

-They like CEOs who know their -They like CEOs who know their prospective customers and who can sellprospective customers and who can sell

-Tend to be worst written sections of plan-Tend to be worst written sections of plan

MARKETMARKET

-Identify, describe and quantify your market opportunity-Identify, describe and quantify your market opportunity-Bigger is better, but begin by targeting niches-Bigger is better, but begin by targeting niches-Discuss targeted markets including size, growth and -Discuss targeted markets including size, growth and

other trends, as well as how they are likely to be other trends, as well as how they are likely to be impacted by economic trendsimpacted by economic trends

-Explain rationale for targeting niches and identify unmet -Explain rationale for targeting niches and identify unmet needsneeds

-Demonstrate understanding of dynamics of how market -Demonstrate understanding of dynamics of how market works including the buying and selling process and works including the buying and selling process and who makes decisionswho makes decisions

-Identify and discuss barriers to entry-Identify and discuss barriers to entry-Profile your typical customer and best prospects-Profile your typical customer and best prospects

PRODUCT/TECHNOLOGY/SERVICEPRODUCT/TECHNOLOGY/SERVICE

--Describe your product thoroughly in layman’s termsDescribe your product thoroughly in layman’s terms-Define acronyms and scientific terms-Define acronyms and scientific terms

-What benefits will it deliver to customers?-What benefits will it deliver to customers?-What are its unique features?-What are its unique features?-Focus on what makes this a compelling business -Focus on what makes this a compelling business

opportunity, not on how the technology worksopportunity, not on how the technology works-Include more robust technical discussion as warranted -Include more robust technical discussion as warranted

as an attachmentas an attachment-Discuss your intellectual property position-Discuss your intellectual property position-New product pipeline -New product pipeline

COMPETITIVE ANALYSISCOMPETITIVE ANALYSISCREDIBILITY BUILDER OR KILLERCREDIBILITY BUILDER OR KILLER

-Identify and discuss your competitors-Identify and discuss your competitors-EVERY PRODUCT HAS COMPETITION-EVERY PRODUCT HAS COMPETITION-At a minimum, your competition is NO SOLUTION -At a minimum, your competition is NO SOLUTION -What is the basis for competition? (technology, price, features, -What is the basis for competition? (technology, price, features,

quality, service, advertising)quality, service, advertising)-Competitors strengths and weaknesses-Competitors strengths and weaknesses-What are your strengths and weaknesses compared to your -What are your strengths and weaknesses compared to your

competitors?competitors?-What is your competitive advantage and how sustainable is it?-What is your competitive advantage and how sustainable is it?-How may your competitors respond to your entry to the market?-How may your competitors respond to your entry to the market?-Are there any developing technologies which could disrupt the -Are there any developing technologies which could disrupt the

competitive field?competitive field?

COMPETITIVE MATRIXCOMPETITIVE MATRIX

-Matrixes allow the presentation of lots -Matrixes allow the presentation of lots of information in a useable formatof information in a useable format

-X Axis-Critical evaluation criteria-X Axis-Critical evaluation criteria

-Y Axis-Key competitors or groups-Y Axis-Key competitors or groups

COMPETITIVE MATRIXCOMPETITIVE MATRIX

Criteria 1 Criteria 1 Criteria 2 Criteria 2 Criteria 3 Criteria 3

PricePrice Speed Speed Useful lifeUseful life

Competitor 1Competitor 1 $ 28,000$ 28,000 8 units/hr 8 units/hr 7 years 7 years

Competitor 2Competitor 2 $ 37,000$ 37,000 10 units/hr10 units/hr 10 years10 years

Competitor 3 Competitor 3 $ 31,000$ 31,000 10 units/hr10 units/hr 8 years 8 years

You Inc.You Inc. $ 33,000 $ 33,000 12 units/hr12 units/hr 10 years10 years

MARKET VALIDATIONMARKET VALIDATION

-Sales-Sales

-Beta testing-Beta testing

-Business Partnerships-Business Partnerships

-Testimonies from prospective -Testimonies from prospective customers and industry leaderscustomers and industry leaders

