College of Management of Technology Christopher Tucci Copyright © EPFL, Lausanne, Switzerland...

College of Management of Technology

Christopher TucciCopyright © EPFL, Lausanne, SwitzerlandEURACADEMY 2009

TURNING SCIENCE INTO BUSINESS

Christopher L. TucciChair in Corporate Strategy & Innovation

Ecole Polytechnique Fédérale de Lausanne (EPFL)

November, 2009



Agenda

How to do a quick check on an opportunity

Setting up shop at EPFL Sources of financing



Business Concept Proposal

• The very first exercise you should do when you have a new idea!

• Six-line max description of the opportunity or idea• Benefit to paying customers• Benefit to end-users, if different• Sources of opportunity• Market potential• 5-year projection of revenues and gross profits• Critical assumptions



Benefit to paying customers / end-users

Write down the value to the company (or person) paying the bill (e.g., for a newspaper it would be an advertiser, for a parts supplier it would be the OEM or assembler)

Look at the payback period, should be one year or less, certainly not more than three years

Write down the benefit to end-users, would they perceive a high value or a low one?

If you can’t articulate these, your opportunity probably is not very good!



Sources of opportunity

Write down the source of this opportunity, i.e., what created the opportunity?

For most science-based startups, this is usually technological innovation, but it could be– Demographic changes– Changes in tastes and preferences– Process needs– etc



Market potential

Use back-of-envelope calculations to estimate market size– What is the population? Every hospital in Switzerland? Every

disk drive in an iPod?– What share of that population can you serve?

How quickly could this market grow? Should be at least 30% per year, and certainly no less than 10% per year

What does the market structure look like (fragmented (better) or concentrated (worse)?)

What is the size of the market in CHF terms? Should be at least CHF 100M per year and certainly no less than 20M per year



Financial forecasts

Back of the envelope calculations of– Gross Revenues (turnover)– Costs– Gross profits

For the next five years



Critical assumptions

You’ve made a lot of shortcuts to arrive at the numbers in the previous slide

Which of these shortcuts are you most uncomfortable with?

These are your CRITICAL ASSUMPTIONS If you are wrong about these (in the negative

sense), your whole concept may not be worth pursuing



Opportunity assessment

Decide whether the opportunity is high- vs. low-potential

Do you want to continue? Use your critical assumptions in your

milestone planning!



Setting up shop at EPFL

http://vpiv.epfl.ch You should discuss with your scientific

collaborators (advisors, team members, post-docs) and decide how to handle the intellectual property

Apply for Innogrants and / or CTI funding Can continue on the payroll for a few

months while setting up in the Parc Scientifique



Financing Options

• Family & Friends

• Angels

• Private Placement

• Venture Capital

• Strategic Partner

• Boot strapping

• Banks



Qualifying & Quantifying Your Options

Source Amount Time Frame Pros Cons

Family and Friends

$250K 30 days Easy / High Price Painful to fail

Angels $250K-$1.5M

30-60 days Sometimes a higher price can help

Herding cats follow-on?

Private Placement

$500K-$1.5M

90+ Days Higher Price Complicated later on

Venture Capital $2M-$10M 90-180 days Know the game/ helpful, don’t panic

Own Agenda

Strategic Partners

$1M-$25M 180-360 days Higher price/ orders follow

Own agenda

Boot Strapping ? Always Best terms Anxiety

Source: Gaal & Company, Inc.



Why Not Self-Finance or Family & Friends?

Pros Probably no loss of control Stakes of founders less-diluted Very private Little due diligence Legal default proceedings rarely

invoked

Cons Sharing of risk? How big? Answerable to others now (ie-Board

seats, etc..) More dilutive to founder stakes Are you as disciplined? What about personal conflicts? Painful to fail (damaged relationships?)



The Truth About Angels

• Invest close to home

• Cashed-out entrepreneurs

• “Kick the tires”

• Markets and technologies with which they are familiar

• Typically not interested in life-style ventures

• Terms and conditions — More informal

• Often provide financing gap

• Trend currently is towards investing in groups (“Band of Angels”)

Source: Kessinger Consulting



Types of Angels

Tier 1: Active Builders Willing to be mentors Spend 1-2 days/week at

company Fill in management gap Provide contacts to

vendors, etc.. Re-strategize market

opportunity Provide access to VCs

Source: Mehta & Company

Tier 2: Smart Money Have the reputation

and the credibility Portfolio approach

(less “on scene”) Has the contacts Won’t invest as early

on - management team has to be more complete and market opportunity better conceived

Tier 3: Passive Primarily a follower See less deal flow Don’t have experience

base

What Are You Going to Get And How to Find Them?



The Truth About VCs

Source: Kessinger Consulting and “The Early Stage Equity Market in the United States,” paper by Jeffrey Sohl 1998

• Average industry funding = ~$10-20 billion

• Average size of single funding =~$5,000,000

• Investment horizons – Varies but generally 5-7 years

• Terms and conditions – More formal (extensive due diligence)

• Lose more control – Demand board seats

• Bring experience and industry knowledge (hopefully)

• Potential Upheaval – Sometimes replace management/ original founders



What Are VCs Looking For???

• Strength of Product/Service

• Strength of Market

• Proven Companies

• Strong Management Team

• Exit Strategy



Thank you and good luck!

Christopher L [email protected]://csi.epfl.ch

College of Management of Technology Christopher Tucci Copyright © EPFL, Lausanne, Switzerland...

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