MARKETING AND SALES PLANMARKETING AND SALES PLAN

HOW YOU WILL POSITION YOUR PRODUCT, SPREAD THE WORD HOW YOU WILL POSITION YOUR PRODUCT, SPREAD THE WORD ABOUT IT, GET IT INTO THE HANDS OF YOUR CUSTOMERS AND ABOUT IT, GET IT INTO THE HANDS OF YOUR CUSTOMERS AND CLOSE THE SALECLOSE THE SALE

-Pricing strategy including gross margins and how they compare with -Pricing strategy including gross margins and how they compare with competitorscompetitors

-Marketing communications strategy and message-Marketing communications strategy and message-Presentation of technical papers-Presentation of technical papers-Public relations-Public relations-Advertising-Advertising-Exhibiting at trade shows-Exhibiting at trade shows

-How you will distribute your product-How you will distribute your product-Will you have your own sales force?-Will you have your own sales force?-Discuss market entry strategy beginning with first sale-Discuss market entry strategy beginning with first sale-How you will maintain and increase market share-How you will maintain and increase market share-Warrantees and customer service-Warrantees and customer service

SOONER OR LATER, MOST ENTREPRENEURS SOONER OR LATER, MOST ENTREPRENEURS WILL HAVE TO BUILD A MANAGEMENT TEAMWILL HAVE TO BUILD A MANAGEMENT TEAM

-Few people have or can develop all the skills required for a successful -Few people have or can develop all the skills required for a successful technology-based businesstechnology-based business

-There is not going to be enough of you to go around-There is not going to be enough of you to go around-Management, Management, Management-Management, Management, Management

-Experience, Experience, Experience-Experience, Experience, Experience-Equity investors invest in people, particularly teams of people, at least as -Equity investors invest in people, particularly teams of people, at least as

much as they do the business conceptmuch as they do the business concept-All venture capital backed businesses will have to build a management -All venture capital backed businesses will have to build a management

teamteam-Entrepreneur’s dilemma-Entrepreneur’s dilemma-Business consultants and advisory boards-Business consultants and advisory boards-Creative teambuilding-Creative teambuilding

-www.NJTC.org: joint venture mentoring program-www.NJTC.org: joint venture mentoring program

““INSIDE TRACK” MENTORING PROGRAMINSIDE TRACK” MENTORING PROGRAM(PARTNERSHIP BETWEEN NJSBDC AND NJTC)(PARTNERSHIP BETWEEN NJSBDC AND NJTC)

Purpose: to provide early stage and emerging NJTC member Purpose: to provide early stage and emerging NJTC member companies with the opportunity to discuss their plans, strategies companies with the opportunity to discuss their plans, strategies and important issues they are presently facing with experienced and important issues they are presently facing with experienced venture development professionalsventure development professionals

Goal: is to provide companies with guidance and input to help Goal: is to provide companies with guidance and input to help

make sure that they are headed in the right direction, speed their make sure that they are headed in the right direction, speed their development, and improve their prospects for success.development, and improve their prospects for success.

30 companies and 50 mentors participated in 2004 pilot30 companies and 50 mentors participated in 2004 pilot Teams consisted of marketing professional, experienced Teams consisted of marketing professional, experienced

entrepreneur, investor, accountant and attorneyentrepreneur, investor, accountant and attorney 90 minute session, follow on sessions90 minute session, follow on sessions -www.NJTC.org:-www.NJTC.org:

MANAGEMENT AND OPERATIONSMANAGEMENT AND OPERATIONS

-Describe each team member’s responsibilities, training, strengths and -Describe each team member’s responsibilities, training, strengths and relevant prior experiencerelevant prior experience

-Appropriate composition of the team depends on the stage of development -Appropriate composition of the team depends on the stage of development of the company and whether and how soon equity financing will be soughtof the company and whether and how soon equity financing will be sought

-Discuss plans for rounding out an incomplete team-Discuss plans for rounding out an incomplete team

-Discuss advisors and significant outside resource organizations-Discuss advisors and significant outside resource organizations

-Identify the owners of the business-Identify the owners of the business

-Staffing plan-Staffing plan

-How will the product be produced, packaged and delivered-How will the product be produced, packaged and delivered

-Facilities-Facilities

-Equipment-Equipment

-Discuss scale-up plans-Discuss scale-up plans

LONG TERM DEVELOPMENT &LONG TERM DEVELOPMENT &RISK ANALYSISRISK ANALYSIS

--Describe the long term development of your company, its Describe the long term development of your company, its products and your exit strategyproducts and your exit strategy

-Identify risks both inherent in your venture and the -Identify risks both inherent in your venture and the broader business environment and demonstrate that broader business environment and demonstrate that you have a plan to address potential problemsyou have a plan to address potential problems

-Universal truths of entrepreneurship-Universal truths of entrepreneurship

FINANCIAL ANALYSISFINANCIAL ANALYSIS

-Introduce and discuss company’s revenue model including all -Introduce and discuss company’s revenue model including all revenue streams included in the financial projections and revenue streams included in the financial projections and their scheduled starttheir scheduled start

-Discuss company’s current financial status?-Discuss company’s current financial status?-Capital requirements- both short and long term-Capital requirements- both short and long term-Use of funds-Use of funds-Sources of funding (R&D grants, bank loans, equity, other)-Sources of funding (R&D grants, bank loans, equity, other)-Source of repayment-Source of repayment-Projected net income and cash flow for the first 3 years-Projected net income and cash flow for the first 3 years-Not worth the paper they’re written on-Not worth the paper they’re written on-Explanation of assumptions underlying projections-Explanation of assumptions underlying projections-Bottom up versus top down financial projections-Bottom up versus top down financial projections-Break-even point-Break-even point-Discuss financial ratios- are they in line with industry norms?-Discuss financial ratios- are they in line with industry norms?

EXHIBITSEXHIBITS

-SUPPORTING DOCUMENTATION-SUPPORTING DOCUMENTATION

-Resumes-Resumes -Market research information-Market research information-Documentation of customer demand-Documentation of customer demand-Supplemental technical discussions-Supplemental technical discussions-Product literature-Product literature

-FINANCIAL-FINANCIAL-Pro forma income statements-Pro forma income statements-Pro forma cash flow-Pro forma cash flow-Pro forma balance sheets-Pro forma balance sheets-Break-Even Analysis-Break-Even Analysis-Historical financial statements, if applicable-Historical financial statements, if applicable

READY, SET,… STOP!READY, SET,… STOP!

-Avoid approaching investors directly, get referred-Avoid approaching investors directly, get referred

-Avoid approaching investors too early-Avoid approaching investors too early

-Milestones-Milestones

-Market validation-Market validation

-Okay to approach early if you are reasonably certain -Okay to approach early if you are reasonably certain about your path to and timeline for market entryabout your path to and timeline for market entry

DON’T COUNT ON OUTSIDE FINANCINGDON’T COUNT ON OUTSIDE FINANCINGCOMING OUT OF THE GATECOMING OUT OF THE GATE

--Raising debt and equity financing is all about perceptions of Raising debt and equity financing is all about perceptions of risk and opportunityrisk and opportunity

-Early stage and pre-sales companies are generally -Early stage and pre-sales companies are generally perceived as too riskyperceived as too risky

-The further along you can develop the venture before formal -The further along you can develop the venture before formal financing, the better your chances and the better the termsfinancing, the better your chances and the better the terms

-Plan for the process of raising financing to take 3-6+months, -Plan for the process of raising financing to take 3-6+months, if you are very fortunateif you are very fortunate

-BOOTSTRAPPING- Everything else that an entrepreneur -BOOTSTRAPPING- Everything else that an entrepreneur does to both raise and minimize the resources needed to does to both raise and minimize the resources needed to launch their business and carry it through its early stageslaunch their business and carry it through its early stages

BOOTSTRAPPINGBOOTSTRAPPING

--Cleaning out your personal savings or retirement accountsCleaning out your personal savings or retirement accounts

-Home equity loans and second mortgages-Home equity loans and second mortgages

-Credit cards-Credit cards

-Friends & family plan/4 Fs-Friends & family plan/4 Fs

-Research and development grants-Research and development grants

-Strategic alliances-Strategic alliances

-Outsourcing activities requiring large up-front investments-Outsourcing activities requiring large up-front investments

-Purchasing used equipment-Purchasing used equipment

-Bartering your product/service for someone else’s-Bartering your product/service for someone else’s

-Advances from professional service providers-Advances from professional service providers

-Suppliers-Suppliers

-Advance payments from customers -Advance payments from customers

DOWNSIDE- There is often a trade-off between time and money and the delay DOWNSIDE- There is often a trade-off between time and money and the delay can sometimes be detrimental or fatalcan sometimes be detrimental or fatal

SMALL BUSINESS INNOVATIONSMALL BUSINESS INNOVATIONRESEARCH PROGRAM (SBIR)RESEARCH PROGRAM (SBIR)

--Largest Federal R&D Largest Federal R&D grants program targeted grants program targeted to small business-nearly to small business-nearly $2 billion annually$2 billion annually

-Best source of risk capital-Best source of risk capital-Pathway to equity-Pathway to equity-All Federal agencies with -All Federal agencies with

large external R&D large external R&D budgets participatebudgets participate

Dept. of AgricultureDept. of Agriculture Dept. of CommerceDept. of Commerce Dept. of DefenseDept. of Defense Dept. of EducationDept. of Education Dept. of EnergyDept. of Energy Dept. of Health and Human Dept. of Health and Human

Services (NIH)Services (NIH) Dept. of Homeland SecurityDept. of Homeland Security Dept. of TransportationDept. of Transportation Environmental Protection Environmental Protection

AgencyAgency NASANASA Nat. Science FoundationNat. Science Foundation

THREE PHASE PROGRAMTHREE PHASE PROGRAM

-Typically annual solicitations in which agencies define -Typically annual solicitations in which agencies define areas in which they are interested in sponsoring areas in which they are interested in sponsoring researchresearch

-Phase I- up to $100,000, runs 6 months -Phase I- up to $100,000, runs 6 months -Demonstrate technical/scientific merit and feasibility-Demonstrate technical/scientific merit and feasibility

Phase II- up to $750,000, runs 2 yearsPhase II- up to $750,000, runs 2 years-Continue research or R&D efforts-Continue research or R&D efforts-Development of a prototype-Development of a prototype

Phase III- no new fundingPhase III- no new funding-Commercialization of the technology-Commercialization of the technology

SMALL BUSINESS TECHNOLOGY SMALL BUSINESS TECHNOLOGY TRANSFER PROGRAM (STTR)TRANSFER PROGRAM (STTR)

--Younger, poorer sister of SBIR programYounger, poorer sister of SBIR program-5 largest Federal Agencies participate-5 largest Federal Agencies participate

Department of DefenseDepartment of Defense NASANASA Department of EnergyDepartment of Energy National Science FoundationNational Science Foundation Department of Health & Human ServicesDepartment of Health & Human Services

-.03% set aside-.03% set aside-3 Phase program similar to SBIR-3 Phase program similar to SBIR-More faculty friendly-requires 30-60% of contract to go to a -More faculty friendly-requires 30-60% of contract to go to a

collaboration with a nonprofit research organizationcollaboration with a nonprofit research organization

CLOSEST THING TO CLOSEST THING TO FREE MONEYFREE MONEY

--No loans, no equityNo loans, no equity

-Entrepreneur maintains ownership of the technology-Entrepreneur maintains ownership of the technology

-Good odds-Good odds 1 in 8 SBIR Phase I proposals are funded1 in 8 SBIR Phase I proposals are funded 2 in 5 SBIR Phase II proposals are funded2 in 5 SBIR Phase II proposals are funded Odds presently even better for STTROdds presently even better for STTR

PATH TO EQUITY FINANCINGPATH TO EQUITY FINANCING

-SBIR/STTR provide up to $850,000 of -SBIR/STTR provide up to $850,000 of financing over a period of approximately 3 financing over a period of approximately 3 years to develop a technology and reduce its years to develop a technology and reduce its technical risk.technical risk.

-If a company simultaneously works to reduce -If a company simultaneously works to reduce market and business risk it can become a market and business risk it can become a prospect for equity financing. prospect for equity financing.

STRATEGIC ALLIANCESSTRATEGIC ALLIANCESBUSINESS PARTNERSHIPSBUSINESS PARTNERSHIPS

-You partner with another company to gain access to resources -You partner with another company to gain access to resources that you need but don’t havethat you need but don’t have

-For most young businesses this typically means partnering with a -For most young businesses this typically means partnering with a larger, more established businesslarger, more established business

-More important than ever given current risk adverse venture -More important than ever given current risk adverse venture capital environmentcapital environment

-SPEED ENTRY TO MARKETPLACE AND REDUCE REQUIRED -SPEED ENTRY TO MARKETPLACE AND REDUCE REQUIRED FINANCINGFINANCING

-Loss-Loss of controlof control-Several Types-Several Types

FinancingFinancing Marketing and salesMarketing and sales ManufacturingManufacturing LicensingLicensing

FINANCINGFINANCING

-Large companies may invest in smaller entrepreneurial -Large companies may invest in smaller entrepreneurial ventures to supplement or substitute for their own R&Dventures to supplement or substitute for their own R&D

-Less risky and more cost effective means of accessing -Less risky and more cost effective means of accessing cutting edge technologycutting edge technology

-Strategic partners most likely to understand and -Strategic partners most likely to understand and appreciate valueappreciate value

-Potentially more favorable terms of investment-Potentially more favorable terms of investment

MARKETING AND SALESMARKETING AND SALES

-Partner with a company selling similar but non-competing -Partner with a company selling similar but non-competing products to your prospective customersproducts to your prospective customers

-No marketing/sales employees to recruit, hire and train; -No marketing/sales employees to recruit, hire and train; no payrollno payroll

-Access to partner’s network of customer contacts-Access to partner’s network of customer contacts-The value to the larger company is that your product may -The value to the larger company is that your product may

fill a gap in or extend their product line.fill a gap in or extend their product line.

Downside: Less control, lower priorityDownside: Less control, lower priority

MANUFACTURINGMANUFACTURING

-Identify regional manufacturer-Identify regional manufacturer

-Eliminates or defers costly equipment purchases-Eliminates or defers costly equipment purchases

-No manufacturing employees to recruit, hire and train; no -No manufacturing employees to recruit, hire and train; no payrollpayroll

Downside: Less controlDownside: Less control

LICENSINGLICENSING

--Transfer of rights to commercialize a technology, or an Transfer of rights to commercialize a technology, or an application of a technology to another company in return application of a technology to another company in return for financial considerationfor financial consideration

-Typically some combination of up front cash, consulting -Typically some combination of up front cash, consulting contract, milestone payments and longer term royalty contract, milestone payments and longer term royalty paymentspayments

-There is typically a tradeoff-There is typically a tradeoff-Particularly useful for first application of a platform -Particularly useful for first application of a platform

technology or the first technology of a company with technology or the first technology of a company with multiple technologiesmultiple technologies

-Use cash and validation generated from the license to -Use cash and validation generated from the license to commercialize other applications and build a companycommercialize other applications and build a company

Downside: Lower rate of return, loss of control, time lag Downside: Lower rate of return, loss of control, time lag before royalty payments flowbefore royalty payments flow

MUST BE PREPAREDMUST BE PREPARED

-Entrepreneurs often approach prospective partners too -Entrepreneurs often approach prospective partners too earlyearly

-A good idea won’t be enough, strategic partners will -A good idea won’t be enough, strategic partners will want to see many of the same milestone want to see many of the same milestone achievements that equity investors look forachievements that equity investors look for

-Typically will want to see at least a prototype and often -Typically will want to see at least a prototype and often some testing and market validationsome testing and market validation

NJ SMALL BUSINESS DEVELOPMENT CENTERS NJ SMALL BUSINESS DEVELOPMENT CENTERS (NJSBDC)(NJSBDC)OF RUTGERS BUSINESS SCHOOLOF RUTGERS BUSINESS SCHOOL

--Part of a national public, private and academic partnershipPart of a national public, private and academic partnership

-Free business counseling, consulting, and affordable business -Free business counseling, consulting, and affordable business trainingtraining

-Funded in part by the U.S. Small Business Administration and the -Funded in part by the U.S. Small Business Administration and the NJ Commerce and Economic Growth CommissionNJ Commerce and Economic Growth Commission

-11 regional centers and 26 satellite offices across NJ-11 regional centers and 26 satellite offices across NJ

-More than 250,000 small business owners, prospective -More than 250,000 small business owners, prospective entrepreneurs and business professionals served since 1979entrepreneurs and business professionals served since 1979

-Serve businesses from pre-startup stage to those with 500 -Serve businesses from pre-startup stage to those with 500 employeesemployees

-Specialty programs in international trade, government procurement, -Specialty programs in international trade, government procurement, manufacturing, E-business, & technology commercializationmanufacturing, E-business, & technology commercialization

NJ SMALL BUSINESS DEVELOPMENT NJ SMALL BUSINESS DEVELOPMENT CENTERS (NJSBDC)CENTERS (NJSBDC)

Services include help with:Services include help with:-Business plans-Business plans-Marketing plans-Marketing plans-Financial statements-Financial statements-Loan packages-Loan packages-Record keeping-Record keeping-Taxes -Taxes -E-commerce-E-commerce

NJSBDC Web Site: NJSBDC Web Site: www.NJSBDC.comwww.NJSBDC.comSBA Web site: SBA Web site: www.sba.gov www.sba.gov

RUTGERS RESOURCESRUTGERS RESOURCES

-NJSBDC DIRECTOR OF E-BUSINESS-NJSBDC DIRECTOR OF E-BUSINESS Reviews and evaluations of small business web sitesReviews and evaluations of small business web sites Nat Bender 973-353-1924Nat Bender 973-353-1924

-RUTGERS INTERFUNCTIONAL TEAM CONSULTING -RUTGERS INTERFUNCTIONAL TEAM CONSULTING PROGRAMPROGRAM 2 semester business development projects2 semester business development projects Teams of 5-7 second year MBA studentsTeams of 5-7 second year MBA students Business plans, market research, marketing plansBusiness plans, market research, marketing plans January, May and September start datesJanuary, May and September start dates Paul Belliveau- 973-353-1126Paul Belliveau- 973-353-1126

NEW JERSEY INCUBATORSNEW JERSEY INCUBATORS

-10 public incubators, www.state.nj.us/scitech-10 public incubators, www.state.nj.us/scitech-Lease office and light manufacturing space and wet labs-Lease office and light manufacturing space and wet labs-Targeted to start-ups and graduates of an entrepreneur’s home-Targeted to start-ups and graduates of an entrepreneur’s home-Rents typically at or slightly below commercial rates-Rents typically at or slightly below commercial rates-Shared administrative support services-Shared administrative support services-Free on site management assistance services-Free on site management assistance services-Access to a network of volunteer business professionals-Access to a network of volunteer business professionals-Referrals to business resources and education and networking events-Referrals to business resources and education and networking events-Supportive environment-Supportive environment-Visibility and credibility-Visibility and credibility-Objective is to build the business to the point where it is increasing -Objective is to build the business to the point where it is increasing

sales, generating new jobs, and ready to graduate to larger sales, generating new jobs, and ready to graduate to larger commercial space within three yearscommercial space within three years

LESSONS LEARNEDLESSONS LEARNED

-Market entry takes more time and costs more than planned-Market entry takes more time and costs more than planned-The better and more comprehensive your planning, the -The better and more comprehensive your planning, the

better your chances for success, minimize your surprisesbetter your chances for success, minimize your surprises-Reader should know after the first sentence what the -Reader should know after the first sentence what the

company does.company does.-A great technology may not be good enough, Thou shalt -A great technology may not be good enough, Thou shalt

know thy markets and customers and their needsknow thy markets and customers and their needs-Layman’s terms, Don’t make reader work hard to understand -Layman’s terms, Don’t make reader work hard to understand

the technology and the business opportunitythe technology and the business opportunity-Differentiate yourself from your competitors in a way that -Differentiate yourself from your competitors in a way that

provides the perception of value to your prospective provides the perception of value to your prospective customers, and that you can sustain over timecustomers, and that you can sustain over time

LESSONS LEARNEDLESSONS LEARNED

-First business hire or advisor should usually be a marketing -First business hire or advisor should usually be a marketing and sales professional who knows your marketsand sales professional who knows your markets

-Demonstrate that momentum is building and validate market -Demonstrate that momentum is building and validate market demand before approaching venture capitalistsdemand before approaching venture capitalists

-Venture capitalists will expect you to understand your -Venture capitalists will expect you to understand your markets and customers at least as well as anyonemarkets and customers at least as well as anyone

-Management, management, management-Management, management, management-Develop a bootstrapping strategy which you can fall back on-Develop a bootstrapping strategy which you can fall back on-Develop your venture as far as you can before quitting day -Develop your venture as far as you can before quitting day

jobjob-Network-Network-If the reader is not EXCITED by the end of the executive -If the reader is not EXCITED by the end of the executive

summary, you have lost themsummary, you have lost them